“Inflation Factor” on Voluntary Class 3 Contributions?

waterstar

I have the opportunity to make some “Voluntary Class 3 Contributions” in respect of earlier tax years in order to get me towards the “44 years of contributions”.

As per the letter from the Pension Service for amounts for the years from 2002/03 onwards the amount is fixed if I pay by a certain date, however there is a later date up until which I might pay, although “the rate could change”.

e.g for year 2002/03 I have until 5 April 2007 to pay £392.60, however I have until 5 April 2009 to make payment for 2002/03 BUT the “rate could change”: I am presuming upwards by some indexation or inflation factor from the £392.60.

My QUESTION, does anyone have any information or a sense of what that indexation or inflation factor might be, as I am trying to determine whether it is worthwhile making the payment by April 2007 or waiting till the latest possible date for payment (and possibly paying a higher amount)?

Thanks in advance.

CIS

Theres no inflation factor as such, it is just uprated to the current values of class 3.

If the amount you need to pay is for a full year, you just divide the amount that was due in the last tax yr by 52 and multiply by the current rate of Class 3.

Obvioulsy, if the amount is for less than 52weeks, just use the numner of weeks the amount is due for.

Have you had a pension forecast ?, the letters from HMRc tell you any years you can pay , even if you dont need to . Depending on your current and future record, you may be able to save yourself the money.

Get an online pension forecast from https://www.thepensionservice.gov.uk or tel: 08453000168. If the second figure on the front page shows a 100% basic pension, then providing your current circs dont change, you are predicted to get a full pension without any backpayments.

CIS

Also, there's no 'MAY CHANGE',regardless of what the forecast says, it will deffinetly change and will go up on the dates shown .

waterstar

Thanks for the reply CIS.

Yes I have obtained "pension forescast" and "YES" I need to make back-payments to achieve "full pension".

Now I just need to "take a view" on what the likely rates of "Class 3" contributions will be in future years to determine whether worthwhile to make back payment for 2002/03 by April 2007 or to defer making payment until latest possible date (5 April 2009). And similar consideration for years subsequent to 2002/03.

CIS

Thats good, at least you aren't getting caught like some people Ive seen (some have paid 5-6yrs backdated class 3 and found they still didn't have the minimum 10yrs, so spent ~£2000 on nothing)

The last 3 rises in Class 3 have amounted to 20p each time, (£6.95 -£7.15-£7.35-£7.55), so the rise on 1 full yr can be estimated as 20p x 52 or £10.40 p/a.

The actual difference depends on the original rate.

If the original rate was , say £6* 52 or £312, then allowing for 6 yrs without a rise, then year 7 is likely to be 52*£7.40 = £885, and yr 8, 52*£7.60=£395.