Guide discussion: Voluntary national insurance contributions

patrick194

Another pensions novice here trying to work out what to do about voluntary NI contributions for my partner and me and hoping one of the experts here will give a view on our situation.

Both partner and I know we need to buy extra years but not sure how many and/or which years – and any knowledgeable input would be welcomed.

Using the Gov.uk online pensions forecast service this is what we've got -

Partner is estimated:

Estimate £69.41 a week based on NI record up to 5 April 2022

Forecast £132.89 if contribute up to 5 April 2034

14 years of full contributions – all before 2004 – no post 2016 contributions

12 years to contribute before 5 April 2034

Reaches retirement in financial year 2034

COPE estimate £7.04 a week

14 years shown as not full 2006 – 2020 all available at £824.20 each.

2021 at £795.60

2022 at £800.80

I am estimated:

Estimate £125.51 a week based on NI record up to 5 April 2022

Forecast £178.41 a week if contribute up to 5 April 2032

22 years of full contributions – all before 2011 – no post 2016 contributions

10 years to contribute before 5 April 2032

Reach retirement in financial year 2032

COPE estimate £3.29 a week

1 year shown not full 2006 available at £824.20

9 years shown not full 2011 – 2020 all available at £824.20 each

2021 at £795.60

2022 at £800.80

Is it better to buy as many pre 2016 years as we can to try to get to 35 years or is it better to buy future/new ones? Assuming price will probably increase and we're not sure of future work/earning situations.

Like many others, we've been unable to get though to the Future Pension Centre yet but have read that one must phone them first or can we bypass this step and go directly to trying the phoneline for the 18 digit NI ref number?

molerat

patrick194 said:

Another pensions novice here trying to work out what to do about voluntary NI contributions for my partner and me and hoping one of the experts here will give a view on our situation.

Both partner and I know we need to buy extra years but not sure how many and/or which years – and any knowledgeable input would be welcomed.

Using the Gov.uk online pensions forecast service this is what we've got -

Partner is estimated:

Estimate £69.41 a week based on NI record up to 5 April 2022

Forecast £132.89 if contribute up to 5 April 2034

14 years of full contributions – all before 2004 – no post 2016 contributions

12 years to contribute before 5 April 2034

Reaches retirement in financial year 2034

COPE estimate £7.04 a week

14 years shown as not full 2006 – 2020 all available at £824.20 each.

2021 at £795.60

2022 at £800.80

They need another 23 years of contributions to reach the max with 12 available going forward and 16 going back so they need at least 11 past years to be in with a chance of getting the max.  Any years will add but pre 2016 will only add £4.73 per year so to be in with any chance of the max they need to purchase at least 5 from 2006-16 plus 2016-17 before April when those years become unavailable. Purchasing more pre 2016 years will reduce the number of years required going forward.

patrick194 said:

I am estimated:

Estimate £125.51 a week based on NI record up to 5 April 2022

Forecast £178.41 a week if contribute up to 5 April 2032

22 years of full contributions – all before 2011 – no post 2016 contributions

10 years to contribute before 5 April 2032

Reach retirement in financial year 2032

COPE estimate £3.29 a week

1 year shown not full 2006 available at £824.20

9 years shown not full 2011 – 2020 all available at £824.20 each

2021 at £795.60

2022 at £800.80

Is it better to buy as many pre 2016 years as we can to try to get to 35 years or is it better to buy future/new ones? Assuming price will probably increase and we're not sure of future work/earning situations.

Like many others, we've been unable to get though to the Future Pension Centre yet but have read that one must phone them first or can we bypass this step and go directly to trying the phoneline for the 18 digit NI ref number?

You need 12 to get to the max with 10 years going forward so you have plenty of scope with back years.  Again pre 2016 years add less value than post but filling up takes the pressure off of the future. You could increase your pension to the max with your 12 available past years.

From 5 April all years 2006-07 to 2016-17 cease to be available (although there is some talk of that deadline having a bit of case by case flexibility) and all years 2020-21 and earlier increase to £907.40.

Bypassing the FPC is difficult as HMRC do not want you to pay for years that will not add to your pension and they cannot advise on that point.  You could always use the old fashioned cheque and letter, with proof of postage, so if received before 5 April it should be applied for then. https://www.gov.uk/pay-voluntary-class-3-national-insurance

JPears

Hi,

I posted about a week ago but didn't get any reply so I'll try again:

Age 56, self employed

Estimate based on your National Insurance record up to 5 April 2022  - £156.50

Forecast if you contribute another 6 years before 5 April 2033            - £185.15

Contracted Out Pension Equivalent (COPE)

Your COPE estimate is £1.85 a week

( I wasn't aware I ever was contracted out....)

NI records:

2014 to 2015

Year is not full

We are checking this year to see if it counts towards your pension. We’ll update your record when this is finished, you do not need to do anything.

Is it worth topping up the unpaid Class 2 contributions from 2014 /15?

 ( I am sure these were paid in full at the time though)

I probably will work the next 6 years but might only do 5.

Thanks in advance

pinnks

If you are planning on remaining self-employed (or become employed) then you are likely to pay mandatory NIC.  Assuming you will pay your 2022/23 Class 2 (in January 2024), that would leave you with 5 years to pay from 2023/24 to 2032/33.  Personally, I would keep my powder dry and decide what to when year 6 arrives.  Who knows, you might still be self-employed but "running your business down" as it were in that final year, so having much more free time anyway.  On the other hand, you may just carry on running your business for the next 6+ years.

molerat

JPears said:

Hi,

I posted about a week ago but didn't get any reply so I'll try again:

Age 56, self employed

Estimate based on your National Insurance record up to 5 April 2022  - £156.50

Forecast if you contribute another 6 years before 5 April 2033            - £185.15

Contracted Out Pension Equivalent (COPE)

Your COPE estimate is £1.85 a week

( I wasn't aware I ever was contracted out....)

NI records:

2014 to 2015

Year is not full

We are checking this year to see if it counts towards your pension. We’ll update your record when this is finished, you do not need to do anything.

Is it worth topping up the unpaid Class 2 contributions from 2014 /15?

 ( I am sure these were paid in full at the time though)

I probably will work the next 6 years but might only do 5.

Thanks in advance

Not enough information to be certain if that pre 2016 year will add to your pension.

Number of pre 2016 years full
Number of post 2016 years full

Dodge1664

Dazed_and_C0nfused said:

The typical years Class 3 NI will cost ~£800.  As a one off payment.

And add £275/year to your State Pension.  Every year from SPA for the rest of your life.

And be increased by some form of inflation protection.  For example this year's £275 will be worth £302 next month.

Not sure how you will get the same return by investing ~£800 elsewhere but I'm sure people would like to know!

The years I am considering are pre-2016 years that cost £824 each, and don't seem to be quite as valuable as post 2016 years. I have 15 years before I reach SPA. By my reckoning, I would need a return of about 13% p.a. from my investment to avoid any risk of running out in old age. Quite high, but not ridiculous. This would also have the advantage that my family would be left money if I died younger, and that my income tax would be lower as a pensioner.

Martin's claim that class 3 contributions pay for themselves if you live for more than 3 years beyond SPA is over-simplistic. He completely ignores the growth on the contributions if invested elsewhere. He also ignores the fact that the state pension is taxable.

JPears

Hi molerat.

Thanks for reply.

All post 2016 years fully paid up.

1985-1988 Not full

90/91 Not full

95-98 Not full

2000/01 Not full

molerat

JPears said:

Hi molerat.

Thanks for reply.

All post 2016 years fully paid up.

1985-1988 Not full

90/91 Not full

95-98 Not full

2000/01 Not full

How many total years does your NI record show as full ?

I suspect 30 ish, if so that 14-15 will add value

Whether it is worth your while with plenty spare going forward is another matter.

patrick194

molerat said:

patrick194 said:

Another pensions novice here trying to work out what to do about voluntary NI contributions for my partner and me and hoping one of the experts here will give a view on our situation.

Both partner and I know we need to buy extra years but not sure how many and/or which years – and any knowledgeable input would be welcomed.

Using the Gov.uk online pensions forecast service this is what we've got -

Partner is estimated:

Estimate £69.41 a week based on NI record up to 5 April 2022

Forecast £132.89 if contribute up to 5 April 2034

14 years of full contributions – all before 2004 – no post 2016 contributions

12 years to contribute before 5 April 2034

Reaches retirement in financial year 2034

COPE estimate £7.04 a week

14 years shown as not full 2006 – 2020 all available at £824.20 each.

2021 at £795.60

2022 at £800.80

They need another 23 years of contributions to reach the max with 12 available going forward and 16 going back so they need at least 11 past years to be in with a chance of getting the max.  Any years will add but pre 2016 will only add £4.73 per year so to be in with any chance of the max they need to purchase at least 5 from 2006-16 plus 2016-17 before April when those years become unavailable. Purchasing more pre 2016 years will reduce the number of years required going forward.

patrick194 said:

I am estimated:

Estimate £125.51 a week based on NI record up to 5 April 2022

Forecast £178.41 a week if contribute up to 5 April 2032

22 years of full contributions – all before 2011 – no post 2016 contributions

10 years to contribute before 5 April 2032

Reach retirement in financial year 2032

COPE estimate £3.29 a week

1 year shown not full 2006 available at £824.20

9 years shown not full 2011 – 2020 all available at £824.20 each

2021 at £795.60

2022 at £800.80

Is it better to buy as many pre 2016 years as we can to try to get to 35 years or is it better to buy future/new ones? Assuming price will probably increase and we're not sure of future work/earning situations.

Like many others, we've been unable to get though to the Future Pension Centre yet but have read that one must phone them first or can we bypass this step and go directly to trying the phoneline for the 18 digit NI ref number?

You need 12 to get to the max with 10 years going forward so you have plenty of scope with back years.  Again pre 2016 years add less value than post but filling up takes the pressure off of the future. You could increase your pension to the max with your 12 available past years.

From 5 April all years 2006-07 to 2016-17 cease to be available (although there is some talk of that deadline having a bit of case by case flexibility) and all years 2020-21 and earlier increase to £907.40.

Bypassing the FPC is difficult as HMRC do not want you to pay for years that will not add to your pension and they cannot advise on that point.  You could always use the old fashioned cheque and letter, with proof of postage, so if received before 5 April it should be applied for then.

Thank you molerat - I really appeciate you taking the time to explain the situation.

The cheque and letter with proof of postage seems a good option in the circumstances - at least we could purchase the minimum before April and then contact the FPC later, when the pressure is off, regarding future purchases.

Just for my own peace of mind, is there a particular risk that we haven't thought of that might result in paying for years that wouldn't add to a pension?

I can imagine a scenario where I, for example, purchased the 12 available past years reaching my maximum pension and then took up employment and paid NI but wouldn't be able to increase the pension above the 35 years. I suppose one way of mitigating this risk is to only purchase years just before they are due to become unavailable?

For my partner, with a maximum of 28 years available (at this point) before retirement and 23 years required - it would surely be safe to purchase all years except the oldest 5? Of course, it does mean one then has to be sure of being able to purchase all remaining years.

Have I thought that through correctly? Or is there some other risk factor?

Thanks again

molerat

patrick194 said:

Just for my own peace of mind, is there a particular risk that we haven't thought of that might result in paying for years that wouldn't add to a pension?

I can imagine a scenario where I, for example, purchased the 12 available past years reaching my maximum pension and then took up employment and paid NI but wouldn't be able to increase the pension above the 35 years. I suppose one way of mitigating this risk is to only purchase years just before they are due to become unavailable?

For my partner, with a maximum of 28 years available (at this point) before retirement and 23 years required - it would surely be safe to purchase all years except the oldest 5? Of course, it does mean one then has to be sure of being able to purchase all remaining years.

Have I thought that through correctly? Or is there some other risk factor?

Thanks again

It is safe for either of you to purchase any back years.  There are limits to pre 2016 years but neither of you trip those limits.

For you, yes there is that problem of buying now and possibly paying again later for no benefit so you only "need" 2 back years as you can safely pick up the rest later.  In that scenario post 2016 years are preferable due to the slightly better return but buying the cheapest now will limit your future choice.  The other problem of buying more than absolutely necessary ahead is what I call the bus risk, step out in front of one then everything is wasted, no one gets anything if you don't live long enough.

The price of future years is effectively the same as the current year, they only increase with inflation.

Your thoughts are pretty much spot on.