Class 3 Voluntary National Insurance Contributions - Buy now or wait until nearer the time?

Lugsy428

I am 4 years short of the full state pension, so I'm weighing up whether the buy those 4 additional years now or wait until nearer the time - approx 15 years.

The question is how to predict what the likely increase in the cost of buying these years will be in the future? 2025/26 is going up 1.72% (£17.45 to £17.75 per week) and the average increase over the past 15 years has been just under 3% per year, but does anyone have a steer on what future increases will be based on, given the potential to change depending on government policy?

Given that the money used to buy these years now would be earning interest over the next 15 years, would the interest saved offset any increase in the cost of buying these extra 4 years?

Other factors to consider;
a) I might go back to work and pay NI to earn these years anyway (Unlikely)
b) I might die before reaching state pension age (who knows...?)

So, buy these years now and risk the money being wasted if either of these two scenario's play out, or leave it until nearer the time and hope the increased cost of buying these years is no more than the interest saved by sitting on this money??

Thoughts anyone?

molerat

c) You could be in receipt of benefits that give credits

d) You could look after grandchildren and receive those credits

The annual rise is CPI so a savings account is likely the best option.  A thing to bear in mind is that past years increase in price to the current year price 2 years after the end of the year and each year after, for example 2022-23 will increase from £824.20 to £923.00 in April, so buying before that point might be a wise option.

hugheskevi

You would also expose yourself to policy change risk, eg, if there were to be a reduction to the required number of qualifying years, which could result in any money paid ending up being wasted.

singhini

OP - The way i understand it; You have 15 years to make up 4 years worth of NI credits and your not currently working (and unlikely to go back to work in the future).

Any reason why your not thinking of becoming self-employed for the next 4 years (think buy/sell online)?

That way if your profits are below £6,845 you can voluntarily pay Class2 NI at £3.50 per week (£182 a year) . And if your profits are between £6,845 and £12,570 you don't have to pay anything as your between the SPT & LPT so the earnings count as a qualifying year.

Either way:
4 years @ £0 = £0 (if your between SPT/LPT for each of those years)
or
4 years @ £182 = £728  
or 
a combination of both

Whichever way its alot less than you're £17.75 x 52 weeks x 4 years

Just a thought

Green_hopeful

singhini said:

OP - The way i understand it; You have 15 years to make up 4 years worth of NI credits and your not currently working (and unlikely to go back to work in the future).

Any reason why your not thinking of becoming self-employed for the next 4 years (think buy/sell online)?

That way if your profits are below £6,845 you can voluntarily pay Class2 NI at £3.50 per week (£182 a year) . And if your profits are between £6,725 and £12,570 you don't have to pay anything as your between the SPT & LPT so the earnings count as a qualifying year.

Either way:
4 years @ £0 = £0 (if your between SPT/LPT for each of those years)
or
4 years @ £182 = £728  
or 
a combination of both

Whichever way its alot less than you're £17.75 x 52 weeks x 4 years

Just a thought

I am in a similar position to the original poster. I have 17 years until state pension age and three or four years to pay to get the maximum state pension. Do you know of other obligations to meet the self employed element. What do I need to do to be self employed. 

singhini

I'm no expert and you should take professional advice if your serious about going self employed.

There are a number of way to be self employed: https://smallbusiness.co.uk/a-small-business-guide-to-self-employment-2469677/?gad_source=1&gclid=CjwKCAiA1eO7BhATEiwAm0Ee-K1WvWA7mfqd3repGK6htG0SCC0x4CbZEZcQzXl72iSnmN2oe6Zr7xoC0HwQAvD_BwE
Partnership
Sole Trader
Limited Company

Some are more complicated than others i.e. require registering with companies house, business bank account, having an accountant as you need to submit business accounts etc...).

For sole trader you need to inform HMRC https://www.gov.uk/become-sole-trader/register-sole-trader

You may also need things like business insurance whichever root you choose.

As mentioned already, seek professional advice first.