Additional NI contributions - Yes or No?

BertieMeldrew

My wife has been drawing her state pension for 4 years (aged 64 years 2 mnths). She currently only gets 64% of her entitlement. We have been advised that she could push this upto 76%, and thereby get an additional £9.50/week, by making a lump sum contribution of £1315.60. (These figures are approx but not far out).

I'd welcome views on whether or not we should take up this option. We are obviously optimistic that she will live a good few years yet (she has good health).

My calculations indicate that, assuming the following parameters, then payback would be as shown. Any experts out there who can comment on this?

Assumed investment of £1315.60 at 4%/annum net instead of making the one-off payment... income tax implications ignored since she is only a basic rate tax payer

Option 1: don't draw £38/month... payback in about 144 weeks

Option 2: draw £38/month... payback in about 160 weeks (this obviously compares better with the option of making the contributions which would also give her an additional £38/month income)

Any comments appreciated.. thanks...

CIS

What your doing is actually quite unusual, most people dont realise that subject to normal backdating limits,NI can be still backdated once the pension is in payment.

At the end of the day, whether you get a decent return comes down to life expectency, remember that if a person dies, the state pension dies with them and in general there's no way the majority of this money will be earned back.(possibly some can be by way of bereavement allowance)

If the person receiving the pension lives long enough to make back the initial investment then the extra return is guaranteed for life at about £500 p/a on the initial investment.

I doubt there's any other way that you can beat this return, after around 3 year, you've broken even, every year after this your making back around a 3rd of the value of the initial investment, after 6 years you've doubled the initial money, and its guaranteed to rise each year.

exil

Indeed, the rate of return appears to be about 30%!

BertieMeldrew

Wow... this is good news

My wife received a letter yesterday explaining that by paying NI arrears she could "earn" an additional £1.60 or so per week for each back year that she paid. There is a maximum of four years that she is outstanding.

In order to earn this pension increase she has to pay around £1300. However, and this is the good news bit, since the benefit is backdated she is actually entitled to £2200 in backpay. I.e. she need pay nothing, is entitled to a lump sum of c.£900 and will then get a further £6.40 or so pension per week!

That will do nicely

grellan1

I havent't recieved that letter yet! I received one giving me a payments schedule to pay for missed years - this will enable me to get 100% pension (voluntary contributions, as I am now living abroad).

Chrismaths

Remember if you live abroad, your state pension will not be indexed - ie it will not increase.

CIS

It depends where you live abroad as to whether your pension is increased annually