Should I make up the shortfalls in my National Inusrance?

inferno_2

I am 30 and 6 years of full contributions and 8 years where I did not contribute enough. 3 of the 6 I was at school and not working. I have never worked in the UK. I am returning back to the UK after 12 years abroad, I don't know if I will work, I doubt it.

I checked to pay my missing years and it will cost me about £6400 to pay, which I can, but I am not sure if its worth it. I put £6400 into a compound interest calculator at 8% for 35 years and it came up with £104,000. By the end of the year I will have about 500,000 USD in index funds, so I do not think I will need to ever rely on the state pension but I would like to have it.

Is it possible at a later stage to pay my missing NI contributions at a later date, and by missing I mean quite a lot? 

Thanks

Linton

It is normally possible to pay missing contributions for up to 6 years previously though until April 2023 you can go back to 2005.

Relying on an average 8% return is very ambitious so not really a good comparison.  But if you are going to make the comparison:
At the moment your £6400 buys you 8 years NI,   This works out at £175.2 X 52 X 8/35=£2082/year.  Assume inflation at 2.5% over 35 years your annual extra SP would be £4941/year.    Spread over a lifetime in retirement of say 25 years gives you £123525, even with no inflation increase whilst in payment.  So paying voluntary NI is a n extremely good deal. 

A bigger issue would be that you dont know what is going to happen in your life for the next 35 (or rather 38 or more years as the SP age will be increasing) so it is probably too early to make the payment.  Perhaps invest the money for the time being, but in 10-15 years think again about paying voluntary NI every year up to the point you are due to take your SP.

molerat

Currently you have £0 state pension accrued so maybe buying another 4 years to top up to the minimum 10 would make sense as that would give you £50 per week for an outlay of <£3200.

mark55man

I think its too early to decide.  You need 35 full years to get full benefit.  You already have 6 so 29 left.  You will be retiring at 67 - so you could easily wait until you are 45 and then take a view.

If you never ever work again then at 45 you could then buy 6 years in arrears and then 1 per year until State retirement age.  If at any point before of after that you get a PAYE job then you can just slip the schedule by a year.  You accrue a year if you earn an average of £120 a week. Also if you become Self employed (even a hobby business) then you can play Class 2 contributions which are under half the price of above - it just has to be a genuine SE effort, even if you are not relying on it.

My advice would be not to do anything about yet.  Given your savings I  wouldn't even advise you to put something aside to cover the cost later.  Typically these charges have gone up with inflation so if you are confident you can grow you money by more then it will be cheaper later.  The only risk is that they change the system so you can't play catch up.  I know you want to have it (its good value) but possibly not the end of the world

   

Skibunny40

Linton - just wanted to say thank you for your comment about being able to go back further than 6 years. I was out of the country for a few years, and thought I'd missed the ability to back pay. Might not be worth doing, but nice to know I do have the option. 

inferno_2

Thankyou for the advice guys. I think i will wait until a later date to make the payment. I'm not employed at the moment and I don't there will be a market for commercial pilots for a while so I will try and my money work a bit better during this period!

Pile_o_stone

I bought additional years when the state pension qualification was 44 years. It went down the 30 for a short while and it is currently 35. When it dropped to 30 I was kicking myself for 'wasting my money'. When it went up to 35 years I was less bothered. Now I am glad I made the contributions because I want to retire early and should have my full NI contributions in a year or so.

From my experience I'd say that you cannot guarantee that a future government won't move the goalposts again (especially with the country being bankrupted by Covid) and you cannot guarantee that you'll be able to/want to work all those years in the future to get your full pension. I'd therefore buy all the missing year that you can, while you can.

p00hsticks

Pile_o_stone said:

I bought additional years when the state pension qualification was 44 years. It went down the 30 for a short while and it is currently 35. When it dropped to 30 I was kicking myself for 'wasting my money'. When it went up to 35 years I was less bothered. Now I am glad I made the contributions because I want to retire early and should have my full NI contributions in a year or so.

Have you got a state pension forecast ?

As discussed frequently on this board, if you've been contracted out in the past you may find that you need more than 35 years to reach the new full pension - the 35 years rule is only strictly true for those starting their working lives after the introduction of the new State Pension in April 2016.