Paying Class 3 Voluntary NICs vs SIPP

jem16

A hypothetical question really as I’m doing both for different reasons. 

If you chose to pay £800 into a SIPP instead of paying for Class 3 NICs, what return would be needed to match the return on the extra state pension you would receive?

Dazed_and_C0nfused

Assuming the Class 3 NI is adding the maximum £5.29/week and not say the final few pence to reach £185.15 then I cannot see how £800 invested in a SIPP would ever get close.

Even allowing for the fact that it would only be £640 of your own money whereas you actually need to part with £800 for the Class 3 NI.

Maybe if you are 30+ years away from SPA it might be different.

jem16

I can’t see it ever getting close either but someone said she was advised to invest in a SIPP rather than paying to top up her state pension. 

This is someone who is close to SPA. 

Dazed_and_C0nfused

jem16 said:

I can’t see it ever getting close either but someone said she was advised to invest in a SIPP rather than paying to top up her state pension. 

I wonder if that advice was from someone who would benefit themselves from money being invested in the SIPP 🤔.

Or the Class 3 was only going to buy the last tiny bit of State Pension??

jem16

Dazed_and_C0nfused said:

jem16 said:

I can’t see it ever getting close either but someone said she was advised to invest in a SIPP rather than paying to top up her state pension. 

I wonder if that advice was from someone who would benefit themselves from money being invested in the SIPP 🤔.

The advice is probably from a “friend” rather than a real advisor. 

Silvertabby

Possibly a friend who doesn't understand how pensions work.

When I told Mr S that I was going to pay (in round figures) £3K for an extra £20 per week State pension his initial reaction was one of disbelief - until I showed him the sums.

QrizB

jem16 said:

If you chose to pay £800 into a SIPP instead of paying for Class 3 NICs, what return would be needed to match the return on the extra state pension you would receive?

and

jem16 said:

This is someone who is close to SPA. 

For someone close to SPA so little time for the SIPP to "grow" before retirement, their £800 needs to yield £275/yr plus enough growth to match the triple lock. That's roughly a 40% yield.

Put another way, you'd need about 10x as much - £8000 - in the SIPP at a SWR of 4%.

jem16

QrizB said:

jem16 said:

If you chose to pay £800 into a SIPP instead of paying for Class 3 NICs, what return would be needed to match the return on the extra state pension you would receive?

and

jem16 said:

This is someone who is close to SPA. 

For someone close to SPA so little time for the SIPP to "grow" before retirement, their £800 needs to yield £275/yr plus enough growth to match the triple lock. That's roughly a 40% yield.

Put another way, you'd need about 10x as much - £8000 - in the SIPP at a SWR of 4%.

Thanks. Even allowing for 3 to 4 years as the normal payback time before the increased pension is all profit, it sounds like that £800 would need to grow quite some amount to then provide that index linked amount for life. Really not possible at all in my opinion.