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making up for lost years

James
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making up for lost years

#493182

Postby James » April 9th, 2022, 9:00 pm

Hi
My partner has a pension forecast that reads:

You can get your State Pension on xx xx 2037
Forecast if you contribute another 12 years before 5 April 2036

Your forecast is £179.60 a week,
£780.94 a month, £9,371.27 a year

£179.60 is the most you can get

That forecast is based on her needing another 12 years of contributions before retirement.

You have:
20 years of full contributions
15 years to contribute before 5 April 2036
3 years when you did not contribute enough
View years only showing gaps in your contributions.

The missing years are back in the early 2000s.

The 'but' is that she wants to retire in 10 years, i.e. 2032

Is it doable (and if so, how?) to make up the missing years in the next 10 years so she can get the maximum payment. Paying additional now is no problem as she has a good income.

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Re: making up for lost years

#493194

Postby Freshwater » April 9th, 2022, 9:36 pm

Your partner can retire in 10 years time (or earlier if she wants to) but she won't get her state pension until 2037 and there's nothing you can do to bring that forward I'm afraid. If she wants a full state pension she'll need to make sufficient NI payments in 12 of the years between now and then. Those payments can be via employment or they can be one off payments.

So if your partner works and pays NI for the next 10 years and then retires in 2032, she can pay one off NI payments in 2033 & 2034 and she will be entitled to a full state pension, which will then begin paying out in 2037. The retirement years between 2032-37 will need to be financed through savings and/or a personal pension.

You do have the ability to buy missing NI years from any of the last 6 years, but from your description, it sounds as if your partner has those years covered.

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Re: making up for lost years

#493196

Postby ursaminortaur » April 9th, 2022, 9:43 pm

James wrote:Hi
My partner has a pension forecast that reads:

You can get your State Pension on xx xx 2037
Forecast if you contribute another 12 years before 5 April 2036

Your forecast is £179.60 a week,
£780.94 a month, £9,371.27 a year

£179.60 is the most you can get

That forecast is based on her needing another 12 years of contributions before retirement.

You have:
20 years of full contributions
15 years to contribute before 5 April 2036
3 years when you did not contribute enough
View years only showing gaps in your contributions.

The missing years are back in the early 2000s.

The 'but' is that she wants to retire in 10 years, i.e. 2032

Is it doable (and if so, how?) to make up the missing years in the next 10 years so she can get the maximum payment. Paying additional now is no problem as she has a good income.


The gaps are almost certainly too far in the past you can generally only fill in gaps from upto six years ago.

The good news is that she doesn't need to fill in those old years to get a full pension as she has enough time before her normal state pension age to make enough contributions. She can just work for the next ten years and then after her early retirement make a couple of years of voluntary NIC contributions. These voluntary NIC contributions would currently either be Class 3 or, somewhat cheaper, Class 2 if she carries out some type of self-employed job. (That may of course change - a couple of years ago the government was planning on getting rid of Class 2 NICs but they have backtracked on that. However it is pretty certain that there will still be someway of making such voluntary NIC contributions in ten years time whatever form it takes).

https://www.gov.uk/voluntary-national-insurance-contributions

https://www.gov.uk/voluntary-national-insurance-contributions/deadlines

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Re: making up for lost years

#493204

Postby mc2fool » April 9th, 2022, 10:16 pm

James wrote:The missing years are back in the early 2000s.

She can currently make up missing years back to 2006/7. This is the last tax year that'll be possible, after it'll revert to just the last 6 years.

Check if any of the missing years are post 2006, and if they are then let us know if she has a COPE and if so what it is and we can figure out the fine details of it for you. She will have a COPE if she was contracted out at any time. Look for information and a link further down the forecast page.

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Re: making up for lost years

#493273

Postby pochisoldi » April 10th, 2022, 11:16 am

James wrote:Hi
My partner has a pension forecast that reads:

You can get your State Pension on xx xx 2037
Forecast if you contribute another 12 years before 5 April 2036

Your forecast is £179.60 a week,
£780.94 a month, £9,371.27 a year

£179.60 is the most you can get

That forecast is based on her needing another 12 years of contributions before retirement.

You have:
20 years of full contributions
15 years to contribute before 5 April 2036
3 years when you did not contribute enough
View years only showing gaps in your contributions.

The missing years are back in the early 2000s.

The 'but' is that she wants to retire in 10 years, i.e. 2032

Is it doable (and if so, how?) to make up the missing years in the next 10 years so she can get the maximum payment. Paying additional now is no problem as she has a good income.


Assumptions: 1) "wants to retire in 10 years" means "wants to stop work in 10 years" 2) "in 10 years" means "after earning another 10yrs of state pension"

The "missed years" are gone. There are 12 years needed
One of the 12 years is covered by last year (assuming a full year's contributions for last year), so there's now 11 years needed.
If she works for the next 10 years and pays NI contributions, then that leaves one year of contributions to hit the full pension.

That one year is what I call the "final year" - that one year of voluntary contributions that takes you over the finishing line.

Once you get to "one final year" then the choices are as follows:
1. Work another full year at or above the NI threshold, get the year paid for "for free"
2. Stop work (or work under the threshold) and pay voluntary Class 2 contributions
3. Make up any gaps in that final year with Class 3 contributions
4. Stop work and decide to pay a year's worth Class 3 contributions (you must be mad to choose this if option 2 is available)

When you get to your "final year", and aren't paying or receiving mandatory NI contributions (i.e. you are employed/fully self employed/looking for work and signing on for NI credits) you need to be careful as paying or making up that last full year of contributions may not actually buy you a full year's worth of pension.

A year's worth of pension is £179.60/35 = £5.13 a week.
If you earned pension before 2016, then your "Estimate based on NI record" will not be a multiple of £5.13.

For example, my forecast says
Forecast Pension: £179.60/week
Estimate based on NI record to 2021: £163.62/week
Need 4 more years

The first three years of those four will earn me £15.39 (3 x 5.13) a week, taking me to £179.01
The "final year" will earn me just 59p a week, because the pension is capped at £179.60

So for me, making voluntary contributions to get that "final year is simply not worth it.

If anyone is considering making voluntary contributions you need to do the following calculation:

1) Work out what one year's contributions gets you = Divide the maximum pension figure by 35. This gives you "value of one year"
For the 2021/22 pension figure this gives you £5.13 per year

2) Subtract your "Estimate based on NI record" from the "maximum pension" this gives you "pension yet to be earned"
(In my example: £179.60-£163.62 = £15.98)

3) Divide "pension yet to be earned" by "value of one year". This gives you "actual years needed"
(in my example £15.98/£5.13 = 3.115)

4) This figure, if rounded up should equal the number of years your forecast says you still have to contribute.
(in my example - 3.115 rounds up to 4)

5) Remove any digits before the decimal point from the "actual years needed" this gives the "final year multiplier"
(in my example 3.115 becomes 0.115)

Note that the calculations above only have to be done once - as long as you haven't earned the full pension, the "final year multiplier" will never change, the calculations below should be done as and when depending on circumstances and current cost of contributions.

6) Work out what the "final year will buy you":
"final year multiplier" x "value of one year"
(in my example 0.115 * £5.13 = £0.59)

7) Look at your "final year will buy you" figure.
Compare it against the cost of getting that final year, and work out what the payback would be.

For example if I had to make up a full year to get that 0.115:
Class2: 52*3.15=£163.80, which would earn me 52*.59=£30.68. Payback period would be 163.80/30.68 years = 5yrs 4 mths (Will I live to 82?)
Class3: 52*15.85=£824.20, which would earn me 52*.59=£30.68. Payback period would be 824.20/30.68 years = Over 26 years (Will I live to 93?)
If I was missing two weeks contributions and paid 2 weeks Class 3:
Class 3: 2*15.85=£31.70, which would earn me 52*.59=£30.68. Payback period would be 31.70/30.68 years = just over 1 year (Will I live to 68?)

In my case, around 2 years ago, I had a 2 week shortfall - so I had (and still have) a choice - pay £31.70, or wait and see how my work situation played out. As it stands, it's more likely than not that I will be able to get that "final year" by working, and 2 weeks Class 3 would be dead money.

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Re: making up for lost years

#493453

Postby James » April 10th, 2022, 10:33 pm

Freshwater wrote:Your partner can retire in 10 years time (or earlier if she wants to) but she won't get her state pension until 2037 and there's nothing you can do to bring that forward I'm afraid. If she wants a full state pension she'll need to make sufficient NI payments in 12 of the years between now and then. Those payments can be via employment or they can be one off payments.

So if your partner works and pays NI for the next 10 years and then retires in 2032, she can pay one off NI payments in 2033 & 2034 and she will be entitled to a full state pension, which will then begin paying out in 2037. The retirement years between 2032-37 will need to be financed through savings and/or a personal pension.

You do have the ability to buy missing NI years from any of the last 6 years, but from your description, it sounds as if your partner has those years covered.


Sorry, guilty again of not being specific enough.
My partner wants to stop working at 62, in 10 years' time, therefore adding just 10 more years of the 12 she appears to need.
The missing years are more than 10 years ago, so I guess it looks like paying additional NI payments post work is the option.
Intervening years between stopping working and state retirement will be funded from her work pension/other savings.

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Re: making up for lost years

#493458

Postby mc2fool » April 10th, 2022, 11:20 pm

James wrote:The missing years are more than 10 years ago, so I guess it looks like paying additional NI payments post work is the option.

Once again:
mc2fool wrote:She can currently make up missing years back to 2006/7. This is the last tax year that'll be possible, after it'll revert to just the last 6 years.

Check if any of the missing years are post 2006, and if they are then let us know if she has a COPE and if so what it is and we can figure out the fine details of it for you. She will have a COPE if she was contracted out at any time. Look for information and a link further down the forecast page.

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Re: making up for lost years

#493463

Postby mc2fool » April 10th, 2022, 11:57 pm

James wrote:The missing years are more than 10 years ago, so I guess it looks like paying additional NI payments post work is the option.

P.S. As I realise it isn't all in your OP, to save further info being needed, if any of the missing years are post 2006 look up and post not just the COPE but all of the info listed at viewtopic.php?p=402147#p402147

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Re: making up for lost years

#493562

Postby James » April 11th, 2022, 1:39 pm

mc2fool wrote:
James wrote:The missing years are more than 10 years ago, so I guess it looks like paying additional NI payments post work is the option.

Once again:
mc2fool wrote:She can currently make up missing years back to 2006/7. This is the last tax year that'll be possible, after it'll revert to just the last 6 years.

Check if any of the missing years are post 2006, and if they are then let us know if she has a COPE and if so what it is and we can figure out the fine details of it for you. She will have a COPE if she was contracted out at any time. Look for information and a link further down the forecast page.

Thanks. The missing years are 2002-2004 so can't be made up this year by the sound of it. No contracting out.

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Re: making up for lost years

#493569

Postby mc2fool » April 11th, 2022, 2:07 pm

James wrote:Thanks. The missing years are 2002-2004 so can't be made up this year by the sound of it. No contracting out.

No, indeed not. Well that makes it easy at least. ;)

It looks then like the only open question is the one raised by pochisoldi of the cost-benefit of the final year.

It's obvious from your figures that, as she only needs a total of 32 years to get to the full new state pension amount, her 2016 "starting amount" will have been based on her old state pension entitlement, including some additional state pension*. However, as there's no pre-2016 missing years that can be made up we (thankfully) don't need to get into the complexities of that. :D

We only need to know the one figure you didn't post, being her "Estimate based on your National Insurance record up to 5 April 2020" amount. I.e. how much she'll get from just the years she's built up already.

Note, if you're going back to the website to get that figure (rather than having it already captured with your other figures), do check that the rest of the figures and dates are the same, and if not repost those, in case they'd updated it all for the new tax year (e.g. max will now be £185.15 instead of £179.60).

* pochisoldi said "If you earned pension before 2016, then your "Estimate based on NI record" will not be a multiple of £5.13". That's actually not necessarily true, it depends on whether the 2016 starting amount is based on the old or new figures, however it is going to be true in this case.

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Re: making up for lost years

#510317

Postby James » June 28th, 2022, 4:51 pm

Hi
Thanks for all the input to my original question, with hat tips to pochisoldi and mc2fool.
Due to life getting in the way, we've not had a chance to go back to this for ages, but did look at the gov website again to answer the questions raised above.
My partner's record starts in 2001-02. The first three years say "Year is not full".
All years since then are marked as "Full Year".
It says:
"Estimate based on your National Insurance record up to 5 April 2022
£127.18 a week
Forecast if you contribute another 11 years before 5 April 2036
£185.15 a week
£185.15 is the most you can get."

As she only wants to work another 10 years, she will be one year short.

So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?

*I may well not have understood this correctly and likely have done the maths wrong.

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Re: making up for lost years

#510326

Postby ReformedCharacter » June 28th, 2022, 5:14 pm

James wrote:Hi
Thanks for all the input to my original question, with hat tips to pochisoldi and mc2fool.
Due to life getting in the way, we've not had a chance to go back to this for ages, but did look at the gov website again to answer the questions raised above.
My partner's record starts in 2001-02. The first three years say "Year is not full".
All years since then are marked as "Full Year".
It says:
"Estimate based on your National Insurance record up to 5 April 2022
£127.18 a week
Forecast if you contribute another 11 years before 5 April 2036
£185.15 a week
£185.15 is the most you can get."

As she only wants to work another 10 years, she will be one year short.

So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?

*I may well not have understood this correctly and likely have done the maths wrong.

I've just been through the buying additional years process and it looks to me as if your maths is correct. I found the process to be surprisingly painless, 3 phone calls and a bank transfer. My calls were answered reasonably promptly and the people I spoke to were patient and helpful.

RC

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Re: making up for lost years

#510357

Postby DrFfybes » June 28th, 2022, 6:12 pm

James wrote:So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?
.


Close.

Part years (if within the last 6 I think) can be 'topped up' without making the full year's Class 3, so if she worked part of the year it would be less that £824.

Also, it isn't £824, at least not for 2020-21. I didn't work at all and my Class 3 are £795.60 and I have until 2027 to make the payment.

HOWEVER, I'm pretty sure you can't just "buy extra years", and can only backfill missing years (back to 2006 in certain circumstances, but that will soon reduce to a rolling 6 years). So, if the gap is prior to that then you will have to wait until there is another gap (ie when she finishes work) in order to buy the extra year.
https://www.gov.uk/voluntary-national-i ... /deadlines

Paul

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Re: making up for lost years

#510372

Postby ReformedCharacter » June 28th, 2022, 6:40 pm

DrFfybes wrote:
James wrote:So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?
.


Close.

Part years (if within the last 6 I think) can be 'topped up' without making the full year's Class 3, so if she worked part of the year it would be less that £824.

Also, it isn't £824, at least not for 2020-21. I didn't work at all and my Class 3 are £795.60 and I have until 2027 to make the payment.

HOWEVER, I'm pretty sure you can't just "buy extra years", and can only backfill missing years (back to 2006 in certain circumstances, but that will soon reduce to a rolling 6 years). So, if the gap is prior to that then you will have to wait until there is another gap (ie when she finishes work) in order to buy the extra year.
https://www.gov.uk/voluntary-national-i ... /deadlines

Paul

Yes, I was puzzled about the lower cost for 2020-21, all my other years were £824. I 'topped up' my 2012 contributions so it looks possible to do it back further than 6 years. I wasn't much short for that year so it was good value.

RC

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Re: making up for lost years

#510403

Postby mc2fool » June 28th, 2022, 8:20 pm

James wrote:Hi
Thanks for all the input to my original question, with hat tips to pochisoldi and mc2fool.
Due to life getting in the way, we've not had a chance to go back to this for ages, but did look at the gov website again to answer the questions raised above.
My partner's record starts in 2001-02. The first three years say "Year is not full".
All years since then are marked as "Full Year".
It says:
"Estimate based on your National Insurance record up to 5 April 2022
£127.18 a week
Forecast if you contribute another 11 years before 5 April 2036
£185.15 a week
£185.15 is the most you can get."

As she only wants to work another 10 years, she will be one year short.

So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?

*I may well not have understood this correctly and likely have done the maths wrong.

Indeed you have. ;) Close but no cigar. :D

With ((185.15-127.18)/11)) you've assumed that the 127.18 comes from a round number of new state pension years, but it doesn't, it's affected by the 2016 "starting amount" calculation, which will only be a round number of NSP years in pretty few cases, and isn't in her case.

The full NSP is £185.15pw and needs 35 years, and so each additional post-2016 qualifying year gains £185.15/35 = £5.29pw.

So, she has £127.18 now and an additional 10 years will get her to £127.18 + (£185.15 * 10/35) = £180.08.

One extra year on top will get her the extra £5.07 to the max of £185.15. So, that'll be £824 for an upgrade of £263.64. In today's numbers of course.

(Note, that while <full NSP>/35 is an exact ££.pp number this year, it may not be in future years, and (£185.15 * 10/35) and then rounding to the next penny is the correct way to calculate the extra 10 years.)

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Re: making up for lost years

#510407

Postby mc2fool » June 28th, 2022, 8:34 pm

ReformedCharacter wrote:I was puzzled about the lower cost for 2020-21, all my other years were £824. I 'topped up' my 2012 contributions so it looks possible to do it back further than 6 years. I wasn't much short for that year so it was good value.

The cost is frozen at the original cost for the previous two years, (£795.60 for 2020-21, £800.80 for 2021-22). All other years are paid at the current rate (£824.20).

https://www.gov.uk/government/publicati ... -voluntary

The ability to pay back further than 6 years expires on 6 April 2023; see DrFfybes' link.

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Re: making up for lost years

#510881

Postby James » June 30th, 2022, 1:28 pm

DrFfybes wrote:
James wrote:So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?
.


Close.

Part years (if within the last 6 I think) can be 'topped up' without making the full year's Class 3, so if she worked part of the year it would be less that £824.

Also, it isn't £824, at least not for 2020-21. I didn't work at all and my Class 3 are £795.60 and I have until 2027 to make the payment.

HOWEVER, I'm pretty sure you can't just "buy extra years", and can only backfill missing years (back to 2006 in certain circumstances, but that will soon reduce to a rolling 6 years). So, if the gap is prior to that then you will have to wait until there is another gap (ie when she finishes work) in order to buy the extra year.
https://www.gov.uk/voluntary-national-i ... /deadlines

Paul


Yes, understand she can't make up for the missing years from 2001/2002, but the plan is that she could pay year 11 (after she has stopped working) via Class 3.
Also understand the Class 3 contribution will likely be different that year, but was just working with the current numbers as I have nothing else.

James
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Re: making up for lost years

#510882

Postby James » June 30th, 2022, 1:31 pm

mc2fool wrote:
James wrote:Hi
Thanks for all the input to my original question, with hat tips to pochisoldi and mc2fool.
Due to life getting in the way, we've not had a chance to go back to this for ages, but did look at the gov website again to answer the questions raised above.
My partner's record starts in 2001-02. The first three years say "Year is not full".
All years since then are marked as "Full Year".
It says:
"Estimate based on your National Insurance record up to 5 April 2022
£127.18 a week
Forecast if you contribute another 11 years before 5 April 2036
£185.15 a week
£185.15 is the most you can get."

As she only wants to work another 10 years, she will be one year short.

So it seems* like she is for each year she pays, she will be getting an extra £5.27 a week at retirement. ((185.15-127.18)/11))
Or in other words, if she is one year short, she will receive 185.15-5.27=179.88
To buy an additional year via Class 3 would cost £15.85 x 52 = £824 for an upgrade of £274.04 (5.27x52) per year.
So would be worth it after 824/274.04=3 years.
Does this sound even close to being right?

*I may well not have understood this correctly and likely have done the maths wrong.

Indeed you have. ;) Close but no cigar. :D

With ((185.15-127.18)/11)) you've assumed that the 127.18 comes from a round number of new state pension years, but it doesn't, it's affected by the 2016 "starting amount" calculation, which will only be a round number of NSP years in pretty few cases, and isn't in her case.

The full NSP is £185.15pw and needs 35 years, and so each additional post-2016 qualifying year gains £185.15/35 = £5.29pw.

So, she has £127.18 now and an additional 10 years will get her to £127.18 + (£185.15 * 10/35) = £180.08.

One extra year on top will get her the extra £5.07 to the max of £185.15. So, that'll be £824 for an upgrade of £263.64. In today's numbers of course.

(Note, that while <full NSP>/35 is an exact ££.pp number this year, it may not be in future years, and (£185.15 * 10/35) and then rounding to the next penny is the correct way to calculate the extra 10 years.)


You know more about this stuff than anyone really should, mc2fool :D
Appreciate you correction of my logic and maths. But it still seems that it will make sense for her to stop working as planned, and at some point in the following five years before the pension comes through, make up the missing year 11, as long as she plans to live for more than c.3 years after her pension age.

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Re: making up for lost years

#510894

Postby mc2fool » June 30th, 2022, 2:59 pm

James wrote:You know more about this stuff than anyone really should, mc2fool :D
Appreciate you correction of my logic and maths. But it still seems that it will make sense for her to stop working as planned, and at some point in the following five years before the pension comes through, make up the missing year 11, as long as she plans to live for more than c.3 years after her pension age.

Yes, as it turned out there's little difference in the end result ... with the correct numbers she'll only have to live a further six weeks or so over your numbers to make it worth it. (3.13 years vs 3.01) :D

It is, however, worth folks knowing how to figure it correctly, 'cos while in her case the final year gets her extra an £5.07pw, it could also have worked out to get her just an extra few pennies, which would make a really Methuselan payback time!

BTW, an even better deal by far would be for her to declare herself self-employed for that year, doing some token job (e.g. a little ebay trading, or paid baby sitting of the grandkids, or a little gardening for your neighbour, etc) and pay voluntary class 2 NICs for the year, currently £3.15pw * 52 = £163.80. Payback time, 7.5 months! What's more she could earn £1000pa from the token job tax free. Of course, in 10 years time that may all have changed....


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