Buying extra state pension, worth it?

bluenose1

Amateurretiree said:

Hope you don’t mind me hijacking your thread. I retired at 55 with a DB and already pay income tax on that, so when I get my SP in 8 yrs time I will likely be paying 20% tax on that ( happy to be in the position I’m in).
My question is on the HMRC website it says I am 8 yrs short for my full SP, so I would have to pay 6400 to make it up. My SP currently stands at £151 per week.
Just wondering is it worth me paying this 6400 as I’m going to be taxed on my pension anyway.
I know about the extra credits I could  get for childcare, but I let the other granny have these as her pension is less than mine.
TIA .

May be worth waiting to see if there are any years you could still potentially claim when the other gran has all the years she is short as get it until the youngest child 12.
‘Also do you or the other gran have caring responsibilities for anyone in receipt of `Attendance Allowance as may be entitled to Carers credit instead.
Even if you have to pay tax on your pension you will be in profit after 5 years or so with the guaranteed annual  increases. 

Dazed_and_C0nfused

Amateurretiree said:

My apologies, it says I have 8 years to make another 6 years contributions, I stand corrected. I do find the wording on that site difficult to understand at times!

You've just saved yourself £1,600 

SomeMadeUpName

Amateurretiree said:

My apologies, it says I have 8 years to make another 6 years contributions, I stand corrected. I do find the wording on that site difficult to understand at times!

The 6 years make sense, but do take note of the earlier comment that the 6th of those years will only add less than £2pw, so 'payback' on that would be closer to 11years for a basic rate tax payer in retirement.

Amateurretiree

Thanks everyone for being so helpful! The other gran is in a much worse position than me, she got divorced 15 yrs ago and up until then didn’t work and lived abroad. I don’t really know what the exact situation is but I reckon she needs all the help she can get. She was also contracted out (NHS)

Mark300zx

Dazed_and_C0nfused said:

As you have "recently" retired you may find you accrue another year once the 2020:21 year is considered (should be in next few weeks).

If you did need to buy 3 years and didn't want start a small business (voluntary Class 2 becomes available at c£160/year) then yes you could expect to pay £2,400.

That would get you between £10.27 and £15.39 per week extra State Pension (exact amount depends on what you have accrued to date).

This might be paid for 30+ years after State Pension age so is fantastic value.  Where else could you get that return?

Get run over by a bus the day after paying the £2,400 and it's wasted money.

Thanks for the replies so far.

Apologies may have got the figures wrong!

It is 166,25 a week, with an additional 3 years then it would increase to the usual  £179.60.

Also, I have worked half the tax year 20/21 does that contribute?

What are my options for paying, I don't really want to pay anything until the last minute?

What the small business option be more economical?

Dazed_and_C0nfused

Possibly.  Check your forecast again in a month or so and chances are it will have been updated for 2020:21.

Even if it isn't a full year you are likely to only need to pay a reduced amount to fill it.

Class 2 is much cheaper, only c£160 compared to £800 for Class 3.  But you must be self employed and be registered with HMRC and complete Self Assessment returns to qualify to pay voluntary Class 2 NIC.

https://www.litrg.org.uk/tax-guides/self-employment/what-national-insurance-do-i-pay-if-i-am-self-employed

Mark300zx

Thanks for all the replies so far, I guess the only question left is what's the time window for paying this?

I have 11 years until I can claim and don't want to pay anything until I have to?

molerat

Mark300zx said:

Thanks for all the replies so far, I guess the only question left is what's the time window for paying this?

I have 11 years until I can claim and don't want to pay anything until I have to?

The cost of class 3 increases with inflation each year so there is no real incentive to pay early, likely best left to nearer the time.

Mark300zx

Dazed_and_C0nfused said:

Possibly.  Check your forecast again in a month or so and chances are it will have been updated for 2020:21.

Even if it isn't a full year you are likely to only need to pay a reduced amount to fill it.

Class 2 is much cheaper, only c£160 compared to £800 for Class 3.  But you must be self employed and be registered with HMRC and complete Self Assessment returns to qualify to pay voluntary Class 2 NIC.

https://www.litrg.org.uk/tax-guides/self-employment/what-national-insurance-do-i-pay-if-i-am-self-employed

Do the yearly class 2 contributions count the same as voluntary as that would be quite a saving, would a sole trader be placed under this classification?

Dazed_and_C0nfused

Yes, voluntary Class 2 counts for State Pension purposes.

https://www.gov.uk/national-insurance/what-national-insurance-is-for

Either a sole trader or partner in a partnership would count but you must register with HMRC and complete Self Assessment returns, even if you have very low income from the self employment.