Top up NIC - but how do I calculate when I’ll break even in my state pension?

Mayeve

On-the-coast said:

the only time it's not worth buying all available necessary years is if the last one you purchase only doesn't add a full £6.32.
BTW you realise all those figures will be increasing in a few months?

I’m not quite sure what you mean about the last year purchased might not add the full amount? Why would that be? 

If I was paying to get 4 years worth I’d be paying for the cheaper years, with the latest of those years being 2022-23, costing £824.

And yes I realised replies were working with this year’s figures. I’ve seen that voluntary contributions will cost more from April, and also that the full SP is going up to just under £12k pa. 

QrizB

Mayeve said:

On-the-coast said:

the only time it's not worth buying all available necessary years is if the last one you purchase only doesn't add a full £6.32.
BTW you realise all those figures will be increasing in a few months?

I’m not quite sure what you mean about the last year purchased might not add the full amount? Why would that be?

We don't know what your current entitlement is, but let's imagine it's exactly £200 a week.

The first three years you buy will add £6.32, taking you to an entitlement of £218.96. the last year will take you to the full pension of £221.20. that's an increase of £2.24, not £6.32. Your payback time will be commensurately longer.

Ayr_Rage

I was 6.58 years short.

You cannot buy 0.58 years, I would have had to pay over £900 for year 7 and the pension uplift would have only been £3.66 per week, not worth it.

For the 6 years I did buy, each £6.32 per week uplift cost on average £815.33 for each year purchased.

Hoenir

Ayr_Rage said:

You cannot buy 0.58 years, I would have had to pay over £900 for year 7 and the pension uplift would have only been £3.66 per week, not worth it.

Where else would you be able to obtain an inflation linked return of £190.32p for just £900. 

A flat rate annuity at 67 might provide £70 per annum income. An ordinary deposit account just £35 of interest. 

Mayeve

QrizB said:

Mayeve said:

On-the-coast said:

the only time it's not worth buying all available necessary years is if the last one you purchase only doesn't add a full £6.32.
BTW you realise all those figures will be increasing in a few months?

I’m not quite sure what you mean about the last year purchased might not add the full amount? Why would that be?

We don't know what your current entitlement is, but let's imagine it's exactly £200 a week.

The first three years you buy will add £6.32, taking you to an entitlement of £218.96. the last year will take you to the full pension of £221.20. that's an increase of £2.24, not £6.32. Your payback time will be commensurately longer.

Thank you. These conversations are really throwing up more useful information than I expected or hoped for.  Currently my forecast is £196.29, so 3 years’ contributions takes me up to £215.25,  £5.95 short of the full pension. So I have to decide if topping up a 4th year is worth that loss of 37p a week. 

QrizB

In your position, I'd choose to top up that last year.

molerat

Using @Ayr_Rage as an example of the "is it worth it" scenario, an interesting conversation piece

They paid £4891.98 to receive £37.92 pw gross so a payback gross in 129 weeks

They could have paid £5799.38 and got £41.58 pw gross so a payback gross in 140 weeks

Only 11 more weeks to be in profit on the gross payment.

Something I learned in retail management, don't look at the individual item but the overall picture.  You can sell an individual item at cost or even a loss and still increase your overall margin.

So if you work out that scenario for you what is the difference in weeks to achieve the gross payback ?   With such a small "loss" it is not even worth considering not paying.

Mayeve

Ayr_Rage said:

I was 6.58 years short.

You cannot buy 0.58 years, I would have had to pay over £900 for year 7 and the pension uplift would have only been £3.66 per week, not worth it.

For the 6 years I did buy, each £6.32 per week uplift cost on average £815.33 for each year purchased

As stated previously I have NI credits for 26 weeks of one year, and I can make that upto a full year by paying about £397. I take it your circumstances haven’t allowed a similar thing for some reason.  

Thanks for raising this discrepancy thing, by the way, even though all the new information and re-calculating the options is tiring my brain for a second day running. 🙂

Ayr_Rage

Hoenir said:

Ayr_Rage said:

You cannot buy 0.58 years, I would have had to pay over £900 for year 7 and the pension uplift would have only been £3.66 per week, not worth it.

Where else would you be able to obtain an inflation linked return of £190.32p for just £900. 

A flat rate annuity at 67 might provide £70 per annum income. An ordinary deposit account just £35 of interest. 

Point taken, but as I would be paying 42% tax on that income I decided that the £900 would go into my S&S ISA and that is on track to better the return from topping up my SP.

@mayeve I'm not sure how top-ups of years that have some credits are treated but there was no reduced payment available to me to buy the missing 0.58.

All the years I purchased were those when I was no longer working.