Buying extra NI years?

boco803

My pension forecast currently says I'm on track to receive £221 per week if I work 5 more years.

At the moment, based on data to April 2024, I'm looking at £190 per week.  It looks like I can top up 4 years of NI from 2020-21, so I assume this'll reduce the five years down to one?  Those four years will cost around £2500 on total.

Being unsure if I'll work between now and ~2040, I assume it's best if I paid those incomplete NI years now as it'll only cost more the longer I leave it to when I eventually decide to fill in those 5 years at a later date?


A couple of other questions:

1. I note you can go back to 2006 (not that this affects me), but when did HMRC close voluntary contributions for years from 1994-95 and a few years after that?

2. What do they ask and what is it they need to determine whether or not you could pay voluntary NI via your online account?


Thanks

MallyGirl

Backfilling NI years has usually been limited to the last 5 or 6 years - they only opened the window much wider because of the 2016 pension changes and we will soon be back to that sort of time restriction.

Whether you should top-up depends on whether you really aren't going to earn them through work.

p00hsticks

boco803 said:

Being unsure if I'll work between now and ~2040, I assume it's best if I paid those incomplete NI years now as it'll only cost more the longer I leave it to when I eventually decide to fill in those 5 years at a later date?

Looking at it another way, if you do work (or can claim certain benefits) for at least four years between now and 2040, you'll have completely wasted your money buying voluntary years now. In your shoes I'd put that money into a savings account instead and in 2039 if you still happen to need to buy additional years, use the savings to buy them then.

boco803

Thanks both for your replies.

If understood correctly, they currently allow buying of older NI back to 2006 due to 2016 transitional changes, but likely to revert back to 6 years after April 2025?

If I need another five years, this could be covered by the current six years of backfilling, thus I could always leave this until ~2039, subject to no restrictions to years?

With this in mind, I could just save the £2500 (which would have been used to buy NI before April 2025) and let it compound with interest until 2039.  This should then cover the amount required to fill the 5 years come 2039?  Assuming interest rate on savings is around inflation rate and this is what HMRC increases by year-on-year?

Thanks again.

QrizB

With this in mind, I could just save the £2500 (which would have been used to buy NI before April 2025) and let it compound with interest until 2039.  This should then cover the amount required to fill the 5 years come 2039?  Assuming interest rate on savings is around inflation rate and this is what HMRC increases by year-on-year?

Not quite that simple.

Per your original post, £2500 will currently buy you four years, not five. Four old years should cost something like £3300, at current rates, which makes me think you have some credit in those years already; either NI paid for partial years, or NI credits from benefits?

And £827 a year is a special offer, a full year should really cost ~£900.

So you need to decide whether spending £2500 on four years today is better than spending the equivalent of £3600 on four years in a decade's time.

boco803

QrizB said:

With this in mind, I could just save the £2500 (which would have been used to buy NI before April 2025) and let it compound with interest until 2039.  This should then cover the amount required to fill the 5 years come 2039?  Assuming interest rate on savings is around inflation rate and this is what HMRC increases by year-on-year?

Not quite that simple.

Per your original post, £2500 will currently buy you four years, not five. Four old years should cost something like £3300, at current rates, which makes me think you have some credit in those years already; either NI paid for partial years, or NI credits from benefits?

And £827 a year is a special offer, a full year should really cost ~£900.

So you need to decide whether spending £2500 on four years today is better than spending the equivalent of £3600 on four years in a decade's time.

Apologies - my head's clearly not in the right place!

It's not £2500 for the 4 years, but nearer £3200!  And yes, what I meant was if I saved that £3200 then settled later on to cover off the first 4 of the required 5 years, and then obviously I'd need to factor in the fifth year.

No credits or benefits, other than partial NI contributions on one of those current 4 years payable.  I assume it's probably best to pay this particular year off?

boco803

Where it says this shortfall may increase after 5 April 2025, does anyone know how much it'll increase by?

molerat

A full year increases to £923 (£17.75 pw) from April.  Which year is part filled and how much is it currently costing ?

QrizB

boco803 said:

It's not £2500 for the 4 years, but nearer £3200!  And yes, what I meant was if I saved that £3200 then settled later on to cover off the first 4 of the required 5 years, and then obviously I'd need to factor in the fifth year.

That makes more sense, and yes if you were to save the £3200 and match inflation, the savings should cover four years in future (give or take).

boco803 said:

No credits or benefits, other than partial NI contributions on one of those current 4 years payable.  I assume it's probably best to pay this particular year off?

If that year is significantly cheaper, yes in your position I'd probably be buying it now.

boco803 said:

Where it says this shortfall may increase after 5 April 2025, does anyone know how much it'll increase by?

The current price for a full year should be £907.40. All those £824.20 years were frozen at that price in 2023(?) but will be unfrozen from the 6th of April.

Also, on the 6th of April, the £907 will increase by inflation to £923. So you'll need to pay almost £100 a year extra for those frozen years once the deadline passes.

And it'll continue to increase with inflation every year thereafter.

p00hsticks

boco803 said:

Thanks both for your replies.

If understood correctly, they currently allow buying of older NI back to 2006 due to 2016 transitional changes, but likely to revert back to 6 years after April 2025?

If I need another five years, this could be covered by the current six years of backfilling, thus I could always leave this until ~2039, subject to no restrictions to years?

With this in mind, I could just save the £2500 (which would have been used to buy NI before April 2025) and let it compound with interest until 2039.  This should then cover the amount required to fill the 5 years come 2039?  Assuming interest rate on savings is around inflation rate and this is what HMRC increases by year-on-year?

Correct (although I recognise the following posts regarding the actual amount being £3200). As long as the interest rate on savings keeps pace with the inflation rate (used to increase the yearly cost of buying years) then you should be no worse off waiting until 2039. and you'll still have access to the money if you need it for something else or if you add any future years via work or NI credits in the interim and so don't end up needing to buy them after all.

It's what I'd do. 

boco803

I appreciate the further replies everyone.

The partially filled year will cost around £650, but I've a couple more years to pay that off.  However, as it'll increase by 2027, it's probably best if I settle this now?

As I have 5 more years to be on track for full state pension, and if I pay off above 'year 1', that leaves 4 more years of potentially having to make voluntary contributions?  Year 5 is always in the future, but years 2 and 3 are currently around that £800 mark and year 4 is £907.

So with all things being equal, with years 2 & 3 increased to £923, and year 4 to increase to £923 too - interest matching inflation which in turn is what HMRC uses to increase voluntary NI, then I'll be around £200+ worse off from the off?

Hope the above makes sense?