Buy NI years or invest in SIPP Stocks and Shares

EdJohn

Hi,
First off thank you all for taking the time to read and offer your advice. 
In response to your questions:
I expect to have a total of 17 years of contributions by the time I retire, unless I buy further to plug gaps which I do have.
4000 put into a SIPP with a rate of return of 5% and compounding yearly would be 8551 after 11 years (age 55) or 16,125 (age 68). Noting that neither of these are guaranteed...
Going through the steps in the article and having spoken to the advisors on the phone they were unable to compare buying Vs the opportunity cost of investing.
Thank you

Albermarle

4000 put into a SIPP with a rate of return of 5% and compounding yearly would be 8551 after 11 years (age 55) or 16,125 (age 68). Noting that neither of these are guaranteed...

But in value it would be £16, 125 minus 24 years inflation . So probably only about half that in todays money.

If today at age 68 you bought an an inflation linked lifetime annuity with £8K, it would give you about £5 a week.

If you bought 5 years NI years with your £4000, it would give you £25 a week . Five times better value.

eskbanker

EdJohn said:

I expect to have a total of 17 years of contributions by the time I retire, unless I buy further to plug gaps which I do have.

Not sure if it's necessarily directly relevant but your financial circumstances are clearly quite unusual, so are you able and willing to share why this figure is so low, when for most it would be 40+?  How much of your life has been in the UK, what do the last 25 years look like, when do you anticipate retiring, etc?

Audaxer

EdJohn said:

I expect to have a total of 17 years of contributions by the time I retire, unless I buy further to plug gaps which I do have.

If any of the NI gaps are before 2016, plugging these gaps does not always increase your State Pension. They might do, but best to check with the Future Pension Centre to ensure they will increase your State Pension.

Zola.

I am mid 30s... just checked my national insurance record and I have 18 years full contributions... 
I noticed there is one year from 2006 where I can get a full years contributions if I pay just under £500... worth it?

EthicsGradient

Zola. said:

I am mid 30s... just checked my national insurance record and I have 18 years full contributions... 
I noticed there is one year from 2006 where I can get a full years contributions if I pay just under £500... worth it?

Are you intending to earn, and thus pay NI, for under 17 years between now and when you reach state retirement age? That's what is currently needed to get the 35 years required for a full state pension. If you were contracted-out in the past (given your age, quite likely not), it may be worth contributing for a bit more than 17 years. But it all depends on if you intend to stop working before your mid 50s, really.

Dazed_and_C0nfused

EthicsGradient said:

Zola. said:

I am mid 30s... just checked my national insurance record and I have 18 years full contributions... 
I noticed there is one year from 2006 where I can get a full years contributions if I pay just under £500... worth it?

Are you intending to earn, and thus pay NI, for under 17 years between now and when you reach state retirement age? That's what is currently needed to get the 35 years required for a full state pension. If you were contracted-out in the past (given your age, quite likely not), it may be worth contributing for a bit more than 17 years. But it all depends on if you intend to stop working before your mid 50s, really.

The op is under transitional rules so there definitely is no guarantee that 35 years will be relevant.

What the op needs to do is look at what they actually accrued to date, usually shown to 5 April 2022 at the moment, and deduct that figure from £185.15.  Whatever is left should then be divided by £5.29 and that answer rounded up to the nearest whole number.  That is how many post 2016 years they need to reach £185.15.

Once they know that and have an idea of their expected contribution years going forward they can decide if parting with £500 is a good move or not (I suspect not).

For example current accrual £110.00

Balance to make up = £75.15

£75.15 / £5.29 = 14.2 rounded to 15 years

Daliah

Zola. said:

I am mid 30s... just checked my national insurance record and I have 18 years full contributions... 
I noticed there is one year from 2006 where I can get a full years contributions if I pay just under £500... worth it?

Mid thirties now means your state pension age is 68 (at least). So you have some 30+ years still to obtain extra NI years. If it was me, I would not buy that extra year now. You can still make voluntary contributions later should you need them.

But what does your state pension forecast say?

p00hsticks

Audaxer said:

EdJohn said:

I expect to have a total of 17 years of contributions by the time I retire, unless I buy further to plug gaps which I do have.

If any of the NI gaps are before 2016, plugging these gaps does not always increase your State Pension. They might do, but best to check with the Future Pension Centre to ensure they will increase your State Pension.

I think we can safely say for someone who even now only has 17 years in total, that plugging any pre-2016 gaps will increase their forecast. 

Daliah

p00hsticks said:

Audaxer said:

EdJohn said:

I expect to have a total of 17 years of contributions by the time I retire, unless I buy further to plug gaps which I do have.

If any of the NI gaps are before 2016, plugging these gaps does not always increase your State Pension. They might do, but best to check with the Future Pension Centre to ensure they will increase your State Pension.

I think we can safely say for someone who even now only has 17 years in total, that plugging any pre-2016 gaps will increase their forecast. 

Not necessarily. It would depend on the age of the person, and on their existing NI record.

For someone who already has 17 years and  still has 18+ years to their state pension age, buying extra years now might just be a waste of money, even if it did for now increase the SP amount earned to date.