Voluntary National insurance Contributions - Sanity Check!?
Discussion
I am looking for a sanity check on my logic surrounding voluntary national insurance contributions. My proposed approach seems to make sense but admittedly I find the whole state pension system, even under the ‘new rules’, quite confusing and I may be missing something fundamental.
I have 10 years of full national insurance contributions on my record. I have a potential of 38 more years to contribute before I retire. I have missed the past four years of national insurance contributions in full due to living and working overseas. As such, I would need to make up another 25 years of national insurance contributions to qualify for the full state pension when I retire. Whether the state pension exists or not by the time I get there is a moot point.
I have spoken to Future Pensions Centre and HMRC and believe that I would be entitled to pay class 2 voluntary contributions in consideration of the past four years as I have been living and working overseas during this time. Class 2 voluntary contributions are approx. £150 per year (rather than approx. £750 for class 3 AKA the ‘usual’ voluntary contribution rate).
It seems very sensible, to me at least, to ‘book’ these four currently missing years at a cost of £600 (which I won’t miss) now in order to increase my chances of qualifying for the full state pension when I retire. I guess I just want to safeguard my future and cover as many bases as possible, as I may have to solely rely on the state pension should things go pear shaped in later life.
The only risk I can see is that I move back to UK within the next few of years (which is likely, hence not my usual account) and work in UK beyond 25 further more years. The cost to me would therefore be the ‘investment’ of £600 which would have been unnecessary.
For context, I currently have no private pension in place as of today, which makes the importance of having at least one safety net (no matter how small) in place. I do not plan to rely on the state pension solely though accept that this may be a possibility. I hope to be financially secure independently by the time I retire.
Any comments, queries or observations from people much cleverer than me would be
I have 10 years of full national insurance contributions on my record. I have a potential of 38 more years to contribute before I retire. I have missed the past four years of national insurance contributions in full due to living and working overseas. As such, I would need to make up another 25 years of national insurance contributions to qualify for the full state pension when I retire. Whether the state pension exists or not by the time I get there is a moot point.
I have spoken to Future Pensions Centre and HMRC and believe that I would be entitled to pay class 2 voluntary contributions in consideration of the past four years as I have been living and working overseas during this time. Class 2 voluntary contributions are approx. £150 per year (rather than approx. £750 for class 3 AKA the ‘usual’ voluntary contribution rate).
It seems very sensible, to me at least, to ‘book’ these four currently missing years at a cost of £600 (which I won’t miss) now in order to increase my chances of qualifying for the full state pension when I retire. I guess I just want to safeguard my future and cover as many bases as possible, as I may have to solely rely on the state pension should things go pear shaped in later life.
The only risk I can see is that I move back to UK within the next few of years (which is likely, hence not my usual account) and work in UK beyond 25 further more years. The cost to me would therefore be the ‘investment’ of £600 which would have been unnecessary.
For context, I currently have no private pension in place as of today, which makes the importance of having at least one safety net (no matter how small) in place. I do not plan to rely on the state pension solely though accept that this may be a possibility. I hope to be financially secure independently by the time I retire.
Any comments, queries or observations from people much cleverer than me would be
I presume that makes you about 30 y/o now? What if you wanted to take early retirement, before the state pension age (whatever that ends up as by then)? Of course, to be in that situation would mean you had some other financial means to retire early (i.e. private pension of some form). And since you say that you don't have anything like that it place yet, it's unlikely you'll be in a position to take an early retirement anyway.
You'd probably be better off using that £600 to start a pension of some sort (SIPP?), if you are reasonably confident of getting enough qualifying years of NICs.
One thing that I haven't seen any mention of yet, is the govt increased the required no of years to qualify for state pension. They keep increasing the retirement age, before they start paying out. It could stitch a lot of people up (particularity women who've taken time out from working to raise a family), if they move the goal posts on qualifying years. At the moment, it must be a rare occurrence that someone fails to earn enough qualifying years, when a person can live their whole life on benefits and get their 'stamp' made up from that.
You'd probably be better off using that £600 to start a pension of some sort (SIPP?), if you are reasonably confident of getting enough qualifying years of NICs.
One thing that I haven't seen any mention of yet, is the govt increased the required no of years to qualify for state pension. They keep increasing the retirement age, before they start paying out. It could stitch a lot of people up (particularity women who've taken time out from working to raise a family), if they move the goal posts on qualifying years. At the moment, it must be a rare occurrence that someone fails to earn enough qualifying years, when a person can live their whole life on benefits and get their 'stamp' made up from that.
mjb1 said:
One thing that I haven't seen any mention of yet, is the govt increased the required no of years to qualify for state pension. They keep increasing the retirement age, before they start paying out. It could stitch a lot of people up (particularity women who've taken time out from working to raise a family), if they move the goal posts on qualifying years. At the moment, it must be a rare occurrence that someone fails to earn enough qualifying years, when a person can live their whole life on benefits and get their 'stamp' made up from that.
Surprisingly I think that it is only a small proportion of people who actually get to the full state pension - not as you'd expectI've worked overseas most of the last 35 years, I had a dozen or so years in before I left and 8 years in the last 25 where I was fully paid up due to odd positions in the UK, I've kept an eyes on my contributes and paid enough to get the 30 paid up years in that I need, ( made 2 payments of 4 years each) I miscalculated and payed 32, but not a big issue. Also means I get access to NHS for life if I return to UK.
Today it is very easy to set up a an online account with the revenue and check your contributions. see this https://www.gov.uk/check-national-insurance-record
To me the full basic pension was well worth the years 8 years I had to write a check for, I left school at 16, funded university myself, working in all the holidays, so potentially 47 years to pay in, not sure that paying 47 is a good rate of return but 30 certainly is, especially as some of the fully paid years where in the 70's when I was earning almost nothing by todays std and consequently made minimum contributions.
Set up an account and keep an eye on your contribution years and then pay minimum necessary, remembering minimum years can increase and you can only back pay 4 years.
Today it is very easy to set up a an online account with the revenue and check your contributions. see this https://www.gov.uk/check-national-insurance-record
To me the full basic pension was well worth the years 8 years I had to write a check for, I left school at 16, funded university myself, working in all the holidays, so potentially 47 years to pay in, not sure that paying 47 is a good rate of return but 30 certainly is, especially as some of the fully paid years where in the 70's when I was earning almost nothing by todays std and consequently made minimum contributions.
Set up an account and keep an eye on your contribution years and then pay minimum necessary, remembering minimum years can increase and you can only back pay 4 years.
Gassing Station | Finance | Top of Page | What's New | My Stuff