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Is it worth a part-time worker paying voluntary NIC's?

richfool
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Is it worth a part-time worker paying voluntary NIC's?

#372452

Postby richfool » January 2nd, 2021, 7:44 pm

Question: Is it worthwhile for a part-time worker in her mid 40's to opt to pay voluntary NIC's, under the following circumstances:

She has only lived in the UK for 5 years, with her retired older British husband. During that time she took on a small part-time job, the income from which is usually below both the NIC and tax thresholds, apart from the odd occasion (a few times a year), when she works extra hours due to the seasonal nature of the work, which then triggers a NI deduction. Her earnings seem to average out at c £7K pa.

As a guide, I doubt she would want to work beyond age 60, if even that long, and would probably return to her birth country to live on or before retirement, though she can't be sure of that. So I would assume a maximum working/NI contribution period of 15-20 years.

She will receive a widow's pension, when her British husband passes on (from his occupational pension). In view of her low income and limited time in the UK, rather than try and fund a pension from minimal earnings, for a relatively short period, and with the usual administrative costs and restrictions about when it would be payable from, she has instead been investing some of her earnings into an equity ISA, topped up from time to time by her husband. The plan is that she can then access the income or capital from the ISA, as and when. Or, she could take the funds overseas if she returns to her home country, (on or before her retirement age). Or, she could take the income from it, to supplement her widow's pension, if she stayed on in the UK.

In the light of discussions on this board, the thought occurred to me whether there might be merit in her paying voluntary NIC's to try and qualify for at least a minimum UK state pension. She hasn't of course paid more than about half dozen payments so far! Noted also that she wouldn't be able to take that state pension until age c 68 or thereabouts; and as said, I doubt she would want to work to anywhere near that age! Also, paying voluntary NIC's could well amount to her paying c 48 week's contributions per year, unless she increased her working hours significantly or took a better job, which isn't really in her plans.

Alternatively, would I be right in thinking there would be little merit in her taking out a SIPP or private pension due to her fairly nominal earned income and the uncertainty as to where she will be living upon her eventual retirement?

She was put into the state NEST pension once, when her income jumped up due to a one-off seasonal increase in earnings. She then opted.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#372467

Postby mc2fool » January 2nd, 2021, 8:42 pm

Well, class 3 voluntary NICs cost (currently) £15.30 a week = £795.60 a year, and each year will get her (currently) £260.30 per year when she retires.

So, the payback period is pretty darn good, at just over 3 years ... and that's not including the fact that the £260.30 will get increased up to state pension age, and thereafter.

Even better is if she can declare herself self-employed, then it's class 2 voluntary NICs which cost £3.05 a week = £158.60 a year, giving a payback period of just over 7 months!

She'll need a minimum of 10 years of contributions to get anything, but if she wants to get a good chunk of that done and out of the way (and doesn't have them already) she can buy up to the last 6 years of NICs straight off.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#372470

Postby mark88man » January 2nd, 2021, 8:50 pm

The first thing she should do is find out what her exact position is from on-line or via writing (Future pension centre I think).

If she is earning £7k a year she should, unless she earns it one paypacket already have made enough contributions for that year (as they don;t have to be literally every week).

As I understand it at £130 pw (or £520 or so per month if paid monthly) you become entitled to a contribution for that period even though you don't pay any actual NI until £180 pw. Therefore at £130 pw a salary of just over £6k (provided its with the same employer or rather not split between 2 on a weekly basis) she would seem to have earned more (by some margin) than she needs.

HTH - the pensions board on MSE is very good on this topic

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Re: Is it worth a part-time worker paying voluntary NIC's?

#372486

Postby richfool » January 2nd, 2021, 9:53 pm

Thanks for the input/suggestions. Point taken that she may well have some NI credits to her name, even if she hadn't actually triggered contributions/deductions from her wages herself. Her earnings for earlier years would probably have been quite a bit less than the £7k current rate, but I will get her to check on her NI record.

Note, as I understand it currently, she wouldn't be able to claim a pension until age 68, and though DWP would be able to pay her in her home country, it would then be without any annual increases.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#372490

Postby mc2fool » January 2nd, 2021, 10:14 pm

richfool wrote:Note, as I understand it currently, she wouldn't be able to claim a pension until age 68, and though DWP would be able to pay her in her home country, it would then be without any annual increases.

As things currently stand, the rise to 68 will be phased in between 2044 and 2046. There have, however, been plans since 2017 to bring this forward to between 2037 and 2039, but these have yet to be enacted.

Yes, she'll only get increases in payment if she lives in one of these countries. However, the amount she'll be getting will increase up to state pension age, regardless of where she is.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#372534

Postby richfool » January 3rd, 2021, 3:30 am

mc2fool wrote:Well, class 3 voluntary NICs cost (currently) £15.30 a week = £795.60 a year, and each year will get her (currently) £260.30 per year when she retires.

So, the payback period is pretty darn good, at just over 3 years ... and that's not including the fact that the £260.30 will get increased up to state pension age, and thereafter.

Even better is if she can declare herself self-employed, then it's class 2 voluntary NICs which cost £3.05 a week = £158.60 a year, giving a payback period of just over 7 months!

She'll need a minimum of 10 years of contributions to get anything, but if she wants to get a good chunk of that done and out of the way (and doesn't have them already) she can buy up to the last 6 years of NICs straight off.

Thanks for those points.

I suppose the big question now is whether she should just leave it at seeking to pay voluntary NIC's to at least qualify for a basic UK state pension, which seems to be worthy of doing; or whether she should seek to take it further, e.g. whether she should look at doing a SIPP, joining the NEST second pension scheme, or just rely on funding her ISA? In view of her limited earned income and the uncertainty as to how long she might continue to work in the UK, it may be better to keep things simple and stick with just her ISA and the basic state pension. She would also have a small widow's pension.

I am conscious that she is someone who is not financially astute, nor particularly computer literate, so I didn't want to push her into taking on complex products, that she would neither understand nor be able to manage easily, particularly if she had returned to a more remote part of the world by retirement age. Noting also that most things in the UK now have to be dealt with online and that more formal products like SIPP's or even the NEST scheme have ongoing administrative implications and charges to consider.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#373847

Postby richfool » January 6th, 2021, 2:08 pm

mc2fool wrote:Well, class 3 voluntary NICs cost (currently) £15.30 a week = £795.60 a year, and each year will get her (currently) £260.30 per year when she retires.

So, the payback period is pretty darn good, at just over 3 years ... and that's not including the fact that the £260.30 will get increased up to state pension age, and thereafter.

Even better is if she can declare herself self-employed, then it's class 2 voluntary NICs which cost £3.05 a week = £158.60 a year, giving a payback period of just over 7 months!

She'll need a minimum of 10 years of contributions to get anything, but if she wants to get a good chunk of that done and out of the way (and doesn't have them already) she can buy up to the last 6 years of NICs straight off.


Thanks again for this. We've just been checking her NIC record, which confirms that for her very first year she would need to pay £795.60, and then the amount reduces progressively for subsequent years, as her earnings increased and she either paid or received NI credits for some of those weeks/months. For the year 2019/20 she would for example only need to pay £135 shortfall.

Could you please clarify though, when you said, each year would get her (currently) £260.30 per year when she retires, do you mean she would get that amount for each year provided that she has a contributions record for a minimum of 10 years? I.e. if she has (the minimum) 10 years contributions she would get £2603.00 pa? I'm just checking you don't mean that she would need 10+ 1 year in order to qualify for the £260.30pa.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#373863

Postby mc2fool » January 6th, 2021, 2:29 pm

richfool wrote:Could you please clarify though, when you said, each year would get her (currently) £260.30 per year when she retires, do you mean she would get that amount for each year provided that she has a contributions record for a minimum of 10 years? I.e. if she has (the minimum) 10 years contributions she would get £2603.00 pa?

Yes. 0 to 9 years worth will get her nothing at all, 10 years will get her £2603.00, and each year thereafter an additional £260.30, up to the max. (All "currently" of course.)

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Re: Is it worth a part-time worker paying voluntary NIC's?

#373869

Postby richfool » January 6th, 2021, 2:47 pm

mc2fool wrote:
richfool wrote:Could you please clarify though, when you said, each year would get her (currently) £260.30 per year when she retires, do you mean she would get that amount for each year provided that she has a contributions record for a minimum of 10 years? I.e. if she has (the minimum) 10 years contributions she would get £2603.00 pa?

Yes. 0 to 9 years worth will get her nothing at all, 10 years will get her £2603.00, and each year thereafter an additional £260.30, up to the max. (All "currently" of course.)

Excellent, thank you.

I think she might not bother with the very first year, which would require a voluntary contribution of the full amount of £795.60 and instead pick it up from year 2 or 3, - £550.80 and £413.10 respectively.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374182

Postby Chrysalis » January 7th, 2021, 9:02 am

I’d say more worthwhile maximising state pension than putting anything into a personal pension. Much harder to deal with the latter if one moves overseas.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374297

Postby mc2fool » January 7th, 2021, 12:42 pm

richfool wrote:I think she might not bother with the very first year, which would require a voluntary contribution of the full amount of £795.60 and instead pick it up from year 2 or 3, - £550.80 and £413.10 respectively.

Ok, well whether that's a good idea or not depends on her goal and (the difficult bit ;)) predicting the future, her future that is.

The important thing to note is that there is a time limit on making voluntary contributions to fill past gaps. Usually it is 6 years after the end of the tax year being paid for. So, e.g., the last date on which you could pay voluntary NICs for, say, 2019/20 would be 5 April 2026.

(However, exceptionally at the moment,as part of the transition to the new state pension system, she has up to 5 April 2023 to make up gaps for 2006/7 to 2015/6.)

Being in her mid 40s now, she doesn't have enough time to state pension age to acquire the 35 years needed for the full new state pension (assuming she has none so far), and that's fine if all she's going to go for is the minimum of 10 years ... but if at some point in the future she changes her mind and decides that (being such a good deal as it is) she doesn't want just the minimum but wants to go for as much as she can instead, then that first year she didn't pay will be lost to her forever.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374311

Postby richfool » January 7th, 2021, 1:06 pm

mc2fool wrote:
richfool wrote:I think she might not bother with the very first year, which would require a voluntary contribution of the full amount of £795.60 and instead pick it up from year 2 or 3, - £550.80 and £413.10 respectively.

Ok, well whether that's a good idea or not depends on her goal and (the difficult bit ;)) predicting the future, her future that is.

The important thing to note is that there is a time limit on making voluntary contributions to fill past gaps. Usually it is 6 years after the end of the tax year being paid for. So, e.g., the last date on which you could pay voluntary NICs for, say, 2019/20 would be 5 April 2026.

(However, exceptionally at the moment,as part of the transition to the new state pension system, she has up to 5 April 2023 to make up gaps for 2006/7 to 2015/6.)

Being in her mid 40s now, she doesn't have enough time to state pension age to acquire the 35 years needed for the full new state pension (assuming she has none so far), and that's fine if all she's going to go for is the minimum of 10 years ... but if at some point in the future she changes her mind and decides that (being such a good deal as it is) she doesn't want just the minimum but wants to go for as much as she can instead, then that first year she didn't pay will be lost to her forever.

Yes, understood thanks.

When she came to the UK there wasn't an intention to work, as I am already retired. That evolved subsequently. I feel it's good for her self-esteem, improving English language skills, integration etc., as well as giving her interaction with other people. Though we aren't sure how long she will want to continue to work, but as it's only on a part-time basis she may well continue to do so. She realises that if she pays the voluntary NIC's, she will need to continue to work at least until she has 10 years contributions, which is the main objective. After that, the options are open as to whether she continues to do so.

She is fortunate in that her employer is amenable if she wants to take extended (part unpaid) holidays, in the winter low season here, so that she visit her family in the Far East.

Ironically my son and his wife, who emigrated to Australia some years ago, have recently bought previous year's voluntary contributions at Class 2 because they had been working in the UK immediately before they emigrated. Having discovered they could pay the lower Class 2 rate, they hope to continue to buy further years NIC's.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374321

Postby mc2fool » January 7th, 2021, 1:29 pm

richfool wrote:She realises that if she pays the voluntary NIC's, she will need to continue to work at least until she has 10 years contributions...

She will need to continue to acquire qualifying years, but it doesn't have to be by working. ;)

While I understand all you say about her working, the matter of work is really a red herring, relevant only in affecting the £ amount of the voluntary NICs needed (if any) to fill a year. Even if she's not working at all, the full price class 3 NICs are a really good deal -- and class 2 NICs at £158.60pa gobsmackingly so! :D

Anyway, as I say, the important thing to remember for possible future decisions is that there is a time limit....

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374494

Postby richfool » January 7th, 2021, 7:52 pm

mc2fool wrote:
richfool wrote:She realises that if she pays the voluntary NIC's, she will need to continue to work at least until she has 10 years contributions...

She will need to continue to acquire qualifying years, but it doesn't have to be by working. ;)

While I understand all you say about her working, the matter of work is really a red herring, relevant only in affecting the £ amount of the voluntary NICs needed (if any) to fill a year. Even if she's not working at all, the full price class 3 NICs are a really good deal -- and class 2 NICs at £158.60pa gobsmackingly so! :D

Anyway, as I say, the important thing to remember for possible future decisions is that there is a time limit....

Yes, true, understood. I had in mind that her preferred way of acquiring the NIC's would be through working, (she would even have them credited for free if she was earning just over the £120 per week figure), but agreed she could (instead) buy them.

I had also had the thought that, if she returned to her home country and had been working in the UK (up to, or) in the year prior to her leaving, she could later purchase previous years at the lower Class 2 rate. The time limit of 6 years is noted.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374648

Postby richfool » January 8th, 2021, 9:19 am

richfool wrote:I had also had the thought that, if she returned to her home country and had been working in the UK (up to, or) in the year prior to her leaving, she could later purchase previous years at the lower Class 2 rate. The time limit of 6 years is noted.

Ah, my son tells me that the option to buy previous year's NIC's at the Class 2 rate (after he had left the UK), was because he had been working for the last 3 consecutive years before he left the UK. Otherwise it would have been Class 3.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374728

Postby mc2fool » January 8th, 2021, 12:50 pm

richfool wrote:
richfool wrote:I had also had the thought that, if she returned to her home country and had been working in the UK (up to, or) in the year prior to her leaving, she could later purchase previous years at the lower Class 2 rate. The time limit of 6 years is noted.

Ah, my son tells me that the option to buy previous year's NIC's at the Class 2 rate (after he had left the UK), was because he had been working for the last 3 consecutive years before he left the UK. Otherwise it would have been Class 3.

Almost, the conditions are at https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions.
Note that in both cases the consecutive condition ("in a row") is only specified for 3 years of living in the UK and not for 3 years of contributions:

Living and working abroad: Class 2 - but only if you worked in the UK immediately before leaving, and you’ve previously lived in the UK for at least 3 years in a row or paid at least 3 years of contributions

Living abroad but not working: Class 3 - but only if at some point you’ve lived in the UK for at least 3 years in a row or paid at least 3 years of contributions


But my original comment about class 2 was that if she stops being employed here, rather than paying class 3 going forward, she can declare herself self-employed, doing a couple of hundred quids worth of, say, baby sitting or whatever, and pay class 2 voluntary NICs instead, while still in the UK.

(I'm not suggesting she quits her job, just saying if, for whatever reason, that happens...).

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Re: Is it worth a part-time worker paying voluntary NIC's?

#374990

Postby Charlottesquare » January 8th, 2021, 10:49 pm

Not wishing to be morbid but does she not possibly , on your death, inherit your state pension if greater than her own? If that is the case any state pension she now pays for possibly needs to repay the investment between when she is 68 and when you die, as that may be the only period when both state pensions will be in payment. It is not my specialised subject, and there do seem to be rule changes, but I would check matters out before doing anything.

https://www.gov.uk/death-spouse-benefit ... n/pensions

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Re: Is it worth a part-time worker paying voluntary NIC's?

#375065

Postby richfool » January 9th, 2021, 11:04 am

Charlottesquare wrote:Not wishing to be morbid but does she not possibly , on your death, inherit your state pension if greater than her own? If that is the case any state pension she now pays for possibly needs to repay the investment between when she is 68 and when you die, as that may be the only period when both state pensions will be in payment. It is not my specialised subject, and there do seem to be rule changes, but I would check matters out before doing anything.

https://www.gov.uk/death-spouse-benefit ... n/pensions

Thanks for your thoughts Charlottesquare. I've had a look at the link.

My wife is likely to still be well below pension age when I pass on, so as I understand it, she wouldn't inherit anything from my state pension. She would however get a widow's pension from my occupational pension.

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Re: Is it worth a part-time worker paying voluntary NIC's?

#375217

Postby Charlottesquare » January 9th, 2021, 4:07 pm

richfool wrote:
Charlottesquare wrote:Not wishing to be morbid but does she not possibly , on your death, inherit your state pension if greater than her own? If that is the case any state pension she now pays for possibly needs to repay the investment between when she is 68 and when you die, as that may be the only period when both state pensions will be in payment. It is not my specialised subject, and there do seem to be rule changes, but I would check matters out before doing anything.

https://www.gov.uk/death-spouse-benefit ... n/pensions

Thanks for your thoughts Charlottesquare. I've had a look at the link.

My wife is likely to still be well below pension age when I pass on, so as I understand it, she wouldn't inherit anything from my state pension. She would however get a widow's pension from my occupational pension.


Certainly in the past when any of my clients passed away their spouses inherited the deceased's pension if it was greater than their own (they did not get both) but I was mindful of the bit suggesting changes from 2016 in the link so as I am not sure regarding the current position. You probably want to do a bit of digging to make sure. The other thing to be clear about is she will not get your state pension, if she does get it, until she is of state pension age herself which might swing the idea of spare money into to something she might access earlier to deal with her income in the gap period.

In effect how it used to work was the spouse in effect inherited the deceased's contribution record, the link I sent seems to suggest that may still be the case but I think care is needed to be sure of this before making any decisions.

Edit- this article from 2019 (if still current) maybe expresses things better.

https://www.thisismoney.co.uk/money/pen ... sband.html

Edit Edit- this one is good as discusses new rules and different pension components-

https://www.thisismoney.co.uk/money/pen ... other.html

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Re: Is it worth a part-time worker paying voluntary NIC's?

#429986

Postby richfool » July 23rd, 2021, 7:48 pm

richfool wrote:
mc2fool wrote:
richfool wrote:Could you please clarify though, when you said, each year would get her (currently) £260.30 per year when she retires, do you mean she would get that amount for each year provided that she has a contributions record for a minimum of 10 years? I.e. if she has (the minimum) 10 years contributions she would get £2603.00 pa?

Yes. 0 to 9 years worth will get her nothing at all, 10 years will get her £2603.00, and each year thereafter an additional £260.30, up to the max. (All "currently" of course.)

Excellent, thank you.

I think she might not bother with the very first year, which would require a voluntary contribution of the full amount of £795.60 and instead pick it up from year 2 or 3, - £550.80 and £413.10 respectively.

Thought I would post an update to this in case anyone else is interested and thinking of paying voluntary NIC's. We have just discovered that the figures quoted for a particular year do in fact increase, presumably because we have passed into a new tax year (as I don't think the NIC rates have changed).

Upon rechecking the figures, (which we had previously obtained in January this year), prior to making a payment to HMRC, the amount required for the oldest year, of £795.60 has increased to £800.80. Subsequent years' totals have increased by similar small amounts, c £5.00 pa.


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