Is Class 3A worth paying for us?

Totton

Hi,
My wife and I are no longer working but are under state retirement age. Our pension forecasts suggest we have paid enough NiCs but were contracted out for a number of years so will receive a reduced state pension.

My wife is 54 and has 36 full years with her state pension reduced by £30 a week. I am 61 with 44 full years for state pension that will be reduced by £27.

Some websites suggest that in such circumstances people should pay Class 3A to 'top-up' whilst some suggest this is a waste of time.

Can anyone suggest a good guide or place for us to research this further?

Thanks.

molerat

It will not be class 3A, which is for those retiring before April 2016, but class 3.

If you do not have the maximum amount and will no longer be making contributions or receiving credits by other means then post 2016 class 3 voluntary contributions are well worth the cost. They pay back in 3-4 years depending on your tax status. A single payment of £741 will pay £237 a year for life.

Do either of you look after grandchildren whilst the parent is at work ? - another way of receiving credits.

Totton

Thanks for that. I get a little confused as we both have enough qualifying years. Would paying the additional annual top-up still increase the pension by £237 annually?

Totton

molerat wrote: »

...If you do not have the maximum amount and will no longer be making contributions or receiving credits by other means then post 2016 class 3 voluntary contributions are well worth the cost. They pay back in 3-4 years depending on your tax status. A single payment of £741 will pay £237 a year for life....

I've been reading a lot of the previous threads which suggested if the pension forecast had a COPE amount then there was no point paying for incomplete years as some starting amount had been worked out? My wifes pension forecast shows two incomplete years, one is too far back but the recent 2015-16 shows a payment of £733.20 can be made. As that is pre-2016 would it be worthwhile paying for the 2015-16 year now or is that just dead money?

p00hsticks

Totton wrote: »

I've been reading a lot of the previous threads which suggested if the pension forecast had a COPE amount then there was no point paying for incomplete years as some starting amount had been worked out?

The 'starting amount' was calculated on 6/4/16 as the higher of the two values under old and new rules -

old rules -
(NI years up to maximum of 30/30) x £119.30 + any SERPS/S2P

new rules
(NI years up to a maximum of 35/35) x £155.65 - COPE
where COPE is an adjustment for those previsouyl contracte out

[Note that the £119.30 and £155.65 amounts subsequently increased for 2017).

Having got a starting amount, everyone simply builds up their new state pension by 1/35th of the new State Pension amount for each post-2016 NI year until the maximum is reached.

Totton wrote: »

My wifes pension forecast shows two incomplete years, one is too far back but the recent 2015-16 shows a payment of £733.20 can be made. As that is pre-2016 would it be worthwhile paying for the 2015-16 year now or is that just dead money?

As you say your wife already has 36 NI years there will be no benefit in paying for pre-2016 years.

p00hsticks

Totton wrote: »

Thanks for that. I get a little confused as we both have enough qualifying years. Would paying the additional annual top-up still increase the pension by £237 annually?

Forget about the number of years you already have. If your individual pension forecast indicates that your 'starting amount' (as per previous post above) is below the maximum, additional post 2016 years will increase it until the maximum is reached.

xylophone

https://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf