State pension - good value for Money

Marine_life

Having recently returned to the UK we've been looking at my wife's national insurance gaps which are considerable. She has 19 completed years and is 55 years old.

Speaking to the pensions service we can currently pay around 10 years 'back' contributions for just under 8,000 which will take her to 29 years. Over the next 6 years, she can continue to pay in (around another 4,000) meaning we will get to the full 35 year years in place.

That means by paying in 12,000 we will get almost 4,500 per annum back (in today's money)

Seems like an incredible deal to me - what am I missing?

enthusiasticsaver

So if she doesn't pay for the missing contributions and just has the 25 years contributions she only gets £4000 per annum in state pension? Yes it sounds like a no brainer if the cost of the missing 10 years is just £8000.

Dazed_and_confused

I think you may be better off by checking what your wife's current forecast is (the entitlement built up so far ignoring any additional contributions) and this will give you a much clearer idea of whether it is worth considering the retrospective payments.

I would be wary of paying for 16 years without fully understanding the actual financial implications. Assuming she is nowhere near the current maximum of £164.35 each post April 2016 year is worth £4.69/£4.70 per week but that isn't necessarily the case for earlier years. As previous posters have found to their cost.

Marine_life

Dazed_and_confused wrote: »

I think you may be better off by checking what your wife's current forecast is (the entitlement built up so far ignoring any additional contributions) and this will give you a much clearer idea of whether it is worth considering the retrospective payments.

I would be wary of paying for 16 years without fully understanding the actual financial implications. Assuming she is nowhere near the current maximum of £164.35 each post April 2016 year is worth £4.69/£4.70 per week but that isn't necessarily the case for earlier years. As previous posters have found to their cost.

We've checked the current forecast which is around £79 per week based on 19 years which is just over £4,000 per annum.

Her current forecast is that if she pays every year from now until retirement she will get £131 per week.

The maximum potential is £164 per week which includes paying some of those back contributions.

Earlier years cost less (we have the amount due for each year) so it seems to makes sense to pay the arrears and then only pay for each of the future years as we need it (she's not working and not likely to work - or at least trigger national insurance).

Tom99

[FONT=Verdana, sans-serif]£79 is not a full 19 yrs under the new system so double check the back years will count and if so pay the years from 2006 onwards which, as you say, are the cheapest.[/FONT]
[FONT=Verdana, sans-serif]Sounds like you will need about 18 yrs top up.[/FONT]

badmemory

I believe I am right in saying to only pay to a max of 30 years pre Apr 2016. I'm sure someone will correct me if I am wrong. That £79 looks like it is based on the Basic state pension and not on the NEW state pension. (Roughly 19 thirtieths of £124 as opposed to 19 thirtyfifths of £164)

molerat

It is possible to have 35 useful pre 2016 years, it depends on any COPE amount. If there is a COPE amount 2 calculations will need to be done for each added year as it could be worthwhile buying out the COPE if a particular year is cheap enough.

Iamadored

Marine_life wrote: »

Having recently returned to the UK we've been looking at my wife's national insurance gaps which are considerable. She has 19 completed years and is 55 years old.

Speaking to the pensions service we can currently pay around 10 years 'back' contributions for just under 8,000 which will take her to 29 years. Over the next 6 years, she can continue to pay in (around another 4,000) meaning we will get to the full 35 year years in place.

That means by paying in 12,000 we will get almost 4,500 per annum back (in today's money)

Seems like an incredible deal to me - what am I missing?

I don't think you are missing anything. It is a good deal. You have spoken to the Future Pensions Centre, and it is their job to tell you how to maximise her State Pension in the most cost effective way. You have done everything right as far as I can see.
I don't think we can tell you anything more than the FPC.

Out of curiosity though, which 10 years have you been advised to plug? It is currently possible, I believe, to plug 2006/7 to 2017/18 (12 years).

Tom99

badmemory wrote: »

I believe I am right in saying to only pay to a max of 30 years pre Apr 2016. I'm sure someone will correct me if I am wrong. That £79 looks like it is based on the Basic state pension and not on the NEW state pension. (Roughly 19 thirtieths of £124 as opposed to 19 thirtyfifths of £164)

Yes I think you are right and the OP will have to pay more than the 16 yrs they think are needed to top up to £164 pw. That is what needs checking.

Triumph13

Marine_life wrote: »

Earlier years cost less (we have the amount due for each year) so it seems to makes sense to pay the arrears and then only pay for each of the future years as we need it (she's not working and not likely to work - or at least trigger national insurance).

That's probably correct, but as she has a COPE complicating matters remember to factor in that post 2016 years are probably worth 13% more than pre 2016 years as the old ones are earning 1/30 of old SP rather than 1/35 of new SP.
A further complicating factor is that she is unlikely to hit the full new SP exactly - you almost certainly end up with a situation where you are a fraction of a year short and have to decide whether it's worth paying a full year's NIC for a fraction of a year's entitlement before she hits the cap.
Given these two factors, it's probably spreadsheet time as you can have lots of fun trying to work out what combination of pre and post 2016 years gives you the best bang for your buck!

Marine_life

Triumph13 wrote: »

That's probably correct, but as she has a COPE complicating matters remember to factor in that post 2016 years are probably worth 13% more than pre 2016 years as the old ones are earning 1/30 of old SP rather than 1/35 of new SP.
A further complicating factor is that she is unlikely to hit the full new SP exactly - you almost certainly end up with a situation where you are a fraction of a year short and have to decide whether it's worth paying a full year's NIC for a fraction of a year's entitlement before she hits the cap.
Given these two factors, it's probably spreadsheet time as you can have lots of fun trying to work out what combination of pre and post 2016 years gives you the best bang for your buck!

Ok - thats good advice and worth a second check.

Thank you