NI advice for early retiree

norfolkandnorwich

I'm looking for some advice about when I should make arrangements to pay voluntary NI contributions and to fact check my understanding if needed.
I'm 61, took early retirement from my LG job last summer and have been drawing my LG DB pension since that time. I'm due to receive my state pension at age 66 in 2026.
My current pension forecast is £179.60 a week (the most I can get), if I contribute another 4 years' NI contributions before 5 April 2026. The estimate based on my NI record to 5 April 2021 is £163.56 a week.
I have three years when I did not contribute enough but I can no longer fill these.
The forecast also confirms that I was contracted out and my COPE estimate is £88.56 a week.
I would like to maximise my state pension so far as it's cost effective to do so and, as I've made no NI contributions in the current financial year through employment, my intention will be to make voluntary Class 3 contributions.
I gather the rate for voluntary Class 3 contributions for 2021-22 is £15.40 a week and that the Future Pension Centre will confirm to what extent these contributions will increase my pension.
My question is - when is it the appropriate time to do this?
Will the Future Pension Centre advise me for the current year, before it has ended, or do I need to wait until some point in 2022-23?
Can / do I make voluntary Class 3 contributions during the current year or do I need to wait until some point in 2022-23?

molerat

https://www.gov.uk/pay-voluntary-class-3-national-insurance

It is only really worth you paying for 3 years as the 4th will only give you 65p, the other 3 will each give you £5.13 per week.

You can set up a DD now if you wish or leave it until 2023 so paying 23-24,24-25 & 25-26 or maybe just pay it in a lump sum nearer the time.  The prices only increase with inflation and stay at the same price for 2 years after the end of the year so no major reason for doing it early.

norfolkandnorwich

@molerat thanks for your response - very helpful to know that each year will give £5.13 a week although I'm not quite sure how you managed to work that out!
I thought I'd read that it's not possible to make contributions in the final year before the pension is due, in which case, I assume 25-26 is not an option for me. Is that right?
Also, I was slightly hesitant about waiting / biding my time to pay in case the Government decides to change the rules for whatever reason and withdraw the top-up opportunity.
I also remember reading that the case in support of making voluntary contributions is generally considered a no-brainer. I assume there's no argument against that approach, given a reasonable prospect of good health and adequate funds from which to make up the contributions?

molerat

You said your forecast states contribute before 5 Apr 26 which means your retirement date is after then so in the 26-27 tax year.

One year of contributions is worth £179.60 / 35 so £5.13.  You need £179.60 - £163.56 = £16.04 so 3 x £5.13 + 65p, paying £800 for 65p a week will take 20 years to recover.

Yes a no brainer, pay £800 and get £5.13 per week for life, around a 3 year pay back.

marlot

If you can find a legitimate source of self employed work, you can volunteer to pay class 2.

That could be something quite simple - walking a neighbour's dog, for instance.

Triumph13

And of course paying the voluntary NI too early massively increases your odds of dying early and wasting your money because of sod's law

norfolkandnorwich

@molerat - that's my bad, sorry, I should've typed 'if I contribute another 4 years' NI contributions before 5 April 2025' not 2026! Forgive my ignorance, but I still don't get why the figure 35 is used to make the £5.13 a week .. but, I agree, the three year pay-back period is a definite no-brainer!

@marlot - I'll give some more thought to a legitimate source of self-employment, although nothing has occurred to me so far ..

@Triumph13 - I'm generally a believer in the Law of Sod and, as you rightly say, it could also hold true if I opt to be over-prompt about paying!

Silvertabby

35 is the minimum number of years of NI payments (full, not contracted out) needed to qualify for the full single tier pension.

If you will be a basic rate taxpayer in retirement, then the break- even point is 4 years - still a good deal!

I retired at 60, and could have paid the 4 extra years I need by direct debits - but, instead, I opted to pay by lump sums.  2 years 6 months ago, and the final 2 years a month or so ago.  Far less faff, and it's not as if this money was making much in my ISA!

Merlin139

Sorry to jump on this thread but I have a similar situation which I was going to start a thread this evening having spent the last few hours checking out what was what.

I have 36 years of full contributions and 4 where I have not contributed enough, if you include this year it will be 5. My forecast is giving me a pension of £156.97 as of  05 April 2020  So based on what you have said I need to make up 4 to 5 years of my contributions.

My COPE estimate is £56.87 (As far as I am aware this makes no difference to my State Pension or the Pension i have been getting since 2005)

I have just under 10 years before I qualify for my State Pension aged 67.

Have not been working since March 2016 when I sort of retired. Did some work in this summer as I found a summer job that really appealed to me and was great fun working with a bunch of nutters. Hope to go back next year for 4 to 5 months and probably for the next few years. I have paid £187.20 National Insurance this year.

Tax year 2016/2017 requires £446.60 to make full. (Going to make up)
Tax year 2017/2018 requires £215.60 to make full. (Going to make up)
Tax year 2018/2019 requires £785.40 to make full.
Tax Year 2019/2020 requires £780.00 to make full.
2020/2021 not available yet but I did not earn anything so guess its the full amount.

I am looking to pay HMRC direct for 16/17 and 17/18 by April 2022 that will give me another 2 years. Cant see much point in paying 18/19 or 19/20 
Sometime in the next 10 years make up the other 2 or 3 years.

Based on what as been said already on this thread I have answered some of the questions I had. The main thing I am wondering is does it make sense to other people?

SouthCoastBoy

I am always concerned that the 35 years could move to say , 40 years. If this happens what are the rules regarding people who already have 35 years (and fully qualified for SP) and have stopped working but are say 8 years from retirement, are they expected to go back out to work or pay topups, or as they had fully qualified for a full SP they are automatically given the full SP at 67?

jamesd

Merlin139 it seems reasonable to do whatever part time work you do then top up. The biggest excess cost issue is happening to do it for years that turn out not to be the ones with the highest work NI contributions, spending a bit more than you should. If all else fails you can pay at the full rate just before your state pension age. Worth noting that the year in which you reach your state pension age can't count, so don't plan to use that one.