Additional NI contributions if you have full history but were contracted out

xylophone

 If you're doubting my claim that 'in the majority of cases it won't be so' (i.e. pension increases being at, or better, than 'official pensions'),

Not doubting at all - merely corroborating your comment about some private scheme increases.

Lancelot6

Hello,

Despite being contracted out, I am fortunately back up to the full £185.15 with 6 years to state pension.

Could somebody please take a look at my wifes numbers for us as they are quite complex, Thank you.

·         Maximum amount of forecast: £185.15

·         Current amount up to April 2022: £139.39

·         Years you have available going forward until you reach State Pension Age: 6 years

·         Number of full years prior to April 2016: 27 years

·         Number of full years after April 2016: 0 (zero)

·         Years which are not filled and the cost of filling them: 

2008 - 2009, 2009 - 2010, 2010 - 2011, 2011 - 2012, 2012 - 2013, 2013 - 2014, 2014 - 2015, 2015 - 2016, 2016 - 2017, 2018 - 2019, 2019 - 2020 All cost £824.20

2020 - 2021 costs £795.60

2021 - 2022 costs £800.80

·         Whether there is a COPE mentioned and if so what the amount is (this will show by clicking a link there is a statement along the lines of ' like many, you have been contracted out.....'.) Cope amount £2.89

There is very little chance of her working before she receives the state pension, so I calculate that she will eventually need to buy 8 or 9 years to get the full £185.15 if it is worth it.

molerat

She needs another 9 years to reach the full amount. 8 will take her to £181.71 and the 9th will add £3.44.  Despite being contracted out her starting amount is still under the new system so she can safely add both pre and post 2016 years.  In my opinion her best option is to fill 20-21(which needs doing before July), 21-22 and 22-23 as they are the cheapest option then set up a direct debit to fill the remaining years as you go along or pay them year by year just before 2 years after the end of the year to keep the in year price.  A bit more expensive than filling gaps but hedges her against getting run over by a bus and (you) losing that capital.

Lancelot6

Thanks for the reply,  it sounds as if I did understand it even though I wasn't sure.

The whole thing is a bit of a gamble isn't it.  Essentially how long will I live, and will they still pay the state pension to people in my position?  

First, will I live 6 years to start receiving any pension at all.  Then £274.56 back every year for every £824.20 paid in means 3 years to get your money back, so if she buys any years this year, then it will take 9 years to get the money back (6 years until pension age, then 3 years to get the money), and that doesn't take into account the interest she could earn on the money in the 9 years.  Even then it doesn't take into any rises in the state pension either.

It may sound cold, but our thought was as you say, buy the 20 - 21 year, and the 21 - 22 year, leaving her 7 years short.  Then buy the 6 years immediately before her pension year (if she is still well, and still alive, and will they still pay her the full pension) just before she hits pension age at 67.  We can just keep the cost of the purchase in a high (well get some interest anyway) interest account till then.  It would probably mean she doesn't get that final £3.44, but that would take nearer 11 years to get back.

It is so complicated though, because although I am on the full £185.15, I will (due to a DB pension) pay tax at 20% on the state pension, where my wife will not.  So if it were me that was short of years, then I would also have to factor in being taxed on the state pension before I decided to buy years.

molerat

Yes it is a gamble but with better odds than putting it on a horse

Myself and MrsM paid £7K between us, should have been £10K but MrsM got some granny credits, and now both at 68 that money is back in the bank and we are reaping the rewards.

Lancelot6

Well done, sounds like you got it right.

I don't bet on horses, or anything else generally.

One thing I don't know is how much the cost of buying years increases over time, do you have any idea?

From what I can see of my wifes NI costs then the price of a particular year increases over time up to a maximum, currently £824 for her.  Does that £824 figure increase a great deal over time?

pinnks

Having retired from work at 60, I am buying 5 years to get close to the max (about 90p short and run out of time) but to guard against some of the risk of pegging it before I claim the pension, I am paying each year as late as possible before the price goes up, e.g. I paid 2019/20 last year in March and have just paid 2020/21.  This will leave me something of a catchup exercise between April 2024 and March 2025 when the "big day" arrives.  One could of course defer paying for the max 6 years but with current inflation rates that would get quite expensive, though still not as expensive as paying it then pegging it...  Don't you love getting to this stage of life?

molerat

Lancelot6 said:

Well done, sounds like you got it right.

I don't bet on horses, or anything else generally.

One thing I don't know is how much the cost of buying years increases over time, do you have any idea?

From what I can see of my wifes NI costs then the price of a particular year increases over time up to a maximum, currently £824 for her.  Does that £824 figure increase a great deal over time?

The cost of a year increases annually with CPI.  Each year stays at the in year price until 2 years after the end of the year when it increases to the current year price increasing each year until it ceases to be available 6 years after the end of the year.  So 16-17 ceases to be available this April - although extended to July - and 20-21 increases from its in year price of £795.60 to the 23-24 price of £907.40 along with all earlier years - again extended to July.  £824.20 is the 2022-23 price and currently applied to all years 19-20 and earlier.

Lancelot6

molerat said:

Lancelot6 said:

Well done, sounds like you got it right.

I don't bet on horses, or anything else generally.

One thing I don't know is how much the cost of buying years increases over time, do you have any idea?

From what I can see of my wifes NI costs then the price of a particular year increases over time up to a maximum, currently £824 for her.  Does that £824 figure increase a great deal over time?

The cost of a year increases annually with CPI.  Each year stays at the in year price until 2 years after the end of the year when it increases to the current year price increasing each year until it ceases to be available 6 years after the end of the year.  So 16-17 ceases to be available this April - although extended to July - and 20-21 increases from its in year price of £795.60 to the 23-24 price of £907.40 along with all earlier years - again extended to July.  £824.20 is the 2022-23 price and currently applied to all years 19-20 and earlier.

That is very helpful, thanks.

Lancelot6

pinnks said:

Having retired from work at 60, I am buying 5 years to get close to the max (about 90p short and run out of time) but to guard against some of the risk of pegging it before I claim the pension, I am paying each year as late as possible before the price goes up, e.g. I paid 2019/20 last year in March and have just paid 2020/21.  This will leave me something of a catchup exercise between April 2024 and March 2025 when the "big day" arrives.  One could of course defer paying for the max 6 years but with current inflation rates that would get quite expensive, though still not as expensive as paying it then pegging it...  Don't you love getting to this stage of life?

You certainly have to learn about tax and pensions as you approach pension age.

I took voluntary redundancy at 59, having taken my DB pension at 55 whilst still working.

Investing the extra income from the pension, and then the redundancy money without it all going in tax meant a lot of swatting up on the various tax laws.  I even got some tax back after I took the redundancy, so I must have got it right.