Pay 1 more tax year to qualify full SP.

SeeMe

I have already added 2 years which i need because i was opted out for a few years.
I have the option to buy 1 more year for full pension, before this april before price rise?, already retired on a work pension and get my SP early 2022.
I know it sounds daft but once i recieve my SP and add my work pension, i will start to be taxed on it, as at the minute work pension is only £10. 200 and only source of income. Will the extra year be wiped out a bit in tax and not be worth the outlay?

Silvertabby

All of my State pension, not just the years I will buy, will be taxed at 20%.

It's still a good deal - break even point for a basic rate tax payer is just 4 years.

SeeMe

Thanks for reply.
Yes all mine will be taxed once its added to my work pension @20%, but just thought the more you get the more tax you pay, albeit only a small extra £4+ a week.
Not clued up as i wish.

bowlhead99

SeeMe wrote: »

Thanks for reply.
Yes all mine will be taxed once its added to my work pension @20%, but just thought the more you get the more tax you pay, albeit only a small extra £4+ a week.
Not clued up as i wish.

Yes, if you are over the threshold for paying tax then every bit of extra income will be taxed, but it doesn't change the £nil tax that you will still be paying on the first £x of your annual income.

The deal is, you pay £y of extra cash now, but then receive £z every week for the entire rest of your life, which you wouldn't have received it you didn't pay the £y now. How lightly or heavily the weekly extra £z is taxed or not, is not the key issue. The key issue is whether the net amount of the extra weekly money you receive, over the entire rest of your life (likely several decades), is worth more in real terms than the the amount of cash you would be paying now.

So, consider that you could 'invest' in an investment costing £y now on the open market, and it might grow to £a, or £b, or £c. Is it better to invest it in the hope of getting £a, £b or £c, or is it better to give it to the government to max out your state pension allowing you to receive an extra £z per week net of tax from now until 2052 or beyond?

Silvertabby

SeeMe wrote: »

Thanks for reply.
Yes all mine will be taxed once its added to my work pension @20%, but just thought the more you get the more tax you pay, albeit only a small extra £4+ a week.
Not clued up as i wish.

In (very) round figures, one year will cost you £750 for an extra £4.50 per week State pension.

£4.50 - 20% tax = £3.60

£750 / £3.60 = 208.33 weeks = 3.99 years = break even point.

After that, you're quids in.

Dazed_and_confused

Unless you start a micro business and voluntarily pay Class 2 National Insurance.

One off outlay of £156 could then return £4.50/week (or even £4.81/week) so after tax £3.60.

Break even point is during week 44. Or week 41 if your pension increases by £4.81/week before tax.

SeeMe

Thanks all for replies.
Will decide soon but now edging towards sending of my cheque.