National Insurance 3A pension boost costs - any news in the budget?

Jaycee_Dove

I did not hear any reference in the budget to the details of the new National Insurance 3A prices that will allow existing and pre April 2016 (new single tier) pension qualifiers to boost their SP.


Did I miss this?


It was said in a few places this was likely to be in the budget as it was announced in January and said then to just be waiting new life expectancy tables now out.


Anyone know if it is in the small print somewhere?

Jaycee_Dove

I see from the later thread (below) that the rates are not in the budget, just a reference to them coming soon.

Jaycee_Dove

I notice that the results of an on line survey of the plan (2000 or so respondents) has been published by Gov.UK today.


This indicates (approx or real?) prices based on the questions being asked of those surveyed.


Uptake would seem to be at best modest from the replies but much more so from women and around £850 m could be raised in the two years the scheme is run if they are replicated in the same pattern amongst all existing and SP qualifiers up to 2016 when the new flat rate SP comes into effect.


If the figures given to the respondents in the survey are the actual projected sums to be requested to buy extra NIC 3A contributions then it would seem that under 70s will have to pay £850 in order to buy £1 pw extra pension. Meaning you will break even after 17 years.


70- - 74 £750 per £1 pw. (so about 15 years break even?)


75 - 79 £600 per £1 pw. (so about 12 years break even?)


80+ £400 per £1 pw added on to SP. (8 years?)


My rough calculations on break even are not accurate but show that, understandably, the older you are the more quickly you break even.


The survey suggested older uptake was very limited as respondents did not expect they would live long enough to benefit.

kidmugsy

Jaycee_Dove wrote: »

Meaning you will break even after 17 years.

Not if the extra pension is index-linked. It's absurdly misleading, rather than 'rough', to omit that consideration.

Jaycee_Dove

Go on then, tell us what it does mean, if it is that absurd, as I have no clue how to work it out any differently. As I guess most people reading it will not.


I do see how adding extra each year will reduce the years to break even but it seems impossible to know by how much or even if that link will be retained years from now by future governments.


So a conservative estimate seems wise not absurd to me. If it takes fewer years in reality, great. But my guess is few are going to gamble on that.

kidmugsy

It's better to be roughly right than precisely wrong. You opted for the latter.

uk1

I've just glanced through the survey and it is interesting that overall positive interest ie adding very with fairly interested is roughly unchanged for top and bottom limit bandings which I think will naturally nudge the higher premium. There is also no hint as to what the maximum amount can be bought - I thought thy were thinking just £5 per week but this implies more. It doesn't really show great price sensitivity but rather a pretty high lack of any interest. They will clearly decide on higher end rates. Interesting that they are evaluating age bands rather than a more precise price for an exact age ie years or years and months.

It is odd that they refer to £1 per week as being "roughly £50 per year" and not simply £52 per year!

I think that for a reasonably healthy 65 year man in 2015 £800 to buy each £1 weekly is probably good value.

Jaycee_Dove

kidmugsy wrote: »

It's better to be roughly right than precisely wrong. You opted for the latter.

And you just opted to appear insulting rather than offer anything helpful like better estimates, which I indicated that I had no way to figure out.

Jaycee_Dove

uk1 wrote: »

I've just glanced through the survey and it is interesting that overall positive interest ie adding very with fairly interested is roughly unchanged for top and bottom limit bandings which I think will naturally nudge the higher premium. There is also no hint as to what the maximum amount can be bought - I thought thy were thinking just £5 per week but this implies more. It doesn't really show great price sensitivity but rather a pretty high lack of any interest. They will clearly decide on higher end rates. Interesting that they are evaluating age bands rather than a more precise price for an exact age ie years or years and months.

It is odd that they refer to £1 per week as being "roughly £50 per year" and not simply £52 per year!

I think that for a reasonably healthy 65 year man in 2015 £800 to buy each £1 weekly is probably good value.

The figures seem slightly lower than the £900 per extra £1 pw being cited in the press in January.


I am actually deferring my pension and in the first year have boosted it by approx. £13 pw. That is for no actual payment out of my savings (as needed to buy NIC 3 A) - rather just a 'loan back' of the pension money I would have received. Roughly £6500.


This works out at just a bit over half the cost of purchasing these NIC 3A add ons.


As such anyone approaching retirement - or indeed having retired but able to take a break from receiving their SP - needs to seriously consider that option if they can rather than fork out almost double the sum to buy the same extra pension per week as you can get whilst the option of deferring is still on the table.


Hard to see how this new idea will benefit anyone other than those with huge savings to easily deploy and for whom this might be a better option to, say, an ISA.


It is not really assisting the ones most in need if they are in the position of taking deferral instead and thereby getting a far better weekly add on.

uk1

Wise words. In simple terms if you have other money and can defer your state pension then do it. Under the current scheme that is. I'm 36 hours older than my wife and we have already deferred her. I'm not due for another 18 months or so and my plan is to defer her until I retire in September 2015 at least and then possibly max her 3a contributions subject o final terms. Although it loses capital it still might be sensible.

Jaycee_Dove

I do hope that the government spell out the better value of deferral to those considering buying NIC 3A.


It should be an obligation, because you can see many people viewing this as their only real way to gain extra pension. They might be easily seduced by the sales pitch.


I would think the suggestion in the report that the government could make £850 million out of this idea over its two year life would be a temptation to make it look more attractive than it really is.


As the government will not make that sum if all those who could do so were to choose deferral instead.