Paying additional Class 3 but Contracted Out

I'm looking to increase my state pension by paying additional Class 3 contributions, which would have been simple (it seems) were it not for the fact that I was Contracted Out for at least part of my working life.

I already have 30 complete years, and when I last checked it looked as though it would simply be a matter of paying for the five years 2008 - 2012 and that would have been Ok - 35 years in total at a cost of £3348.80, provided I paid before 5th April 2019.

But I had failed to account for the fact that I was Contracted Out. As a BT Scheme B participant it seems I was, but my pension records on the Government Gateway don't seem to show which of my years of payments were contracted out and which were not.

My summary there is as follows:

My state pension start is March 2025
Current forecast (no extra contributions): £126.91/wk
Max I can get with "normal" contributions: £159.78/wk
Max I can get with additional contributions: £164.35/wk

My COPE estimate is £81.37/wk

I'm now led to believe that I could still make voluntary Class 3 contributions for the "empty" years 2008/9 through to 2015/16 but that there would be no point, because none of them will increase my pension entitlement.

I'm told that now the only way to achieve the full rate is to make 8 years of payments, starting with the year 2016/17. (I should add that I don't plan to be in anything other than voluntary, unpaid employment from now on, so all future contributions would have to be AVCs rather than "deducted from pay")

Is this correct? Can I infer from the COPE estimate how many Contracted Out years they think I have?

Obviously I want to check before starting to pay these, as firstly they are more expensive than the pre-2016/17 years, and secondly there are more of them to pay!

[Please note also that I am NOT moaning about this. I just want to be sure that I don't pay for too many years, and that I don't pay for any years that won't count!]

Comments

  • molerat
    molerat Posts: 31,695
    Name Dropper Photogenic First Post First Anniversary
    Forumite
    edited 19 May 2018 at 10:42PM
    It is not really relevant how many contracted out years you have. You have 30 years pre 2016 and a COPE of £81.37. To wipe out that COPE you would need to add 17 years of pre 2016 contributions (81.37/4.70) and as only 35 count it can't be done. Buying any pre 2016 years will not add to your pension, the only way to increase it is by adding post 2016 years - 8 to reach the maximum.
  • grolley
    grolley Posts: 10 Forumite
    Thanks - to those who haven't had to look at it in detail it's hard to work out how the COPE component is made up. It sounds like there is no point in me trying to check with the BT pension admin to ensure that their record matches up.

    Looks like it will cost me near enough double what I thought, but I can't complain - it's just a fact and isn't subject to negotiation. Even as it is, it's probably still good value provided I don't shuffle off this mortal coil too soon...
  • Brynsam
    Brynsam Posts: 3,643
    First Anniversary Name Dropper Combo Breaker First Post
    Forumite
    grolley wrote: »
    (I should add that I don't plan to be in anything other than voluntary, unpaid employment from now on, so all future contributions would have to be AVCs rather than "deducted from pay")

    You can only pay AVCs if you are currently building up benefits in an occupational scheme. which offers an AVC facility.

    Having got that technicality out of the way, if you do want to make pension contributions, you can do so to a personal pension (variants: stake pension, SIPP), even if you aren't earning. Maximum you can contribute is £2880 and you will automatically be credited with tax relief at 20%, which the pension provider will claim on your behalf and add to your 'pot', bringing the total, including tax relief, to £3,600 in any one tax year.
  • grolley
    grolley Posts: 10 Forumite
    Brynsam wrote: »
    You can only pay AVCs if you are currently building up benefits in an occupational scheme. which offers an AVC facility.


    Hopefully that's just my misuse of the term "AVC". What I mean by that is "additional voluntary class 3 NICs while not in paid employment". Hopefully there is no issue if I state it like that rather than the using the incorrect term?
  • Tom99
    Tom99 Posts: 5,371
    First Post First Anniversary
    Forumite
    [FONT=Verdana, sans-serif]You need to pay for the 8 years from 2016/17 to 2023/24. As you say pre 2016 years will add nothing.[/FONT]
    [FONT=Verdana, sans-serif]That will cost you about £6,000 for an indexed linked pension increase of £1,947pa so a multiple of just over x3, which is very cheap.[/FONT]
    [FONT=Verdana, sans-serif]If you save into an AVC and used that money to buy an indexed linked pension it will cost you at least ten times as much ie x30. £6,000 would only buy you £200pa.[/FONT]
  • drumtochty
    drumtochty Posts: 438
    First Anniversary First Post
    Forumite
    The COPE will work out somthing like say £3.75 per year of contracted out if you earned around £40k per year at todays rate and £1.80 per year if you earned between £6k and say £14k at todays rate. Therefore somewhere between 20 years to 40 years depending on earnings. Yes it is sort of pro rata between those figures.



    Why do you not pay Class 2 NI contributions in 2018 2019. You only need to register as self employed with HMRC and any income you claim to earn in that year via the self employed page added to your 2018 2019 tax return is tax free to £1,000 pa. You just pay £153 for that year in Class 2 NI.
  • grolley
    grolley Posts: 10 Forumite
    drumtochty wrote: »
    Why do you not pay Class 2 NI contributions in 2018 2019. You only need to register as self employed with HMRC and any income you claim to earn in that year via the self employed page added to your 2018 2019 tax return is tax free to £1,000 pa. You just pay £153 for that year in Class 2 NI.


    It sounds an attractive option, but I suspect it's more complicated than that!
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards