Guide discussion: Voluntary national insurance contributions

The_Hawk

I posted on this thread last year, just ahead of collecting my state pension, and received some excellent advice, the result of which was a significant boost to my state pension.

The bottom line is that for a one off payment of £5,717 I have boosted my state pension by over £2,000 per annum which, allowing for income tax, will result in a payback of just over 3 years.

The most difficult part of the process was getting through on the phone; once that had been achieved, the rest of it was fairly straightforward.

Thank you to everyone who provides great advice on here and, in my case, in particular to @molerat and @jem16

pritchah

Working our way through the guide and getting to the Step 5 calculator - my wife has 11 years where the year is not full

We talked to our financial adviser about this, and agreed that to top all of these up would come to around £8.6k

The calculator shows that BEFORE TAX, my wife would break even in around three years, but our adviser says that taking 20% tax into account, it would take her around seven and a half years to break even, which is quite a difference

Are the sums here correct?

My workings were that topping up would get my wife around an extra £110 per month - before tax

So our adviser estimates - 

• £110 per month which is around £27.50 per week
• Getting this increased income would mean that [she] would have to pay 20% tax for it meaning she would get around £22 NET per week.
• £8,600 (cost of topping up her NI contributions) divided by £22 (NET additional income per week) = 390 weeks to breakeven after tax
• 390 weeks divided by 52 (number of weeks per year) = 7.5 years to breakeven after tax

Is this correct?
 

Dazed_and_C0nfused

pritchah said:

Working our way through the guide and getting to the Step 5 calculator - my wife has 11 years where the year is not full

We talked to our financial adviser about this, and agreed that to top all of these up would come to around £8.6k

The calculator shows that BEFORE TAX, my wife would break even in around three years, but our adviser says that taking 20% tax into account, it would take her around seven and a half years to break even, which is quite a difference

Are the sums here correct?

My workings were that topping up would get my wife around an extra £110 per month - before tax

So our adviser estimates - 

• £110 per month which is around £27.50 per week
• Getting this increased income would mean that [she] would have to pay 20% tax for it meaning she would get around £22 NET per week.
• £8,600 (cost of topping up her NI contributions) divided by £22 (NET additional income per week) = 390 weeks to breakeven after tax
• 390 weeks divided by 52 (number of weeks per year) = 7.5 years to breakeven after tax

Is this correct?
 

Your figures are a fair bit out in places.

£110/month is only £25.38/week.

£25.38/week is £20.30/week after tax

£8,600 ÷ £25.38/week = 338 weeks

£8,600 ÷ £20.30/week = 423 weeks

molerat

I can't figure out how you have calculated 11 years will only give £110 per month.  11 years should give a worst case minimum of £62.82 per week, £3266 per year, £272 per month gross.  Best case is £69.52 pw, £3615 pa, £301 pm.

Perhaps share her forecast details as below

Current weekly £££.pp amount accrued up to April 2023
Number of pre April 2016 NI years full
Number of post April 2016 NI years full
Tax year you reach state retirement
Any COPE amount shown, in a click link in "You've been in a contracted-out pension scheme", if there is one.
Years which show not full and prices

pritchah

molerat said:

I can't figure out how you have calculated 11 years will only give £110 per month.  11 years should give a worst case minimum of £62.82 per week, £3266 per year, £272 per month gross.  Best case is £69.52 pw, £3615 pa, £301 pm.

Perhaps share her forecast details as below

Current weekly £££.pp amount accrued up to April 2023
Number of pre April 2016 NI years full
Number of post April 2016 NI years full
Tax year you reach state retirement
Any COPE amount shown, in a click link in "You've been in a contracted-out pension scheme", if there is one.
Years which show not full and prices

Current weekly £££.pp amount accrued up to April 2023 - dont understand this but her payment on 27/3/2023 was £592.72
Number of pre April 2016 NI years full - from what date?
Number of post April 2016 NI years full - none
Tax year you reach state retirement - she has already reached state retirement
Any COPE amount shown, in a click link in "You've been in a contracted-out pension scheme", if there is one. N/A
Years which show not full and prices - 
2010/11 - pay £412.10
2011/12 to 2019/2020 inc - pay £824.20 each year
2020/2021 - pay £795.60

molerat

Number of pre April 2016 NI years full - from what date?

All of them - how many full years does her NI record show ?

Any COPE amount shown, in a click link in "You've been in a contracted-out pension scheme", if there is one. N/A

As she has already reached state retirement that information will not be available so does she have a works pension, was she contracted out ?

Current weekly £££.pp amount accrued up to April 2023 - dont understand this but her payment on 27/3/2023 was £592.72

So her 2023-24 amount was £148.18 weekly, do you have the 24-25 weekly amount ? (£160.79?)

As you list 20-21 as an available year then can we assume she reached retirement sometime between April 21 to March 22 ?

How though have you come to that £110 per month ?

My quick calculation is that purchasing the 5 years 16-17 to 20-21 for £4092.40 will give £29.12 pw, £1514 pa, £126 pm (at the old 23-24 rates).

Dazed_and_C0nfused

Isn't £148.18/week the 2022/23 rate 🤔.

Either way I'm not sure 11 years is needed to reach the standard new State Pension.

Current weekly £££.pp amount accrued up to April 2023 - dont understand this but her payment on 27/3/2023 was £592.72

pritchah

Dazed_and_C0nfused said:

Isn't £148.18/week the 2022/23 rate 🤔.

Either way I'm not sure 11 years is needed to reach the standard new State Pension.

Current weekly £££.pp amount accrued up to April 2023 - dont understand this but her payment on 27/3/2023 was £592.72

Thanks for your trouble. I think the best thing is for my wife to contact DWP or whoever (I'll check in the guide). I suspect my calculations got off on the wrong foot, which was no help to anyone

molerat

If you confirm the weekly amount for 2024-25, it will be in the letter she received in the past couple of months, and the total number of full pre 2016 years held from her NI record we will be able to give you the options so when your wife phones The Pension Service she will be armed with all the information.  The big problem is that once past retirement age TPS only send that information by letter so several months waiting may be on the cards.

pritchah

molerat said:

If you confirm the weekly amount for 2024-25, it will be in the letter she received in the past couple of months, and the total number of full pre 2016 years held from her NI record we will be able to give you the options so when your wife phones The Pension Service she will be armed with all the information.  The big problem is that once past retirement age TPS only send that information by letter so several months waiting may be on the cards.

Her new regular payment of £708.16 every 4 weeks will start from 20 May 2024. So that's £177.04 a week

She has 39 full years pre 2016