State Pension

[skip207]

For those who plan to FIRE before 35 years NI credit what is your plan for SP?
If things work out and we FIRE around 43 ish I will need to top up around 10 years, twice.

Do folks here plan to maybe do some short term work to click over the lower earning limit?

Rental income, divs, etc does not count.

Or just cough up?  Probably cost me about £14k...

[vand]

I would continue paying in, and would consider £8.5k/yr for every year of life after 58 a damn fine return on investment an additional 14k top up

[ExitViaTheCashRamp]

If you have/will have kids, the recipient of child benefit will get their NI stamp paid for them until the youngest is 12 I believe.

(also the state pension is an awesome cheap deal - take it !)

[Playing with Fire UK]

What happened to the optional NI contributions for self-employed people? Class 3B? That was my plan, but then there was talk of getting rid of them that went backwards and forwards so I made the executive decision to ignore everything until I was actually out of work.

I definitely plan to buy the NI credits if there isn't a cheaper option - I'd probably try to do it at the last minute for every year so that I minimise the exposure to future SP changes and messing around.

[PhilB]

The cheaper NICs for self employed are still around, I don't know how much longer though.  Ordinary class 3 is already such a brilliant deal that I personally wouldn't be going out of my way to manufacture a reason to pay class 2 instead unless I genuinely was self employed.  Some of the blatant dodges I've seen just smack too much of abuse for me.  On the other hand we will only be short around 9 years between us so I can afford to take the moral high ground :)
I agree with the others that you would be crazy not to pay them.  The challenge is deciding when to pay them as you really want to be SURE that you won't be getting them any other way.  It would really hurt to pay the voluntary NICs and then, a couple of years later, take a part time job that covers your stamp and means you wasted your money.  Ditto children / grandchildren or becoming a carer.

[cerat0n1a]

I would continue paying in, and would consider £8.5k/yr for every year of life after 58 a damn fine return on investment an additional 14k top up

Assuming 58 is a typo for 68 (or thereabouts, depending on when you were born.)

It's not quite as simple as the above - you get some amount of state pension once you've made 10 years of NI contributions and anything over 35 years doesn't get you any extra. If you're short of the 35 years, making a voluntary NI contributions (or calling yourself self-employed and making one that way) will get you a couple of extra pounds per week for each extra year.

I have FIRED short of the 35 years, but figure I have plenty of time in future years to make the necessary top-ups.

[Playing with Fire UK]

And all of that planning assumes that it won't all change and decide that you need 40 stamps, or 30. Or that leap years count double. Grumble.

Good point on the NI stamps for grandparents PhilB - my mother thought she was going to need to make some top up payments but (genuine) childminding has given her the ones she needed.

[highlandterrier]

Despite the much advertised 35 years required when I checked I needed 38, due to a work pension being contracted out at some stage.

Plan to pay and have budgeted the £1.5K or so (for 2 of us) into FIRE expenses. Very likely the rules will be tinkered with again by then as the various governments cannot leave pensions alone but will still likely be good value.

On a related note I plan to stop work around July of whichever year so that I've made enough NI payments to cover another tax year, so it's a wee bonus in the hourly pay.

[Playing with Fire UK]

On a related note I plan to stop work around July of whichever year so that I've made enough NI payments to cover another tax year, so it's a wee bonus in the hourly pay.

What's the minimum for a NI year to count?

[cerat0n1a]

A qualifying year is defined as "a tax year since 1978–79 in which an individual paid (or is credited as having paid) class 1, 2 or 3 NI contributions on earnings of at least 52 times the LEL"

So, it depends to some extent on how much you earn. The UEL (upper earnings limit) obviously puts a cap on how much NI you pay, so even the highest paid person would need to work two months of the year to hit the minimum.

[cerat0n1a]

Should probably add that 52 x LEL is £116, so you need to earn a minimum of £6032 in the current year, spread across at least two months.

[highlandterrier]

Yes, what cerat0n1a said :). 

From what I understand you don't need to have paid a certain amount of NI that year, only reached the limit for paying, which is confusing, and the state pension guidance does not express this properly. It needs to be from a single employer or the rules differ.

This years LEL and UEL are here for reference:

https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2018-to-2019#class-1-national-insurance-thresholds

[PhilB]

Do you have a reference for that requirement to have earned over 2 months as it isn't something I've come across.  You still pay NICs above the UEL, just at a lower rate.

[cerat0n1a]

Do you have a reference for that requirement to have earned over 2 months as it isn't something I've come across.  You still pay NICs above the UEL, just at a lower rate.

No and it may not in fact be correct - but I've heard of a case where someone was paid a (£100k+) bonus and it was their only earnings for the year, and it was not enough to qualify whereas I know of someone who worked for 2 months on a £100k salary and did qualify. It's not the amount you actually pay that matters, as highland terrier says. The rules are seemingly written with the base assumption that you are paid weekly, get the same amount every week, never change jobs etc etc.

[highlandterrier]

It's not an explicit 2 months, the requirement is to have made earnings from a single employer above the threshold of £6,032 in a year (the LEL).

But you are limited in what counts as contributing to that threshold by the UEL which is £3,863 per month.

So you need 2 months contributions to get a total annual contribution >=£6,032

Doesn't matter how much NI you pay, just whether you have reached the minimum threshold.

Note the state pension guidelines on the government site confusingly express this differently (as £116 per week on the following link) , but when you tie together with the previous link I sent with the LEL stated as £6,032 (52* £116) it's clear the annual amount is what is taken into account:

https://www.gov.uk/government/publications/your-new-state-pension-explained/your-state-pension-explained

[highlandterrier]

Do you have a reference for that requirement to have earned over 2 months as it isn't something I've come across.  You still pay NICs above the UEL, just at a lower rate.

No and it may not in fact be correct - but I've heard of a case where someone was paid a (£100k+) bonus and it was their only earnings for the year, and it was not enough to qualify whereas I know of someone who worked for 2 months on a £100k salary and did qualify. It's not the amount you actually pay that matters, as highland terrier says. The rules are seemingly written with the base assumption that you are paid weekly, get the same amount every week, never change jobs etc etc.

Makes sense, my understanding is that of the £100K only £3,863 would have counted towards the qualifying year threshold due to UEL. So they would not reach the minimum of £6,032 without another payment in another month.

[Playing with Fire UK]

That's useful, thanks all.

[PhilB]

Thanks all.  I wonder if this changed as part of the 2016 changes as the previous regs made no mention of UEL, just said you had to earn above the LEL for the year and I'm sure I remember a worked example that ignored UEL too.  I find it amazing that it seems almost impossible to find published guidance on this.

[NorthernMonkey]

It's not an explicit 2 months, the requirement is to have made earnings from a single employer above the threshold of £6,032 in a year (the LEL).

But you are limited in what counts as contributing to that threshold by the UEL which is £3,863 per month.

So you need 2 months contributions to get a total annual contribution >=£6,032

Doesn't matter how much NI you pay, just whether you have reached the minimum threshold.

Note the state pension guidelines on the government site confusingly express this differently (as £116 per week on the following link) , but when you tie together with the previous link I sent with the LEL stated as £6,032 (52* £116) it's clear the annual amount is what is taken into account:

https://www.gov.uk/government/publications/your-new-state-pension-explained/your-state-pension-explained

If this was facebook, I'd click like to this post. It clarifies a few things that I couldn't work out when considering going contracting for 6 months a year a while back.

[poppydog]

Mrs PD (60) and me (64) retired last year- I’ve qualified for the max possible state pension already but Mrs PD is 4 years short of NI contributions due to being contracted out for some time.  According to her state pension forecast, each extra year of contributions will result in a similar amount (post-tax, mustn’t forget that the SP is taxable) of extra pension per year.

So assuming she lives to be over 70 she’ll be quids in.  Her mother lived to 96 and she has 3 siblings over 80, so I think the odds are good!

[PhilB]

Unless you have a significantly reduced life expectancy, voluntary NICs are a no-brainer - for whole years.  The challenge is that for anyone with a COPE or with a fair amount of S2P they are unlikely to be an exact number of years short.  I'm going to end up 3.93 years short which is still easy.  DW is 4.29 years short which is just at the point that it starts to get hard to judge whether or not to pay a full year's NICs to get 0.29 of a year pension entitlement.  I think it will still be worthwhile, but it will hurt.