class 3a contribution

begbeer

my sister who has no idea about finances came up with something i had not thought about and i think she is correct.
you pay the government if 65 £22250 (think this correct figure) to get any extra £25 a week or £1300 a year, but like she said the £22250 has now gone, working it out based on a savings account of 1.5% compound interest you would not have received your £22250 back until after 26years not the 17 years the government is claiming.
is she right, working it out on paper it looks as though she is. not then a very good investment

ajbell

You have forgotten that although you do not have the £22250 you DO have the 1300. If you took the £1300 and invested it at the same rate then you would make the £22750 in 15.5 years.

JezR

Has she taken into account that the pension element will rise by the CPI?

ajbell

If CPI averaged 1.5% then it would take 14 years to get your money back.

begbeer

Yes you would have the 1300 to invest but if you saved the 22250 in a savings account paying say 1.5 per cent interest you would have received £334 so you only are getting £966 and with compound interest the interest in your savings account would also rise each year

ajbell

It would take around 17 years for the £1300 invested to overtake the £22750 invested.

Ganador

Don't forget that the £1300 is the gross amount and subject to tax. So a basic rate tax payer will only receive £1040 per year. So probably nearer 16-17 years if you reinvest the pension increase?

begbeer

have got to admit looking at the figures am changing my mind about investing at least my kids will be happy if i die early they will not have lost out on the £22250

JezR

If married there is the 50% inheritance to come into play.

Have you also cross-checked against doing pension deferral?

3A as actuarialy neutral was never going to be a stonking deal.

greenglide

And we all know that deferring the state pension is a much, much better deal, don't we?

If you are already receiving the state pension you can still defer and use the savings to fund this.

kidmugsy

Almost everyone who posts here about annuities (and the top-up is effectively an annuity) clearly doesn't understand the case for them. It's not that they understand the case and reject it - it's just that they haven't a clue.