Should I pay voluntary class 3 NI?

yesbutnobut

Hi,

I recently looked at my state pension forecast on the government gateway website and see that I have a gap in my NI contributions (in 2001).

This gap was for the first year that I was self employeed when I only paid myself in dividends; since then I have paid myself with a combination of salary and dividends and have therefore paid the required NI contributions in subsequent years.

The forecast says that I can, if I want, pay voluntary class 3 contributions of £351.

Has anyone any thoughts on whether I should do it or not?

EdInvestor

Can you pay Voluntary class 2? Much cheaper.

oceanblue_3

yesbutnobut wrote:

I recently looked at my state pension forecast on the government gateway website and see that I have a gap in my NI contributions (in 2001).

This gap was for the first year that I was self employeed when I only paid myself in dividends; since then I have paid myself with a combination of salary and dividends and have therefore paid the required NI contributions in subsequent years.

The forecast says that I can, if I want, pay voluntary class 3 contributions of £351.

Has anyone any thoughts on whether I should do it or not?

When the gap occurred in 2001, were you employed or self-employed? The reason I ask is that dividends are associated with employment, not self-employment.

yesbutnobut

oceanblue wrote:

When the gap occurred in 2001, were you employed or self-employed? The reason I ask is that dividends are associated with employment, not self-employment.

Hi oceanblue,

when the gap occurred, I was the only shareholder and director of a limited company. The company paid no salary. The limited company paid dividends to me as the only shareholder.

Does that clarify things?

Thanks in advance.

yesbutnobut

EdInvestor wrote:

Can you pay Voluntary class 2? Much cheaper.

Hi EdInvestor,

do I get a choice? The state pension forecast only mentions class 3

oceanblue_3

yesbutnobut wrote:

Hi oceanblue,

when the gap occurred, I was the only shareholder and director of a limited company. The company paid no salary. The limited company paid dividends to me as the only shareholder.

Does that clarify things?

Thanks in advance.

In that case, you were employed, so Class 2 contributions don't enter the arena because they are the flat rate contributions paid by self-employed people.

Given your situation in 2001, there would have been no earnings upon which to base either employer's or employee's contributions, so Class 3 (Voluntary) contributions are the only way to repair your NI record.

Nevertheless, if I were you I would ring the State Pension Forecasting Team in Newcastle on 0845 3000 168 to ask them:

1) if there is a deadline for paying the money and,

2) if there is an alternative to paying the money; for example, would the 5 years' automatic credits between ages 60 and 65 remove the need to pay the Class 3 contributions?

Hope this helps!

EdInvestor

yesbutnobut wrote:

Hi EdInvestor,

do I get a choice? The state pension forecast only mentions class 3

Ah, I see you weren't actually self employed.

Just in case your circs change, it's worth bearing in mind there is a 6 year deadline for catching up on old missing contributions: but worth checking in this case as there may be a longer deadline, due to one of the usual NI c*ckups involving not sending out proper notifications. :rolleyes:

oceanblue_3

yesbutnobut wrote:

Hi oceanblue,

when the gap occurred, I was the only shareholder and director of a limited company. The company paid no salary. The limited company paid dividends to me as the only shareholder.

Does that clarify things?

Thanks in advance.

No trouble!

It's worth getting to know how NIC's can assist you: the State Second Pension makes no distinction between earnings that are so low that no income tax and NIC's are due, and annual earnings of over £12,000.00.

You can receive a monthly tax-free and NIC-free income of £407.33 and still be treated as if your annual income exceeded £12,000.00.

This isn't necessarily going to propel you into the realms of the rich but, if you're keen on dividends, this method helps you maximise the benefit of the recent NI/S2P changes.

yesbutnobut

oceanblue wrote:

1) if there is a deadline for paying the money and,

2) if there is an alternative to paying the money; for example, would the 5 years' automatic credits between ages 60 and 65 remove the need to pay the Class 3 contributions?

Perhaps more information might be useful:

I'm 38 years old (well pensions are all about planning ahead)

In the state pension forecast it says:
- up to 5 Apr 2004 I have 18 qualifying years (presumably 19 up to 5 Apr 2005)
- it forecasts that, if my details remain the same, I will have 46 qualifying years by the time I'm 65 (including extra 5 years at 60)
- I have until 5 April 2009 to pay the voluntary class 3 NI for 2001

Given that the forecast says I should have enough qualifying years (is it 40 you need for the full entitlement?) do you think it's reasonably safe not to pay the class 3 contributions for 2001? Or should I delay the decision until 2009?

CIS

You need 44 yrs as a man for a full basic state pension, anything less than that and you will receive a % of the full amount.

If the figure of £82.50 (full pension) is the second figure quoted on the first page then this is what you can achieve providing you keep accruing qualifying yrs between now and 65.(remembering that between 60 and 65 you may get autocredits, depending on your circumstances at the time), without paying anything backdated.

If that is the figure from the first page, then, if you miss no more than 2 more qualifying yrs between now and 65 then there is no need to pay class 3 NI. You could pay them as insurance against the future possibility of missed yrs, but I would hold off for now as you several more yrs before you loose the right to pay them

Milarky

yesbutnobut wrote:

I recently looked at my state pension forecast on the government gateway website

Interesting.. can anyone get their pension forecast online now, or are you basing this on 'general' information/advice posted there combined with knowledge of your own circumstances?

CIS wrote:

if you miss no more than 2 more qualifying yrs between now and 65 then there is no need to pay class 3 NI.

Agree fully with that. You are effectively 'up to date' with the state pension as long as you have not yet lost five qualifying years.. Perhaps someone should dub this 'The Rule of Five' or something similar, to popularise the idea? I'm surprised in a way that the NI dept. letters on voluntary contributions don't make it clearer also.