To buy one more SP NIC year or not

Wsb5tails

I'm 61, already retired on a DB Pension paying £12k per year.  I have 1 year NIC short of a full State Pension due in 2029 (due to Contracting out).  I have no plans to work again. 

I could pay £800.80 for the full State but I am due to receive £216.74 so will only get an extra £4.46 per week to reach the max SP.  Call it £3.57 after basic rate tax.

Future Pensions said it wasn't worth me topping up by one year.

I also have an untouched SIPP with £30k

So it'll take me over 4 years to break even based on current Tax rates.  I have no reason to think I wont last 4 years but everything changes including Government Policy.  How do I decide?

DRS1

Future Pensions said it wasn't worth me topping up by one year.

That is interesting.  Back in 2022 I topped up a fair few missing years and spoke to Future Pensions to decide which ones were worth topping up.  That exercise left me short by about the same amount as you.  At the time I thought nothing of it but perhaps they have some policy of not advising a top up where you don't get the full £6.32 (or whatever it is)

So it'll take me over 4 years to break even based on current Tax rates.  I have no reason to think I wont last 4 years but everything changes including Government Policy.  How do I decide?

Well you have decided haven't you?  If you are worried about a change before your SPA delay making the payment until as late as possible - accepting that the cost will go up in the meantime.

tigerspill

I think from memory the basic numbers are -
- Standard cost to buy one year is from memory £824 (less for part years obviously)
- For this you get £328 per year

So if you are a non tax payer, the pay off time is around two and a half years.
If you are a basic rate tax payer, the pay off time is just over three years. And just over 4 years if a higher rate tax payer.

So for those BRT payers that get SP at age 67 for example, as long as they live to 70, then it is very good value as after that it is free money for the rest of your life. With average life expectancy of say, 87 years, that is 17 years of absolutely free money.

Triumph13

Only you can answer the question of what is more valuable to you - £800 odd now, or an extra £185 pa of income for life later.  As an example, the real value to you of that £185 depends a lot on how much you expect to spend vs the income you already have.  If you only spend about £18k pa anyway, then you already have about £6k spare and increasing that has little value.  If OTOH you normally spend £24k pa then that extra £185 could make all the difference.

molerat

For £800.80 it must be 21-22.  That will increase to £923 in April.

If your IFA offered you a 29% single lifetime annuity (likely better than) indexed linked would you take it ?

That is precisely what is on offer here.

Fink_Nottle

molerat's point about comparing it to a 29% annuity is a great way of thinking about it.

I'm in a broadly similar position to the OP (58, no intention of working again, but 3 years short). My plan is to wait till the last minute to buy the extra years though.

My thinking is:
- there's no point shelling out now if my life expectancy deteriorates significantly before I'm 67
- there's a very tiny chance that I might start a little business, so could legitimately buy my missing years at the much lower self-employed rate.
- the nominal price of a missing year will increase over time, but I'd anticipate that the returns will be similar, so nothing really lost by waiting
- if the rules around any of this change, I'd expect the government to give me enough notice so that I could change my plans.

Wsb5tails

Thanks everyone, I needed that clarity of thought.  I was getting bogged down in paying out £800 now and having to wait 10 years till I was well over 71 before seeing any advantage.

re - if the rules around any of this change, I'd expect the government to give me enough notice so that I could change my plans. 

This is the bit that confounds me.  I wasn't affected and knew about the Women's Equalisation of SP but the fact that my 39 years of contributions still didnt give me full SP due to Contracting out gave me a rude awakening

HedgehogRulez

Just do some childcare for grandkids and get it for free