To Fill NI Gaps or Not....

Fed

This is something i've been putting off for a while but with the latest rate hikes coming in to buy back gaps in NI record it's time to make a decision....

I'm 32, have been unemployed since 2008 but have supported myself through gambling. Throughout this time i've also built a sizeable investment portfolio. I don't forsee myself getting a job within the next 5 years, I don't forsee myself working into my 60s if I did get a job. I currently have 3 full years of NI contributions but the option to top up 12 years worth. Therefore it's unlikely that I will ever meet the 30 year requirement for a full state pension unless I voluntarily pay.

I max out my ISA (inc LISA) and voluntary SIPP contributions every year.

Now I appreciate the sensible advice would be to contribute, you never know what might happen etc but I was just running over some figures and whether it might not be worth it.

To top up last year would cost me £741 and get me an extra ~£4.7 a week when I reached pension age. Current forecast say 2055. Lets say instead I took that £741 and invested it until 2055. At a real rate of return of 4% over 36 years it would be worth £2872. Therefore it would be 11.75 years until I was better off with the state pension but 16 years if the £2872 was left invested. I've ignored tax for simplicity. At this point i'll be mid 80s...

What do people think?

FWIW despite gambling I am extremely risk averse, focused on passive investing and financial freedom so for the purposes of this argument treat the likelihood of hitting financial troubles as negligible

Thanks

drumtochty

I do not understand why you have not looked at Class 2 contributions over the years to cover any trading that you have done, that suggest you have not kept up with the options that you have.


Can you guarintee the 4% real rate of investment returns that you mention in your posting.


What if you die in your 70's.


How much income will your investment savings pay you in retirement compared to the state pension would pay you.


Lots of things to compare that you have not looked at.


Work still to so here in your case.

Fed

drumtochty wrote: »

I do not understand why you have not looked at Class 2 contributions over the years to cover any trading that you have done, that suggest you have not kept up with the options that you have.

I'm not self employed so Class 2 was never an option. That would have involved declaring part of my winnings or setting up a fictional occupation, both which would be bending the rules?

drumtochty wrote: »

Can you guarintee the 4% real rate of investment returns that you mention in your posting.

No I cannot, could be more, could be less but that seems a reasonable estimate

drumtochty wrote: »

What if you die in your 70's.

Then in all likelihood i'm much better off not paying voluntary contributions

drumtochty wrote: »

How much income will your investment savings pay you in retirement compared to the state pension would pay you.

I anticipate a lot more

I might be missing something but it does seem to be a judgement call...

Aiki

ir is a long time from now to when you can take it. However at the moment there is the triple lock to increase the value of the SP, but of course this may drop from triple to double to single lock etc. The SP age may also change as well.

I thought that you could only go back 6 years to pay missed contribution years but it may be longer. lots of things can happen for you between now and the future, so it is always a bit of a gamble.

One suggesstion would be to review annually and only consider the furthest back year you can contribute to. if you fancy it, pay if not you have just missed a year but have many more chances to cover it.

in my case I am three years short of full SP, 12 years before SP age, not working but since not sure what will happen I am waiting. If the contribution rate continues to go up, so be it, that is just the way it is.

molerat

Aiki wrote: »

I thought that you could only go back 6 years to pay missed contribution years but it may be longer.

Under normal circumstances it is 6 years with the cost increasing to the current price after 2 years but, due to the introduction of the new state pension, you can currently pay back to 2006 until 2023 but increasing in price this month.

michaels

SP is a good hedge against 'tail risk' of your living longer than average - much cheaper than an annuity.

This may then let you be more adventurous with the investment strategy for the remainder of your later life income if you ever expect to stop earning and be living of savings.

It is also a diversification strategy, a different basket for some of your eggs.

NeilC1965

'Therefore it's unlikely that I will ever meet the 30 year requirement for a full state pension unless I voluntarily pay.'
You need 35 qualifying years now to qualify for the New State Pension , not 30 as previously

Dazed_and_confused

You need 35 qualifying years now to qualify for the New State Pension , not 30 as previously

And 35 years only applies to those starting on their State Pension journey from April 2016.

Everyone else is under transitional rules. Where 30 years might be enough. But 40 might not be enough.

Fed

Thanks for everyone's input. From a pure financial viewpoint it would seem the expected payoff might be slightly better by forging contributions and simply investing the money. Whilst investing is far from risk free there is risk in NI if I were to die before reaching old age or they change the rules. I have seen recommendations of moving to a means tested state pension but as someone with only a SIPP limited to £3600 until retirement I may not hit the means tested level.


However as pointed out it is another way to diversify so it might be sensible to contribute as I can afford it

Soworried

My husband is wanting to make up 7 years of contribution.

Does anyone know if you can pay this monthly via direct debit?

molerat

You can only pay the current year by DD instalments, prior years can only be paid in a lump sum per year. Has he checked that paying prior years will add value ?