Is it worth buying additional NI years as a high rate tax payer? 3 February at 6:50PM in Pensions, annuities & retirement planning 6 replies 324 views

GrubbyGirl_2

I worked as a nurse on the NHS from leaving school to retirement at age 60 without any break in service.  I have a full NI record from 1978 to 2019/20 (44 years) when I retired.

State pension forecast:

Estimate based on NI contributions up to April 2022 is £164.87 per week

Estimate based on NI contributions up to April 2025 is £180.74 per week

The most I can increase my forecast to is £185.15

I currently have no contributions from 2020/21 so I will be short 5 years to get the £180.74.  The 2 years I am currently short will cost approximately £800 each, so assuming they all cost about that (not convinced they will) that is a £4k investment for a return of £15.87 per week before tax and £9.52 after tax as my state pension pushes me into the 40% tax bracket.  So, I’m going to have to draw my pension for at least 8 years for it to start making it worth the investment though I appreciate that it will be inflated over that time so could be less though I also foresee the cost of buying those years going up to so will probably cancel each other out.

I’m on the fence as to whether it’s worth that investment – what do you think? 

There is also the added pressure where it states that if I don’t buy the 2020/21 year buy April 2023 the price may go up but don't know how real that is.

molerat

NI years increase in price from 2 years after the end of the year so yes 2020/21 will increase to £907.40.  Even at higher rate tax it can be worthwhile buying those years, only you can be the judge of that.

Dazed_and_C0nfused

State pension forecast:

Estimate based on NI contributions up to April 2022 is £164.87 per week

Estimate based on NI contributions up to April 2025 is £180.74 per week

The most I can increase my forecast to is £185.15

I currently have no contributions from 2020/21 so I will be short 5 years to get the £180.74

Your 5 years is wrong.

You only need 4 years to reach the full £185.15.

The first 3 will add £5.29 each and the fourth adds the final £4.41.

If you can get 4 years for ~£3,300 that's adding £22.32/week to your pension (2023:24 value).  £1,160/year.

Even after 40% tax that's still £696/year so your initial outlay will be recouped fairly quickly. And that £696/year is only ever going to increase and could be paid for 30+ years.

GrubbyGirl_2

I think it is a no brainer really.  Thank you

Batbox

I understood that if you had 35 years of NI you qualified for a FULL pension. So 44 years is more than enough. Why does GrubbyGirl_2 need to buy extra years ?

Dazed_and_C0nfused

Batbox said:

I understood that if you had 35 years of NI you qualified for a FULL pension. So 44 years is more than enough. Why does GrubbyGirl_2 need to buy extra years ?

Those rules only apply to people starting to pay NI (or get credits) from April 2016.

Everyone else reaching State Pension age after 5 April 2016 is under transitional rules.

Details here,

https://www.gov.uk/new-state-pension/how-its-calculated

molerat

Batbox said:

I understood that if you had 35 years of NI you qualified for a FULL pension. So 44 years is more than enough. Why does GrubbyGirl_2 need to buy extra years ?

Because you misunderstood.  35 years is only relevant with no pre 2016 NI record.