paying National Insurance voluntary contributions and effect on pension

Milarky

I have a gappy record and am presently signing on to address this in part. From the Government portal I can see I have 24 complete years and thus need 11 more to reach the minimum number to receive the full basic old age pension (if 35 is going to stay the correct number)


Q1 can I pay-up years in any order I choose (and therefore 'cheapest' years first) or must years be made paid-up with VCs in strict chronological order?


Q2 is the effect of each year added to add an equal amount to the amount of pension payable (e.g 35 years at present, so simple mindedly* each additional year should add 1/35th of the full pension to the present entitlement) But if it not linear as assumed, how is it actually 'discounted'?


Q3 Where do I go to make these historical payments? [they seem be a hidden department of governement] When I looked into this a few months ago I got through on a phone number, was promised a called back, when no call back was recieved I called them again, they had no record of the call-back, they told me some gibberish but, crucially they didn't direct me to anywhere else and just sent out a generic letter with no one to approach.


My initial thoughts about what to do are that I should pay my cheapest years first. I then compared the amount by year to the assumed 1/35 pension payment after forecast growth (say 6%) of the lump payment it will add until the _first_ year of retirement age. Then take the second year amount and roll that up for an additional 6%/12 months and so on... This exercise suggests to me that it makes great sense to pay a few additional years but by no means all of them and that as further additional years are added the returns will fall very rapidly. So I am happy to play with the number of years I would now contribute to and 'lowball' that figure towards the 'best' years in terms of return.


Q4 do these annual rates increment or uprate so as to encourage payment 'today' as opposed to in a few years time? I have guessed that since the rate of VC increases annually that what they would do is move (say) the 08/09 amount up to the rates for 09/10, 09/10 up to the rates for 10/11 and so on. But please advise of what the actul uprating formula looks like.


[I wouldn't dare ask these questions over the phone even assuming I was talking to the person trained to answer b/c they are bound to pretend to know the answer even where they don't fully know it] So thanks in advance for all your knowledge.


(*However, since different amounts of basic pension were 'promised' at different points in time [the political popularity contest] it would not be surprising if accrual is different in different years and that today's higher VCs reflect a faster rate of accrual than past years were.)

Neil_Jones

1) You can only pay up so far back, I think its up to 10 years. After that you've effectively lost it. I presume it would apply in gap numeral order, it seems immaterial to want to pay for 2015 when there's a gap for 2013, surely?

2) There is a formula and a maximum amount per week for Class 3 NICs but I can't be sure what this is for previous years atm.

3) See https://www.gov.uk/pay-voluntary-class-3-national-insurance

4) Presumably by the RPI change is how these things are worked out I'd have thought.

calcotti

I think you will find most of your questions are answered here
https://www.gov.uk/voluntary-national-insurance-contributions
and here
https://www.gov.uk/new-state-pension/how-its-calculated

You can only make voluntary contributions for the last 6 years. Further back is closed. I believe you can choose what years to pay. Depending on how long you've got left before reaching pension age and how many years you think you may need to plug bear in mind that each new tax year the opportunity to pay for the year 6 years prior is lost.

You can find the Class 3 voluntary rates for each year here https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions (scroll down)

Dazed_and_confused

The 35 year rule only really applies to those starting their journey to State Pension since April 2016.

For those already contributing 35 years isn't that relevant.

You could have less and get the maximum new State Pension (more in certain circumstances) or have contributed for 40+ years and still not be getting the maximum.

The best thing you can do to start is look at your current State Pension forecast on gov.uk (accessable through your personal tax account and other places on gov.uk I think).

When checking this ignore the headline forecast if £164.35, it's the next figure of amount earned at 05:04:2018 that matters.

This should show your forecast based on contributions to April 2018 and you can see how many years it will take to get to the new State Pension maximum amount of £164.35.

I would caution against making any voluntary payments until you understand what your forecast amount is and consider what you expect to work over the next few years as you may be paying for something you don't need.

Only years after April 2016 will add 1/35th to your forecast, voluntary contributions for earlier years are not guaranteed to alter your starting amount and need careful consideration before being paid.

Evem if you end up having to pay voluntary contributions (for post April 2016 years) going off the threads on the Pensions board this is usually seen as an excellent investment.

You pay approx £750 as a one off payment and get, at current rates, £4.70/week in return once you reach State Pension age. For the rest of your life.

xylophone

https://www.royallondon.com/global/documents/goodwithyourmoney/topping-up-your-state-pension-guide.pdf

Does the above help?

Milarky

xylophone wrote: »

https://www.royallondon.com/global/documents/goodwithyourmoney/topping-up-your-state-pension-guide.pdf

Does the above help?

Thanks! From that PDF (applying the circumstances exaplained in 'Note 5') it appears that - till 2023 - I can backpay all years since 2006/07, not limited to the last six. Additionally each such year will raise the so-called 'starting amount' by a uniform 1/35th of the current full pension amount. I was contracted out of S2P from the years upto and including 2006/07 but since only the final contracted out year falls into the dispensationary years 2006-2015 I can raise my starting amount by £4.70pw (current value) for each subsequent year I choose to pay. This simplfies the exercise for me.


Boy when they say 'Simplify' in government circles they are using a whole new meaning of the word!

Milarky

Neil_Jones wrote: »

4) Presumably by the RPI change is how these things are worked out I'd have thought.

Has anyone got definitive information on this point? (The reason I suggested they might just 'move years up' to match the previously figure from the subsequent year is this tracks all changes at once.) Thanks everyone for your 'contributions' hoho

Dazed_and_confused

Out of interest how do you know Note 5 and not Note 4 applies?

Milarky

Dazed_and_confused wrote: »

Only years after April 2016 will add 1/35th to your forecast, voluntary contributions for earlier years are not guaranteed to alter your starting amount and need careful consideration before being paid.

I'm not sure this is correct from that note from Royal London I referenced. I am born post '51 and it appears, if I have followed the flow chart correctly that the following is the case

How will paying voluntary Class 3 NICs
boost my 2016 starting amount?
Each additional qualifying year that you generate
through paying voluntary NICs will add 1/35 of the
full rate of the new State Pension, or around £4.70 per
week. In annual terms, each year of voluntary NICs
will increase your State Pension by around £244.
Given that this will cost a maximum of £762, you
would recoup the initial outlay within four years.

Dazed_and_confused

Probably should have said only years after April 2016 are guaranteed to add 1/35th.

And I suppose that's not strictly true, if you get close to the maximum the final year might only buy you 1p/week!!

It is more complicated for earlier years. There have been threads on the pensions board from people who have paid voluntary contributions for earlier years and it had no effect on their forecast.

Milarky

Dazed_and_confused wrote: »

Out of interest how do you know Note 5 and not Note 4 applies?

I think it applies because my starting amount is about 24/35ths of the full amount and I have 24 years. I don't know which 'client group' the old system applies to I assume it's older people?