Would you pay £800 to get an extra year to make up for State Pension?

SimonFF

Hi, I am in my mid 50s and have still many years to go for state pensions. I have checked the Future Pension site and I can make up for 3 more years. Two of these years would cost me  less than ̣£100 to pay but one year is almost £800 (45 weeks of missing contributions). I have called the HMRC helpline and I was told I can pay this sum in eight instalments of about £100 each.

I have the money, but is it worth it?

I must have read somewhere that each year of contributions adds £1.50 a week to the state pension amount. Is that correct? If that was the case, it would take 533 weeks (more than 10 years) to break even.

Please correct me if I am wrong. I am a bit confused and the helpline didn't tell me all the ins and outs. Thanks.

jem16

Each qualifying year adds £6.32pw to your pension so no it’s not £1.50 per year. Payback is around 3 years and usually considered very good value.

However what is more important is what your actual forecast says as just because a year is available to pay doesn’t mean it will improve your pension. 

pinnks

Also, if you are in your 50s, will you not be paying NI mandatorily on your earnings for the next 10 plus years?  If so, paying years voluntarily may not be the best choice, even if they would increase your pension.  As jem16 says, you need to see what your pension forecast says to see what is the best course of action.

squirrelpie

If you want more help you'll need to tell us what your pension forecast says, and which years you can contribute to.

SimonFF

Thanks @jem16 @pinnks and @squirrelpie

My pension forecast says:

You can get your State Pension on X XX 2034

Your forecast is £197.30 a week, £857.90 a month, £10,294.83 a year

You need to continue to contribute National Insurance to reach your forecast

Estimate based on your National Insurance record up to 5 April 2024

£140.42 a week

Forecast if you contribute until 5 April 2033

£197.30 a week

You can improve your forecast

You have shortfalls in your National Insurance record that you can fill and make count towards your State Pension.

The most you can increase your forecast to is

£214.88 a week

View gaps in your record and the costs of filling them.

2014 to 2015 Year is not full

You have contributions from

National Insurance credits: 3 weeks

These may have been added to your record if you were ill/disabled, unemployed, caring for someone full-time or on jury service.

Pay a voluntary contribution of £776.65 by 5 April 2025. This shortfall may increase after 5 April 2025.

2011 to 2012

Year is not full

You have contributions from

National Insurance credits: 48 weeks

These may have been added to your record if you were ill/disabled, unemployed, caring for someone full-time or on jury service.

Pay a voluntary contribution of £63.40 by 5 April 2025. This shortfall may increase after 5 April 2025.

2010 to 2011

Year is not full

You have contributions from

Paid employment: £60.62

National Insurance credits: 37 weeks

These may have been added to your record if you were ill/disabled, unemployed, caring for someone full-time or on jury service.

Pay a voluntary contribution of £79.25 by 5 April 2025. This shortfall may increase after 5 April 2025.

pinnks

As the gap years are 2015/16 or earlier, you will need to confirm with DWP Future Pension Centre that they will improve your pension and you would need to pay them before 5 April 2025 when they go out of date.

But, based on what you have posted, by paying £776.65, plus £63.40, plus £79.25 equals £919.30, you would add £17.58 per week, or £914.16 per year to your pension.  That seems like a no-brainer!

If you also pay, or get credited, all years 2024/25 to 2032/33 you would receive £214.88 per week, so £11,173.76 per year. 

SimonFF

pinnks Yes they have confirmed the payment are supposed to improve my pension if I pay before next April.

jem16

SimonFF said:

pinnks Yes they have confirmed the payment are supposed to improve my pension if I pay before next April.

How many years of NI do you have?

SimonFF

@jem16 It's 15 years until April 2024.

jem16

SimonFF said:

@jem16 It's 15 years until April 2024.

Those years cannot fail to improve your pension then. It only becomes unclear when you have 30 or more years. So yes very good value unless you’re going to rely on Pension Credit and have no other income. 

SimonFF

jem16 said:

SimonFF said:

@jem16 It's 15 years until April 2024.

Those years cannot fail to improve your pension then. It only becomes unclear when you have 30 or more years. So yes very good value unless you’re going to rely on Pension Credit and have no other income. 

Thank. The only reason I delayed this payment is because I had/have a plan to move abroad (EU) and I am not 100% convinced that contributions after 2020 (the Brexit cut off) will be used for aggregation into another country's pension system.

So I have 12 + potentially 3 years paid before 2020 and this might not be good enough if I move abroad and pay into local pension system. I have been told that all contributions until Brexit will be aggregated but I am not sure what happens afterwards.