State pension - paying additional contributions to get full State Pension

whisper_quietly

My wife will be 66 next June and intends to draw her state pension at that time. Her pension forecast on the gov.uk website says she has 29 years contributions. All of these were prior to April 2006. Her estimated pension is £145.17/week.  Again according to her pension forecast she can increase her pension to the new State Pension maximum of £175.20 by making 6 years voluntary contributions. This will then give her 35 years. Having spoken to the Future Pensions Centre (FPC) this would cost just over £4,600 which covers the four years 2006/07 to 2009/10 inclusive and 2018/19 and 2019/20. When I questioned this breakdown of years I was told that you pay additional contributions based on the lowest cost of funding the shortfall taken across all the years outstanding.
I must have misread the .gov.uk state pension website as I was under the impression that voluntary contributions could only be made for the years outstanding from April 2016 when the new State Pension was introduced.  I’m concerned that if my wife pays the six years voluntary contributions that she won’t get any additional pension in respect of the years 2006/07 to 2009/10, but only two years added for 2018/19 & 2019/20.
Questions. Will the £4,600 voluntary contribution increase my wife’s pension by £30/week as the pension forecast and FPC suggests?
If the answer to the Q above is yes, then with savings rate as low as they are currently, does in make financial sense to buy the six years?

Dazed_and_C0nfused

If she fancies starting a small business before 6 April 2021 she could pay voluntary Class 2 NIC for the current tax which is only c£160 rather than c£800 for voluntary Class 3.

It is possible to pay for pre 2016 years and Future Pensions Centre have a good reputation for getting it right as to whether she will benefit or not.

molerat

Up until April 2023 all years from 2006 are available to pay.  This was part of the transitional arrangements so that all those reaching pension age after 2016 were able to achieve the minimum 10 years contributions required to receive a pension.

xylophone

See https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/topping-up-your-state-pension-guide.pdf page 6 (bearing in mind that this is the 2018/19 edition - you will need to update the figures).

drumtochty

Dazed_and_C0nfused said:

If she fancies starting a small business before 6 April 2021 she could pay voluntary Class 2 NIC for the current tax which is only c£160 rather than c£800 for voluntary Class 3.

It is possible to pay for pre 2016 years and Future Pensions Centre have a good reputation for getting it right as to whether she will benefit or not.

Sorry I think this you are incorrect Dazed which is unusual as you tend to be on the money on the majority of your posts. To be able to pay Class 2 NI you have to register with HMRC as self employed by early October of that tax year. As we are now in December of the 2020 / 2021 tax year, that boat has sailed!!!! I assume the lady has not registered as self employed before early April.

Now to answer the original poster question, I think the ladies pension is at todays rate, 29/30 of today’s old basic state pension of £134.25 which equates to £129.78 plus SERPS and Second State Pension of  £25.39. A total of £145.17 per week as stated by the OP.

 

I was of the impression she can only increase her basic old style pension to 134.25 a week. That is a weekly increase of £4.47 per week and would be covered by paying one year’s NI for one of the years before April 2016. If this is still allowed.

She would then have £149.64 per week.

She is sill then £20.56 short of £175.20 per week which is the current new state pension in 2020/2021.

She can then pay the NI years 2016/2017 to 2020/2021 for the new state pension that would be 5 years at a further increased pension of £5.00 per week, per year of contribution’s, that would increase her pension by a further £25 a week up to a new total of £174.64 per week.

Some £0.56 short of the maximum of £175.20 per week.

The cost of addental years is paid back after around 3 years.

claire111

drumtochty said:

Dazed_and_C0nfused said:

If she fancies starting a small business before 6 April 2021 she could pay voluntary Class 2 NIC for the current tax which is only c£160 rather than c£800 for voluntary Class 3.

It is possible to pay for pre 2016 years and Future Pensions Centre have a good reputation for getting it right as to whether she will benefit or not.

Sorry I think this you are incorrect Dazed which is unusual as you tend to be on the money on the majority of your posts. To be able to pay Class 2 NI you have to register with HMRC as self employed by early October of that tax year. As we are now in December of the 2020 / 2021 tax year, that boat has sailed!!!! I assume the lady has not registered as self employed before early April.

I think if you are not likely to make more than £1000 self employed, there is no requirement to register ? 

Dazed_and_C0nfused

claire111 said:

drumtochty said:

Dazed_and_C0nfused said:

If she fancies starting a small business before 6 April 2021 she could pay voluntary Class 2 NIC for the current tax which is only c£160 rather than c£800 for voluntary Class 3.

It is possible to pay for pre 2016 years and Future Pensions Centre have a good reputation for getting it right as to whether she will benefit or not.

Sorry I think this you are incorrect Dazed which is unusual as you tend to be on the money on the majority of your posts. To be able to pay Class 2 NI you have to register with HMRC as self employed by early October of that tax year. As we are now in December of the 2020 / 2021 tax year, that boat has sailed!!!! I assume the lady has not registered as self employed before early April.

I think if you are not likely to make more than £1000 self employed, there is no requirement to register ? 

That is true but if you want to make voluntary Class 2 contributions you need to register and complete a Self Assessment return, even if you are only going to tick a box (for the self employment) to say your profit/loss is £0 due to the trading allowance.  

That bit of effort makes you eligible for voluntary Class 2 National Insurance.

Dazed_and_C0nfused

Sorry I think this you are incorrect Dazed which is unusual as you tend to be on the money on the majority of your posts. To be able to pay Class 2 NI you have to register with HMRC as self employed by early October of that tax year. As we are now in December of the 2020 / 2021 tax year, that boat has sailed!!!! I assume the lady has not registered as self employed before early April.

I think you are getting your tax years mixed up 

My post said, 

If she fancies starting a small business before 6 April 2021 she could pay voluntary Class 2 NIC for the current tax which is only c£160 rather than c£800 for voluntary Class 3.

She has until October 2021 to register and must also have filed the 2020:21 return on time and have paid the Class 2 National Insurance by 31 January 2022 as well.  I think 

drumtochty

No the tax year you are talking about she would do her Self Employed work is 2020/2021. As she gets her state pension in summer 2021. She cannot pay NI for work after 5 April 2021. Therefore she must pay the Class 2 NI for the 2020/2021 Tax year. She must be registered for the 2020/2021 tax year as self employed by early October 2020. In order for that registered self employed "name" to be found by the self assesment system from 6 April 2021.

Dazed_and_C0nfused

drumtochty said:

No the tax year you are talking about she would do her Self Employed work is 2020/2021. As she gets her state pension in summer 2021. She cannot pay NI for work after 5 April 2021. Therefore she must pay the Class 2 NI for the 2020/2021 Tax year. She must be registered for the 2020/2021 tax year as self employed by early October 2020. In order for that registered self employed "name" to be found by the self assesment system from 6 April 2021.

That sounds odd, basically it means anyone who starts self employment later on in the tax year cannot pay Class 2 National Insurance.

Have never heard of that before, surprised it hasn't caused a few moans on here before now.

nigelbb

whisper_quietly said:

My wife will be 66 next June and intends to draw her state pension at that time. Her pension forecast on the gov.uk website says she has 29 years contributions. All of these were prior to April 2006. Her estimated pension is £145.17/week.  Again according to her pension forecast she can increase her pension to the new State Pension maximum of £175.20 by making 6 years voluntary contributions. This will then give her 35 years. Having spoken to the Future Pensions Centre (FPC) this would cost just over £4,600 which covers the four years 2006/07 to 2009/10 inclusive and 2018/19 and 2019/20. When I questioned this breakdown of years I was told that you pay additional contributions based on the lowest cost of funding the shortfall taken across all the years outstanding.
I must have misread the .gov.uk state pension website as I was under the impression that voluntary contributions could only be made for the years outstanding from April 2016 when the new State Pension was introduced.  I’m concerned that if my wife pays the six years voluntary contributions that she won’t get any additional pension in respect of the years 2006/07 to 2009/10, but only two years added for 2018/19 & 2019/20.
Questions. Will the £4,600 voluntary contribution increase my wife’s pension by £30/week as the pension forecast and FPC suggests?
If the answer to the Q above is yes, then with savings rate as low as they are currently, does in make financial sense to buy the six years?

If the Future Pensions Centre say that is the cheapest way of maximising her pension then you should accept this as they are the experts.

Of course it makes financial sense to buy the six added years at a cost of £4,600. It buys extra pension of around £1,500 per year for the rest of her life. Average life expectancy at state pension age is over 20 years so that £4,600 buys an index-linked sum of over £30,000. You can't make a better investment.