Pay Class 2 NI contributions now rather than buy later?

JohnB47

Hi.

Just after Christmas, my missus decided to (amicably) break from the Charity she was working for and go self employed. At that time we thought it best for her not to pay National Insurance Class 2 Contributions because she had the required 30 years contributions and her income will be very small (well below the £5725 pa limit) for the forseeable future.

She has contacted the Tax people and set everything up, although she has not yet been asked to make any NI payment.

Now that it looks highly likely that she'll need 35 years, we are thinking that for her to pay Class 2 conts. would be far better than buying the extra years later. (£2.70 per week now versus over £600 for a year later).

I know things aren't certain yet but does anyone else have an opinion on our decision that she should go ahead and start making payments straightaway?

She is 57 years old.

Thanks.

McKneff

Has she been told by the tax people that she has 30 years.

grey_gym_sock

do you know exactly how many years she has already? because i thought that, when the tax ppl tell you that you have "the required 30 years", that actually means you have at least 30 (and any extra years would be ignored under current rules - but not under the proposed new rules).

JohnB47

Sorry, I should have said.

She has exactly 30 years - I know because we bought her some additional years in March 2009 to bring her to the, then, required number of years for a max pension.

gadgetmind

My view would be to definitely go the class 2 route now and this is what my wife is doing.

McKneff

Check with the tax people first as to whether she needs 30 or 35 it depends on her age. No point in forking out for another 5 years if she already has the required amount.

jamesd

Does she have a state pension forecast or statement that says she will get more than £144 already? If yes, she will gain nothing by adding more years.

Other than that, it is a bet: will the proposed new scheme happen or not and what will the rules be? No way to tell today. Not an expensive bet, but still uncertainty.

JohnB47

Thanks everyone.

Jamesd - the last forecast we got for her (as of April 2012) said she would get the basic £107 plus an additional £3.99

I think its unlikely that the proposed increase from 30 years to 35 will be watered down. So I think it's reasonably safe to go ahead and pay class 2. There will be little lost if, by the time the new arrangements come into force, they are significantly different to those proposed.

Thanks again.

jamesd

Given the low cost that seems like a good approach. May not pay but at least if it doesn't, it won't have been too expensive compared to the alternative loss of not doing it if it's beneficial.

SeekTruth

Can I throw another consideration into the melting pot?

Does the lady in question have any period of contracted out employment? If she has then at transition to the Single Tier Pension (assuming this goes ahead before she reaches SPA) a Rebate Derived Amount (RDA) will be subtracted from the calculation of her entitlement under the new rules. So her entitlement (in 2012/13 terms) immediately following transition would be the higher of:

1. 30/35 of £144 minus RDA (say £123 - RDA)
2. £107 + £3.99 = £111ish

In other words, if she has a RDA of more than about £12/wk then some of the proposed additional years entitlement to be purchased as Class 2 would have no effect on her eventual pension.

JohnB47

SeekTruth wrote: »

Can I throw another consideration into the melting pot?

Does the lady in question have any period of contracted out employment? If she has then at transition to the Single Tier Pension (assuming this goes ahead before she reaches SPA) a Rebate Derived Amount (RDA) will be subtracted from the calculation of her entitlement under the new rules. So her entitlement (in 2012/13 terms) immediately following transition would be the higher of:

1. 30/35 of £144 minus RDA (say £123 - RDA)
2. £107 + £3.99 = £111ish

In other words, if she has a RDA of more than about £12/wk then some of the proposed additional years entitlement to be purchased as Class 2 would have no effect on her eventual pension.

Thanks.

I'm almost certain that the answer to your question is 'no'. The only likely contracted-out period would be for a very brief stint as a civil servant (less than two years) back in the 1970's but we can't remember if she paid into the pension scheme then.

If we get an on-line pension forecast for her now, would that give enough detail to answer your question?

Cheers.