Voluntary NI contributions - planning ahead

aroominyork

I am helping my son work out whether to make voluntary NICs for missing years and hope someone can help with a few questions.

He is 33 and has spent most of the last decade-plus in postgraduate education or working abroad. His HMRC record shows three years of NICs and he has 35 years until his state retirement date so, as the rules currently stand, he needs 32 years of NICs for a full state pension. He has Australian and British dual nationality and currently lives in France (soon moving to Italy for a year) but will spend enough time in the UK to retain tax status here. He works as a freelance writer. He recently registered for self-assessment and will complete a return for 2021-22.

The right approach might be to wait and see how the coming years pan out and pay voluntary contributions if and when it is clear he will not accrue 35 years, but we are trying to assess whether the cost of voluntary contributions would be lower if he made them now – while his earnings are low – than in future when they rise.

His understanding is that you pay based on what your current rate is, so if he is Class 2 self-employed would voluntary contributions made now cost £3.12 a week?

Likewise, as soon as he pays Class 4 NIC would his voluntary contributions rise, and if so to what amount?

And if he makes a voluntary contribution now, when he does not know what his total earnings will be this year, how is the amount set?

If as is likely I have missed some relevant points, I would appreciate guidance.

Marcon

aroominyork said:

I am helping my son work out whether to make voluntary NICs for missing years and hope someone can help with a few questions.

He is 33 and has spent most of the last decade-plus in postgraduate education or working abroad. His HMRC record shows three years of NICs and he has 35 years until his state retirement date so, as the rules currently stand, he needs 32 years of NICs for a full state pension. He has Australian and British dual nationality and currently lives in France (soon moving to Italy for a year) but will spend enough time in the UK to retain tax status here. He works as a freelance writer. He recently registered for self-assessment and will complete a return for 2021-22.

The right approach might be to wait and see how the coming years pan out and pay voluntary contributions if and when it is clear he will not accrue 35 years, but we are trying to assess whether the cost of voluntary contributions would be lower if he made them now – while his earnings are low – than in future when they rise.

His understanding is that you pay based on what your current rate is, so if he is Class 2 self-employed would voluntary contributions made now cost £3.12 a week?

Likewise, as soon as he pays Class 4 NIC would his voluntary contributions rise, and if so to what amount?

And if he makes a voluntary contribution now, when he does not know what his total earnings will be this year, how is the amount set?

If as is likely I have missed some relevant points, I would appreciate guidance.

Planning ahead is always admirable, but at the tender age of 33, it's probably far too early to start trying to work out if paying voluntary NI is worthwhile. Who knows how many years of contributions will be needed by the time he gets to whatever state pension age is more than 3 decades away?

p00hsticks

Marcon said:

aroominyork said:

I am helping my son work out whether to make voluntary NICs for missing years and hope someone can help with a few questions.

He is 33 and has spent most of the last decade-plus in postgraduate education or working abroad. His HMRC record shows three years of NICs and he has 35 years until his state retirement date so, as the rules currently stand, he needs 32 years of NICs for a full state pension. He has Australian and British dual nationality and currently lives in France (soon moving to Italy for a year) but will spend enough time in the UK to retain tax status here. He works as a freelance writer. He recently registered for self-assessment and will complete a return for 2021-22.

The right approach might be to wait and see how the coming years pan out and pay voluntary contributions if and when it is clear he will not accrue 35 years, but we are trying to assess whether the cost of voluntary contributions would be lower if he made them now – while his earnings are low – than in future when they rise.

His understanding is that you pay based on what your current rate is, so if he is Class 2 self-employed would voluntary contributions made now cost £3.12 a week?

Likewise, as soon as he pays Class 4 NIC would his voluntary contributions rise, and if so to what amount?

And if he makes a voluntary contribution now, when he does not know what his total earnings will be this year, how is the amount set?

If as is likely I have missed some relevant points, I would appreciate guidance.

Planning ahead is always admirable, but at the tender age of 33, it's probably far too early to start trying to work out if paying voluntary NI is worthwhile. Who knows how many years of contributions will be needed by the time he gets to whatever state pension age is more than 3 decades away?

Whilst I'd normally agree with you, my opinion would be in this instance,as they live abroad, to make voluntary Class 2 contributions whilst they have the opportunity. These are currently so cheap in comparison to the Class 3 ones that they'd have to buy later on in this country if they needed them and didn't earn them that I'd say it's worth the punt ...

OldBeanz

My son now works abroad having just turned 30.
He might or might not return to the UK to live but a punt on Class 2 contributions to reach 10 years of contributions is worth it as far as he is concerned.  

aroominyork

Thank you Marcon, p00hsticks and OldBeanz - all much appreciated.

How do we check the cost of contributions if he makes them now? What are the criteria for paying at £3.12/week?

Secret2ndAccount

Whilst he has the opportunity to pay Class 2 Voluntary contributions, I would take it. At £164/yr it's a bargain. The full price for many people is £824/yr. As the rules currently stand, he will be able to make up the previous six years if he is approaching 68 and doesn't have enough years. So the current years will be 'buy them or lose them'. At £164, it makes sense to roughly keep up with the schedule.
To pay class 2, you have to be genuinely self employed in the UK, or, if abroad:
"you worked in the UK immediately before leaving, and you’ve previously lived in the UK for at least 3 years in a row or paid at least 3 years of contributions"
If his UK declared profit is small, the NI is optional - just Class 2
If he makes over 6725 the Class 2 becomes compulsory
If he makes over 9881, he will have to pay Class 4 as well

If he didn't pay Class 2 the last few years, he might be able to pay those voluntarily - you can check with the Pension Service. Whether that will prove to be worth it is crystal ball gazing, but it is cheap. The previous 2 years would be at the previous prevailing rates, so slightly cheaper than this year. Prior years are offered at this year's price.

nigelbb

Secret2ndAccount said:

Whilst he has the opportunity to pay Class 2 Voluntary contributions, I would take it. At £164/yr it's a bargain. The full price for many people is £824/yr. As the rules currently stand, he will be able to make up the previous six years if he is approaching 68 and doesn't have enough years. So the current years will be 'buy them or lose them'. At £164, it makes sense to roughly keep up with the schedule.
To pay class 2, you have to be genuinely self employed in the UK, or, if abroad:
"you worked in the UK immediately before leaving, and you’ve previously lived in the UK for at least 3 years in a row or paid at least 3 years of contributions"
If his UK declared profit is small, the NI is optional - just Class 2
If he makes over 6725 the Class 2 becomes compulsory
If he makes over 9881, he will have to pay Class 4 as well

If he didn't pay Class 2 the last few years, he might be able to pay those voluntarily - you can check with the Pension Service. Whether that will prove to be worth it is crystal ball gazing, but it is cheap. The previous 2 years would be at the previous prevailing rates, so slightly cheaper than this year. Prior years are offered at this year's price.

If abroad to qualify to pay Class 2 you also need to be employed or self-employed.

bostonerimus

Marcon said:

aroominyork said:

I am helping my son work out whether to make voluntary NICs for missing years and hope someone can help with a few questions.

He is 33 and has spent most of the last decade-plus in postgraduate education or working abroad. His HMRC record shows three years of NICs and he has 35 years until his state retirement date so, as the rules currently stand, he needs 32 years of NICs for a full state pension. He has Australian and British dual nationality and currently lives in France (soon moving to Italy for a year) but will spend enough time in the UK to retain tax status here. He works as a freelance writer. He recently registered for self-assessment and will complete a return for 2021-22.

The right approach might be to wait and see how the coming years pan out and pay voluntary contributions if and when it is clear he will not accrue 35 years, but we are trying to assess whether the cost of voluntary contributions would be lower if he made them now – while his earnings are low – than in future when they rise.

His understanding is that you pay based on what your current rate is, so if he is Class 2 self-employed would voluntary contributions made now cost £3.12 a week?

Likewise, as soon as he pays Class 4 NIC would his voluntary contributions rise, and if so to what amount?

And if he makes a voluntary contribution now, when he does not know what his total earnings will be this year, how is the amount set?

If as is likely I have missed some relevant points, I would appreciate guidance.

Planning ahead is always admirable, but at the tender age of 33, it's probably far too early to start trying to work out if paying voluntary NI is worthwhile. Who knows how many years of contributions will be needed by the time he gets to whatever state pension age is more than 3 decades away?

All the more reason to take advantage of the low Class 2 NI rate if possible. I left the UK when I was 25 and applied to pay voluntary Class 3 NI which then changed to Class 2 NI. Over 30 years later that bit of planning turned out to be the best financial move I ever made and I will get SP from both the UK and the US. The OP could well get a UK and a EU SP if they plan well.