State pension top ups

radhadee

hi I who I wrote on here few week back about how despite having 44 years contributions I’m not getting full pension presumably because at some point in the years I was contracted out. I did enquiry and it seems I can pay two years??  Letter attached. My finance guy reckons to pay full two years to get full pension despite the second year only takes it to over a pound or so more. Just putting it out there to see what consensus is? Pay one year or the two? It’s a lot for me especially with energy hikes too!!!

my letter and my finance guys input re this below

The final point is whether you should pay in extra to increase the state pension. From what I can see, if you pay £795.60 for tax year 20-21 then you will increase your state pension by £5.29 per week. If we don’t allow for inflation increases in the state pension then it will take between 2.5 and 3 years to get this back. Given the value of the triple lock guarantee though, it wont actually take that long. So this does seem like good value to me. Strangely though, paying for another year is an extra £800.80 but only gives you an extra £1.61. Again if ignore inflation it will take 9.5 years to get this back (maybe more like 6 with inflation added). So, buying one year sounds like good value but the extra year is not as good value overall. Statistically though you are likely to live another 9.5 years (or 6 if you prefer) and so I still think that overall paying a total of £1,596.40 for those two extra years is good value.

Stubod

..I think you have answered you own question, it's probably the best "investment" you can make, (assuming you have the cash available). I have just topped up mine to the max amount, and every year we top up Mrs SB as she has another few years to go...I think it's a no brainer unless you have any major heath issues?

Silvertabby

Assuming that you  will be a basic rate tax payer in retirement...

The full year is an absolute no-brainer - you will get your full investment back after less than 4 years.

The second year, however, has a break even point of more like 12 years.  It really depends on how long you reckon you will live for.....

 

Dazed_and_C0nfused

Adding the final £1.61 seems expensive in relation to the first £5.29 but you will only be paying the £800 once and as things stand the £1.61 is likely to become more like £1.75/week from next April and then continue rising each year under the triple lock.

So it is still worth considering 😃

molerat

I tend to look at the overall picture when buying multiple years. Taking both years together paying £1596.40 for £6.90 per week will be returned gross in 231 weeks or net of 20% tax in 289 weeks, 5.5 years.

Notepad_Phil

Mrs Notepad has the same issue of whether to make a final £800ish payment to bring her state pension to the max. In her case it would only increase the pension by just under a quid a week, but we're still planning to pay for it as we'd need to invest a lot more to get a similar non-guaranteed return equivalent to the £50ish per year she'd get from paying for the last year.

Mrs Notepad has a few years until she reaches state pension age, so our only decision is when to make that final payment, but for us it is only a matter of when to make the payment, not whether to make the payment.