Voluntary NI Contributions

Meca

I have 8 years of full NI contributions and 23 years of contributions to make until 2039. Is it worth paying £2,400 to fill the gaps for four previous years?

molerat

23+8=31 so 4 years short of a full pension. Filling the (what looks like at the amount quoted) part year gaps makes sense as will return in about 3 years but is a gamble, a sort of reverse life insurance, pays out if you don't die. If run over by a bus you get nothing back so investing it elsewhere could guarantee at least some return to your dependents.

Suffolk_lass

I would pay it. This is just because it will be cheaper to do looking back than if you need to pay them at the other end of your working life. Also the removal of Class 2 contributions (the cheapest way of paying this) will ensure any future "correction" to your NI record will be more costly.

I am looking at making some sort of NI contribution after I stop work, before SPA so that my opted out of SERPS years are minimised (SERPS opt out years are the ones that don't count towards the so-called single tier pension). To illustrate, - while I have 35 years in, only 10 of my first 12 years work count and it is too late for me to make these up. Had I done so, the rate was just over £2 a week at the time and I could have paid from my student maintenance grant if I had been paying attention then. So when I stop work, five years before SPA, I want to make these up to lift my state pension by around £4 a week for each year paid for. I need to live to 70 to get the payback but I am hopeful there!

p00hsticks

Suffolk_lass wrote: »

(SERPS opt out years are the ones that don't count towards the so-called single tier pension).

This isn't exactly true. When calculating peoples 'starting amount' as at 6/4/16 using the new rules, there would have been a COPE deduction applied for any 'contracted out' years, but the years themselves were counted for the calculations under both old and new rules (up to the relevant maximums of 30 and 35 years respectively) with the higher of the two amounts forming the starting amount.

Triumph13

Meca wrote: »

Is it worth paying £2,400 to fill the gaps for four previous years?

£2,400 now to get £950 a year for life in 22 years time seems like a no-brainer to me. To match it by investments with a 4% drawdown rate and assuming you are a basic rate tax payer so get 20% relief if you paid it into a pension instead you would need to achieve investment returns of 10% a year above inflation over that 22 year period which is way above what you could reasonably expect.

Suffolk_lass

p00hsticks wrote: »

This isn't exactly true. When calculating peoples 'starting amount' as at 6/4/16 using the new rules, there would have been a COPE deduction applied for any 'contracted out' years, but the years themselves were counted for the calculations under both old and new rules (up to the relevant maximums of 30 and 35 years respectively) with the higher of the two amounts forming the starting amount.

Perhaps my wording was unclear. Yes, they count towards the old basic rate state pension (currently £122.30) but not towards the additional rate within the new state pension (£155.55) where a person was opted out of SERPS - which applies to almost all public service employees.
Any contribution years beyond April 2016 (when SERPS opt-out was withdrawn) will count towards the higher new state pension. Therefore, anyone who was opted out for several years could benefit by maximising the contribution years where they were not opted out - even where this exceeds the maximum number to receive a full pension (at the lower rate)- so paying for the years between now and when I draw my state pension (even when I am not working) are worth it, providing I live beyond 70.

bigadaj

I love the assumptions that teh system won't change in the next twenty three years; of course if you project back to1994 then obviously this is borne out by experience........

Triumph13

bigadaj wrote: »

I love the assumptions that teh system won't change in the next twenty three years; of course if you project back to1994 then obviously this is borne out by experience........

Well my advice would have been exactly the same in 1994 and would have been the right choice with hindsight. Yes the system will change, but I'd say the odds are hugely in favour of buying the NICs still being the right choice.

bigadaj

Triumph13 wrote: »

Well my advice would have been exactly the same in 1994 and would have been the right choice with hindsight. Yes the system will change, but I'd say the odds are hugely in favour of buying the NICs still being the right choice.

Possibly but there is a risk in the system changing for better or worse.

It could be reduced again to 30 years or the terms changed to how accrual will be determined, might be based on residency rather than employment, childcare or other criteria. Retirement age may continue to rise which would mean that more working years would be added in any case.

It may well be a good deal but governments won't leave the system alone and we already have people complaining about more working years gaining nothing, misunderstandings around contracting out and homecare responsibilities etc etc

GunJack

Can't see it changing downwards ever again, unless mortality suddenly and permanently drops.....