Should I make NI payments now?

[greaseladder]

Please can anyone advise me? I am female and have a full NI record (except for 3 years' training) but retired due to ill-health (cancer) in April 2015 at the age of 56. My projected pension is £119.30 per week which I will receive at 66. Having always worked for the NHS (which I believe 'contracted out') and not expecting to return to working, is it worth me making extra contributions to increase that weekly pension payment? Can I make a payment at the end of each year up to age 60 as I would know the current state of my health? Could I then pay for years 61-66 just before receiving the pension if I expected to be alive for the next few years, or do I need to pay well ahead of my retirement age? Thank you very much for any help with my predicament.

[mc2fool]

...is it worth me making extra contributions to increase that weekly pension payment?

Well, without wishing to sound too black, whether it's worth making extra contributions to increase your state pension will depend on how long you live. What's possible for you is as follows:

Starting with the current tax year, 2016/17, each and every additional year of contributions you make will increase your state pension by ~£4.45 per week (one 35th of £155.65), up to a maximum of £155.65. This is irrespective of your current record.

That means that to get to the full £155.65 you'd have to make 8.2 more years contributions, except that you can't do 0.2 of a year, you can only do whole years. So, 8 years of contributions will get to £154.88 and a final ninth year will get you the extra 77p to the full £155.65. The current cost of class 3 voluntary NICs is £14.10pw (£733.20pa), so the "flat" payback period of the first 8 years is (14.10/4.45) = 3.17years, so as long as you live to at least 69 years and 2 months they'll be worth it. For that last 77p it's at least 84 years and 4 months.

Now, you can make the voluntary contributions for those years at (almost) any time from now until your state pension age, subject to the following:

a) you can only make contributions for the last six years, so your final chance to contribute for 2016/17 will be 5-Apr-2023, and so on.
b) the price of NICs for a year is only fixed for two years, so the cost of the 2016/17 class 3 NIC will stay at £733.20pa (£14.10pw) until 5-Apr-2019. After that, for the remaining years you can pay it (up to 5-Apr-2023), it will cost the price of that year's class 3 NIC.
c) the last year you can make a contribution for is the tax year before the one in which you reach state pension age, so if your 66th birthday is before 6-Apr-2025 then you won't be able to make that ninth (77p) year.

A couple of other things to note. Firstly, the pension figures (£155.65, £4.45) are all current ones, but those will increase by the triple lock until the end of this parliament (2020 in theory!) and by national average earnings after that, so, in fact, the payback period is very likely to be better (shorter) than the "flat" one shown above. Secondly, the cost of contributions goes up by CPI each year, and so are guaranteed not to go up more than (and, most likely, less than) the pro-rata increase they buy until at least 2020. (All of that assuming the govt doesn't change the legislation along the way!)

So, if you're feeling confident about getting to 69 years and 2 months, the most cost effective way is to stick an item in your calendar for early 2019 (Feb/Mar) to pay the contribution for 2016/17 and thereafter each year 2 years in arrears until a final catchup in the penultimate year. If you are less confident then look at it again in early 2023 and pay six years in arrears, although it will cost more then (and hence have a longer payback period).

Some others will say you should register as self-employed and pay class 2 NIC until they are abolished in 2018, as they are a lot cheaper, which they are, but I have no experience of that route so I'll let others detail it.

One last thing, it's possible (albeit unlikely with your numbers) that you may be able to pay some pre-2016 NICs, which have the advantage of being a bit cheaper than the current ones. In order to determine that you'll need know if you have any gaps (missing years) in your NI record since 2006, and a recent (last few months) pension statement. If you know about gaps and you do have a recent statement please post about the gaps and (from the statement) your number of qualifying years and your COPE. If not, find out, and get one

[malkymoo]

You may find this guide useful:

http://www.royallondon.com/Global/docum ... -GUIDE.pdf

[greaseladder]

Wow! Thank you for your very detailed and helpful post mc2fool. It makes it much clearer to me what I need to decide upon, and thank you for working out all the figures.
Thanks too to malkymoo for the helpful link guiding me through the choices available.
I have some work to do now

[gadgetmind]

Some others will say you should register as self-employed and pay class 2 NIC until they are abolished in 2018, as they are a lot cheaper, which they are, but I have no experience of that route so I'll let others detail it.

My wife has been doing this for many years. She works part time but not enough to hit LEL so she's also registered as self employed. She has to do self assessment every year, and declares a few hundred quid as self employed income, but not enough to pay tax or NI. She then pays £4 and a bit per week as voluntary Class 2 and gets a qualifying year.

Her chosen occupation is really a hobby, though she has won awards and does teeny amounts of billing. It's also something that gives lower car insurance than "housewife"!

[mc2fool]

She then pays £4 and a bit per week as voluntary Class 2 and gets a qualifying year.

£4 and a bit? Voluntary class 2 NICs are £2.80. https://www.gov.uk/voluntary-national-insurance-contributions/rates

[gadgetmind]

She then pays £4 and a bit per week as voluntary Class 2 and gets a qualifying year.

£4 and a bit? Voluntary class 2 NICs are £2.80. https://www.gov.uk/voluntary-national-insurance-contributions/rates

Ah, yes, oops. I was looking at the wrong spreadsheet cell and they currently earn you an extra £4.32 a week in pension at a cost of £2.80 a week.

[mc2fool]

Ah, yes, oops. I was looking at the wrong spreadsheet cell and they currently earn you an extra £4.32 a week in pension at a cost of £2.80 a week.

No, they currently earn you an extra ~£4.45 per week (£155.65/35). Your £4.32 is based on last year's projected full new state pension amount (£151.25)