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New state pension - buying added years

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I recently used the beta govt pension calculator to see how much I will be entitled to at retirement age [2022, when I will be 66]. It gave a forecast of ££121.24 a week or £6,326 a year. This is because I took early retirment three years ago and have not paid NICs since and am unlikely to do so between now and retirement. The maximum pension possible is £155.65 or £8093 a year. The shortfall I could expect is therefore £8093 less £6326, or £1767

I understand that I can pay NI contributions to make up the shortfall. This would be Class 3, currently at £14.10 a week or £733 a year. And so if I were to pay nine years at this rate, to bring me up to the max state pension, it would cost me £6598. As long as I live to be 70 I would therefore be up on the deal!

I'd be grateful if the many savvy folk that use this forum could comment on my calculations and assumptions. If I am correct, then given the rubbish interest rates currently available, using capital to purchase state pension seems like a reasonable plan.
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Comments

  • saver861
    saver861 Posts: 1,408 Forumite
    Have a look at this recent thread for starters - it gives a fair bit of info particularly snowman post #21.

    https://forums.moneysavingexpert.com/discussion/5397023

    You can get most of your added years post 2016 to make up your full pension and so probably don't need to buy any pre April 2016 years.

    Also, you leave the actual purchase until the latest possible time.
  • Thanks for that - seems I may have the principle right. And that I can leave any payment until just before I reach state retirement age in 2022 - as below:

    "You’re a man born after 5 April 1951 or a woman born after 5 April 1953

    You have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016.

    You can pay these contributions at different rates if you pay by 5 April 2019."

    Digging into all this, it seems I haven't lost any new SRP despite being contracted out for the majority of my working life. And my NI record shows that I had four full years prior to 1975, despite being at school until 1974. No idea how that worked, but I'm not about to dispute it....
  • molerat
    molerat Posts: 34,504 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 22 January 2016 at 4:26PM
    It looks like you may have around or in excess of 35 years plus contracting out so purchasing any pre 2016 years would be fruitless. Purchasing post 2016 would be the way to go. BTW only 7-8 years needed but you won't be able to make the full amount as only 6 years left to do it in. Purchasing class 3s more than 2 years after the due date will mean they cost the current rate rather than historical rate.
  • DaveMcG
    DaveMcG Posts: 173 Forumite
    Ninth Anniversary 100 Posts Name Dropper Combo Breaker
    edited 22 January 2016 at 4:30PM
    In fact as you have been contracted out, it is essential that you don't pay voluntary contributions until year 2016/17 onward and in respect of tax years after 2016.

    The reason for this is that your foundation pension in the new scheme will be the greater of:

    the new scheme amount minus a large deduction for contracting out, or;

    the amount you would have received from the old scheme (£121)

    Any voluntary payments in respect of years before 2016/17 won't increase the old scheme amount and because you have been contracted out the new scheme comparison will always be less that £121 even if you add contributions.

    So going forward from next year you will be able to add 6 years or so @ £4.40 a week for each year. Wait until the last possible moment as unless there are changes in the costs of the voluntary contributions or some other unforeseen changes it is best to leave the payment until as late as possible.
  • In a similar vein, my estimate (2015) is £120w. I've been contracted out all my 37 years of work. I can retire at the end of next year, though I may do couple of extra part time flexible retirement.

    I am thinking of making up some of the shortfall. When would I actually do this? Anytime before SPA as a lump sum? Or while I'm still working?
    Save £12k in 2022 thread #7:

    Save £10,000 Jan-May 2022 THEN RETIRE!!
    Final total for (half) year: -£4,000
  • molerat
    molerat Posts: 34,504 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    If working and earning in excess of £112 per week in one job you will get NI credits so no need to buy extra.
  • molerat wrote: »
    If working and earning in excess of £112 per week in one job you will get NI credits so no need to buy extra.

    But I'll probably only work a max. of 2 years, so there's still a gap I hope I can close up - but I don't know when (or how, tbh, but learning all sorts on this website).
    Save £12k in 2022 thread #7:

    Save £10,000 Jan-May 2022 THEN RETIRE!!
    Final total for (half) year: -£4,000
  • p00hsticks
    p00hsticks Posts: 14,402 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    And my NI record shows that I had four full years prior to 1975, despite being at school until 1974. No idea how that worked, but I'm not about to dispute it....

    16-18 year olds who remained in full time education used to get NI credits for those years so that they could still qualify for a full basic pension (in the days when a man needed 44 years contributions, and a woman 39). That stopped in 2010 when the qualifying years dropped to 30.

    According to this, it only started in 1975 though (point 25)
    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209123/national-insurance-single-tier-note.pdf
  • molerat
    molerat Posts: 34,504 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    You cannot buy them ahead of the year they are due. You have 2 years to buy at the historic price for that year, after that they cost the current year price.
  • molerat wrote: »
    You cannot buy them ahead of the year they are due. You have 2 years to buy at the historic price for that year, after that they cost the current year price.

    So if I retire fully in, say, 2019 and my SP is late 2023, do I have each of 4 years to pay contributions in, at the rate of a year a time?

    When do the years start from? The anniversary of one's first job, or 1st April?
    Save £12k in 2022 thread #7:

    Save £10,000 Jan-May 2022 THEN RETIRE!!
    Final total for (half) year: -£4,000
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