Pension Forecast

Jerben · 4 December 2017 at 3:51PM

NE5 wrote: »

Previously my forecast said I was fully paid up 30/30 years so I thought nothing of it.

Yes, but that was for the BASIC state pension (qualifying system before April 2016), which had a value of approx. £119.00
The NEW state pension has a level of currently £159.65
So you are not losing out at all!
You still have an opportunity to improve on what you would have got, under the new system. (Each NI year after April 2016 will add about £4.56 per week. up to the capped £159 figure).

Tom99 · 4 December 2017 at 4:13PM

The £741 for each full missing year is very good value, about 4x years purchase after 20% tax whereas to buy that in the open market might cost 20x or 30x.

NE5 · 4 December 2017 at 8:41PM

quick calculation......741 x 3 years = 2223.

Gives an increase of approx 13 quid a week = 171 weeks to get back. From age of 66. Therefore I need to live longer than approx 69 and few months...if I kick the bucket before that I've lost out....LOL.....I realise that doesn't take into any other factors.

NE5 · 4 December 2017 at 9:15PM

Actually Tom99...could you explain how that tax at 20% works please ?

Silvertabby · 4 December 2017 at 10:29PM

quick calculation......741 x 3 years = 2223.

Gives an increase of approx 13 quid a week = 171 weeks to get back. From age of 66. Therefore I need to live longer than approx 69 and few months...if I kick the bucket before that I've lost out....LOL.....I realise that doesn't take into any other factors. Posted by NE5

Um no - each one-off payment £741will buy you an exta £4.50 (ish) per week State pension for the rest of your life. Assuming that you will be a basic rate (20%) tax payer in retirement, that's £3.60 per week.

£741 / £3.60 = 205.83 weeks
205.83 / 52.17 = 3.95 years.

Call it 4 years to get your £741 back. After that, you're quids in.

Oops - sorry - just re-read your post and realised that you were talking about buying 3 years of voluntary NI! Too big a glass with my dinner!

Dazed_and_confused · 4 December 2017 at 10:30PM

The State Pension is taxable income just like wages or other pension income.

In your previous posts you mention working and a govt pension so chances are you already get sufficient income to pay tax.

So any extra taxable income will incur 20% tax. The Pension Service/DWP don't actually deduct this tax, your tax code will be adjusted so you pay extra on your wages or govt pension.

If your other income is low enough you might not have 20% tax to pay on it all but if it's high enough you could easily have 40% to pay (or more in extreme cases).

I think what Tom99 is getting at is that the State Pension you are already sure of getting is almost certainly going to make you at the very least a basic rate (20%) payer so any extra State Pension you choose to buy now will have (at least) 20% tax due on it.

Tom99 · 5 December 2017 at 12:48AM

NE5 wrote: »

Actually Tom99...could you explain how that tax at 20% works please ?

[FONT=Verdana, sans-serif]The £741 Class 3 NI is paid out of already taxed income so the payback period should take tax on the pension into consideration as well, hence:-

[/FONT] [FONT=Verdana, sans-serif]£4.56 per week = £237.05pa less 20% tax = £189.64pa net ( or £142.23 for 40% taxpayer)[/FONT]
[FONT=Verdana, sans-serif]The payback period is therefore:

[/FONT] [FONT=Verdana, sans-serif]20% taxpayer – 741/189.64 = 3.9 years

[/FONT] [FONT=Verdana, sans-serif]40% taxpayer – 741/142.23 = 5.2 years[/FONT]

atush · 5 December 2017 at 12:51PM

Thanks. I'm starting to understand the furore about this when the rules changed now....

does it also mean that EVERYBODY in my age group was short before the April 2016 cut off point ?

No you arent quite understanding. In the old system you got 119 and change for a full lifetime contribution, so the new SP is much higher. You also got any S2P or serps if you had any.

You were never going to get the new full SP if you were contrated out really, unless youo had a high level of s2p/serps.

You have not been disadvantaged.

NE5 · 5 December 2017 at 1:43PM

Thank you to everybody.

Tom99 I don't quite understand your last post, but what I think I get so far is :

I am currently paying tax on my govt pension.....so I will pay tax at 20% on my state pension be it 135.14, 148.82 or 153.38. I should have realised that but never really thought about it. But as has been pointed out, its still an increase on £119 and is more than I'm getting then my part time job for doing nothing !

So I will get 135.18 - 20% = 108.11
148.82 - 20% = 119.05
153.38 - 20% = 122.70

If I start to pay class 3 conts....and I pay the full 3 years ie this year in arrears of 741, year 2018-19 of 741 from my pension, and 2019-20 from my pension that is a total of 2223.

I will then receive a pension increase at 66 of the difference between 153.38 and 135.14 (14.59 a week after 20% tax) and to pay back 2223 would take 152 weeks. Therefore for 152 weeks after the age of 66 I am only recovering what I have paid in ? If I live much longer than that it is well worth it, if I live less, then less so.

I am not really sure when I have been contracted out though, only the last 6 years when I have worked part time ?

If my basic gist as above is correct, should I pay this year in arrears and arrange to pay monthly from April 2018 for the last 2 years or just pay the last 2 years and be happy with a slightly smaller pension, or just do nothing and take the current forecast of 135.18 ?

Tom99 · 5 December 2017 at 2:06PM

NE5 wrote: »

Thank you to everybody.

Tom99 I don't quite understand your last post, but what I think I get so far is :

I am currently paying tax on my govt pension.....so I will pay tax at 20% on my state pension be it 135.14, 148.82 or 153.38. I should have realised that but never really thought about it. But as has been pointed out, its still an increase on £119 and is more than I'm getting for my part time job for doing nothing !

So I will get 135.18 - 20% = 108.11
148.82 - 20% = 119.05
153.38 - 20% = 122.70

If I start to pay class 3 conts....and I pay the full 3 years ie this year in arrears of 741, year 2018-19 of 741 from my pension, and 2019-20 from my pension that is a total of 2223.

I will then receive a pension increase at 66 of the difference between 153.38 and 135.14 (14.59 a week after 20% tax) and to pay back 2223 would take 152 weeks. Therefore for 152 weeks after the age of 66 I am only recovering what I have paid in ? If I live much longer than that it is well worth it, if I live less, then less so.

I am not really sure when I have been contracted out though, only the last 6 years when I have worked part time ?

If my basic gist as above is correct, should I pay this year in arrears and arrange to pay monthly from April 2018 for the last 2 years or just pay the last 2 years and be happy with a slightly smaller pension, or just do nothing and take the current forecast of 135.18 ?

[FONT=Verdana, sans-serif]Improving your forecast pension from £135.14 to £153.38 will mean paying 4 yrs not 3 yrs contributions.

[/FONT] [FONT=Verdana, sans-serif]The cheapest way to do that would be to pay the missing £580.10 for 2016/17 then pay £741 for the three years 2017/18 to 2019/20 at total cost of £2803.10.

[/FONT] [FONT=Verdana, sans-serif]Your extra £14.59 pw then works out at 192 weeks which is slightly shorter then my 3.9 years purchase because you have already made a partial 2016/17 contribution via employment I expect.

[/FONT] [FONT=Verdana, sans-serif]Very good value for money if you expect to live until you are 70. [/FONT]

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