Class 3a -good deal?

bigfreddiel

If you are able to buy class 3a NI this is equivalent to Additional Pension so increases by any annual price increase only, and not the triple lock

Reason for asking, my wife gets £27/month from an old pension, not index linked or nothing. It hasn't changed in 8 years.

She's been offered £5,800 for it by the pension provider. I've used the gov.uk 3a calculator and that amount give or take a few hundred pounds will buy her £8/week.
We don't need the lump sum, so I think she should just buy some 3a NI.

Anybody spot a problem with this.

Both of us in good health, and my wife doesn't pay any tax, she's just below the threshold of £11k

Cheers fj

kidmugsy

Why top-up rather than deferral?

bigfreddiel

kidmugsy wrote: »

Why top-up rather than deferral?

I don't understand? Can you just defer something you haven't bought or do you mean defer her state pension she's been receiving for eight years, you can only do this once, then use the lump sum as a replacement pension payment for ten months, and then restart her state pension. During the time she defers it will increase by just over 8% roughly. That would be about £10/week, as opposed to £8/week if just bought with class 3a.

This does seem to be a slightly better option, but is it worth the hassle, I would say yes, but my wife would say no.

Cheers fj

bigfreddiel

Okay here are the calculations as I see it.

Lump sum is £5817

This would buy £7/week via class 3a or £30/month

Or defer sp, take lump sum of £5817 no tax to pay because deferring sp means my wife has about £6k tax allowance

Now my wife gets £565 sp every four weeks

So £5817/£565 = 10.2 payments or 40.8 weeks

Sp increases by 1% every 5 weeks so over 40 weeks her sp will increase by 8%

Extra income by deferring is £565 x 8% = £45.20 increase

So per week it's £11.30 by deferring or £7 per week if just buying class 3a NI - £4.30 better off per week.

Looks like a no brainer, or have I missed something?

Cheers fj

kidmugsy

bigfreddiel wrote: »

Okay here are the calculations as I see it.

Lump sum is £5817

This would buy £7/week via class 3a or £30/month

Or defer sp, take lump sum of £5817 no tax to pay because deferring sp means my wife has about £6k tax allowance

Now my wife gets £565 sp every four weeks

So £5817/£565 = 10.2 payments or 40.8 weeks

Sp increases by 1% every 5 weeks so over 40 weeks her sp will increase by 8%

Extra income by deferring is £565 x 8% = £45.20 increase

So per week it's £11.30 by deferring or £7 per week if just buying class 3a NI - £4.30 better off per week.

Looks like a no brainer, or have I missed something?

Cheers fj

If you've got enough in savings, you can do both. Top-up first, then get the 0.2% extra per week on the new, bigger pension. Heh!