State pension top-up: which years to backfill?

Frugal_Squirrel

Hello, I am very grateful to have found this forum, as it has already answered so many questions we had after viewing my husband's state pension forecast. Apparently he is entitled to make voluntary contributions to fill gaps in his record and increase the amount of his future state pension, but I can't work out which gaps to fill --  pre-2016 years or post-2016 years? My husband is 58, worked in the UK from age 16 to age 40, then left to live and work abroad, so he has not made any NI contributions since 2002. Here are the details from the forecast:

25 years of full contributions (every year that he worked from age 16 to age 40)

9 years to contribute until 5 April 2029
17 years when [he] did not contribute enough (these are the years after 2002 when he emigrated)

Estimate based on your National Insurance record up to 5 April 2020: £117.85 a week

Forecast if you contribute until 5 April 2029: £162.90 a week

The most you can increase your forecast to is: £175.20 a week

Contracted out pension equivalent (COPE) is: £34.12 a week (he contacted out of SERPS into a personal pension in the late 80s)

Looking at his NI record, they are allowing him to fill years going back to 2006-07 (this surprised me as I thought it was a maximum of 6 years). Also, this may or may not be relevant to the calculation, but he should be eligible to pay voluntary NICs at the Class 2 rate due to his status of working abroad.

I think I understand the maths for the post-2016 years and that he would need to backfill 12 post-2016 years to reach the full pension amount. What I do not know is the potential impact of paying for any of the years between 2006-07 and 2015-16.

I very much appreciate all of the brilliant advice I've read here, and I look forward to any comments. Thank you.

molerat

Paying back to 2006-7 was a concession with the introduction of the new pension.

With a 2020 amount of £117.85 and no post 2016 contributions means his 2016 starting amount was £104.71

This was calculated under the old rules, £99.42 basic + £5.30 additional pension - new rules would have been £111.18 less £34.12 COPE = £77.06

He can safely buy 5 pre 2016 years - any more than 5 will not add benefit (buying the full 10 would make the new calculation £121.53, still below the £124.60 old calculation) - which will bring the current amount up to £140.23 then another 7 post 2016 years.

Years up to April 2017 will stop being available from April 2023, 2018 in 2024, 2019 in 2025 & 2020 in 2026.

Buying the pre 2016 years offers no real financial benefit, they all cost the same as the current year, as he needs 12 years and has 13 years available from April 2016 to April 2029.  The only danger is that class 2 may be axed in the future (and quite rightly so where ex pats are concerned).

Frugal_Squirrel

molerat said:

Paying back to 2006-7 was a concession with the introduction of the new pension.

With a 2020 amount of £117.85 and no post 2016 contributions means his 2016 starting amount was £104.71

This was calculated under the old rules, £99.42 basic + £5.30 additional pension - new rules would have been £111.18 less £34.12 COPE = £77.06

He can safely buy 5 pre 2016 years - any more than 5 will not add benefit (buying the full 10 would make the new calculation £121.53, still below the £124.60 old calculation) - which will bring the current amount up to £140.23 then another 7 post 2016 years.

Years up to April 2017 will stop being available from April 2023, 2018 in 2024, 2019 in 2025 & 2020 in 2026.

Buying the pre 2016 years offers no real financial benefit, they all cost the same as the current year, as he needs 12 years and has 13 years available from April 2016 to April 2029.  The only danger is that class 2 may be axed in the future.

molerat, thank you for that very clear and thorough analysis! Just to be completely clear, when we are talking about pre-2016 years, the year 2015-16 considered a pre-2016 year, correct? And 2016-17 is a post-2016 year? I don't want to misunderstand where the cutoff is.

I am inclined to pay for those 5 pre-2016 years, wait to make sure his record is credited correctly, then pay for as many of the post-2016 years as are available to pay.  I like the idea of backfilling them as soon as possible in case of future changes.

molerat

The tax year changeover is April so yes as to the pre / post question.

Just testing my spreadsheet.  Took me longer to write it than it did to calculate it

3card

i rang the future pensions people this week to discuss me wifes missing years and they were able to confirm information that was given on this forum that in her case to pay the 2015/16 wouldnt have increased her state pension in anyway when its due for payment in 2028
It will take a bit of time to get through to them on the phone but its  worth it in the end

Frugal_Squirrel

molerat said:

The tax year changeover is April so yes as to the pre / post question.

Just testing my spreadsheet.  Took me longer to write it than it did to calculate it

Your spreadsheet, and you, are brilliant! One last question - is it the case that he can only pay for a maximum of 6 past years, even though his record shows gaps fillable going back to 2006-07? So the most he could pay now would be 6 past years plus the current year?

molerat

Frugal_Squirrel said:

molerat said:

The tax year changeover is April so yes as to the pre / post question.

Just testing my spreadsheet.  Took me longer to write it than it did to calculate it

Your spreadsheet, and you, are brilliant! One last question - is it the case that he can only pay for a maximum of 6 past years, even though his record shows gaps fillable going back to 2006-07? So the most he could pay now would be 6 past years plus the current year?

That is a general rule but an exception was made with the introduction of the 2016 pension so that everyone had the chance to get the minimum 10 years needed to receive any pension at all.  Years 2006-07 to 2016-17 are all treated as 2016-17 for the 2 year / 6 year back payment rules.

hilla_2

i thought we could only go back 6 years? i only have to pay £30 to make a full year in 2012-2013 but i didn't think that would make a difference to my nu,ber of years. Could someone clarify please. Due to reach 66 on 30/12/2023

molerat

There is a difference in being available to buy and adding value to your pension.  How many pre 2016 years do you already have ? Were you in a contracted out pension and does your forecast show a COPE amount ?

The general rule is that if your pension is below the new pension full amount :

If less than 30 pre 2016 years paying up to 30 cannot fail to add value

If between 30 and 34 years buying more pre 2016 years may or may not add value depending on your personal circumstances

If 35 or more pre 2016 years held then adding more cannot add value