Author Topic: Is it worth topping up a UK state pension with class 3 NICS?  (Read 2884 times)

jade

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Is it worth topping up a UK state pension with class 3 NICS?
« on: October 09, 2016, 03:54:51 AM »
Hi all,

I read this article yesterday:

https://www.theguardian.com/money/2016/oct/08/how-to-boost-state-pension

about the benefits of topping up your state pension with Class 3 NICS and wanted to get some thoughts on it? My husband is a nurse and contracted out for SERPS for a while so will have a deduction to his state or pension allowance as things stand. I did some googling and found this by Monevator:

monevator.com/weekend-reading-dont-top-up-your-state-pension-until-youve-read-stopped-reading-this-and-read-that/

We recently posted a case,study to give you a little more info on us:

forum.mrmoneymustache.com/ask-a-mustachian/reader-case-study-mortgage-free-uk-couple-now-need-investment-advice/

As a result of the case study we now have a Vanguard Lifestyle 60 and workplace pension for me and I'm wondering if we should just use this, or whether to divert some money to buying Class 3 NICS for my husbands state pension?

Thanks in advance!
« Last Edit: October 09, 2016, 03:56:57 AM by jade »

mohawkbrah

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #1 on: October 09, 2016, 04:35:21 AM »
the state pension is a scam IMO. We pay way way more in then we will ever get back out at retirement.

dreams_and_discoveries

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #2 on: October 09, 2016, 06:11:52 AM »
It all depends on how many contributions you have already, and how long you plan to work for.

I'd get an update on your contributions so far (there is a beta website you can do this online), and how long you need to work to get a full pension and if it's worth paying any top-ups.

I'm 35, and already have 19 years contributions (~100/week pension) banked, so it doesn't make sense for me.

jade

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #3 on: October 09, 2016, 06:29:48 AM »
It all depends on how many contributions you have already, and how long you plan to work for.

I'd get an update on your contributions so far (there is a beta website you can do this online), and how long you need to work to get a full pension and if it's worth paying any top-ups.

I'm 35, and already have 19 years contributions (~100/week pension) banked, so it doesn't make sense for me.

Hi. Thanks for your reply. We know where he's at with the normal state pension contributions you are referring to and have those calculations. The first link I posted is an article about public sector workers like nurses who were advised to opt out of SERPS (second state pension). My husband did so on advice, and was consequently out of the SERPS pension for over 10 years which we know now will effect his state pension. That's why we're wondering if these NIC 3 top ups recommended in the article are worth doing.

Rightflyer

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #4 on: October 09, 2016, 09:46:23 AM »
the state pension is a scam IMO. We pay way way more in then we will ever get back out at retirement.

Hmmm?

In our case, it will be one of the best guaranteed returns on our money we have ever had.

Have you actually done the maths?

cerat0n1a

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #5 on: October 09, 2016, 02:51:37 PM »
There's no simple answer - it totally depends on your individual circumstances. If you have to do a tax return then you can use your existing password to log into the beta government system and see how many years NI contributions you have credited, what pension you will get and whether it's worth making voluntary contributions. (For those of us who RE, it often does work out to be a good idea to make the minimum self-employed contribution, even if the business is in name only...) You can also get a detailed written statement. Bottom line, if your husband is below the 35 year figure and is already retired, it's probably worth doing.

Anyone who plans to retire in the UK should take the time to get to grips with the complexities of the state pension system, particularly if you plan to do something unusual like retiring early.

Steve Webb, the former pensions minister quoted, is one of those rare people in politics who has a very detailed understanding of the thing he was in charge in, and tried his best to make changes which took a long-term view and treated people fairly. A real shame that he is no longer in post, but I would take anything he say on pensions seriously.

tawyer

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #6 on: October 09, 2016, 03:46:41 PM »
This was linked to within your links, and is by far the best summary with examples I have read to date:
http://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

If you have contributed to NI but not reached the ten year minimum of contributions, it is probably worth topping up to at least ten years of contributions. If you expect your state pension to be in the 40% tax bracket at retirement age, then it is probably not worth it.

Based on your case study, I would guess that your taxable income will come mostly from your pension at retirement age, and thus would mostly be taxed at 0%, thus you should aim to make 35 years of contributions by top-ups or otherwise. When I run the numbers on this scenario, compared to other investments, I break even six years into retirement, so the pension top-ups win.

jade

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #7 on: October 10, 2016, 05:48:23 AM »
There's no simple answer - it totally depends on your individual circumstances. If you have to do a tax return then you can use your existing password to log into the beta government system and see how many years NI contributions you have credited, what pension you will get and whether it's worth making voluntary contributions. (For those of us who RE, it often does work out to be a good idea to make the minimum self-employed contribution, even if the business is in name only...) You can also get a detailed written statement. Bottom line, if your husband is below the 35 year figure and is already retired, it's probably worth doing.

Anyone who plans to retire in the UK should take the time to get to grips with the complexities of the state pension system, particularly if you plan to do something unusual like retiring early.

Steve Webb, the former pensions minister quoted, is one of those rare people in politics who has a very detailed understanding of the thing he was in charge in, and tried his best to make changes which took a long-term view and treated people fairly. A real shame that he is no longer in post, but I would take anything he say on pensions seriously.

Thanks as always cerat0n1a :).

We haven't retired yet, we're aiming for about 10-15 years for full FIRE, by which time my husband will have contributed his 35 years NI but still be missing a component due to the second state pension issue. I have about 12 years to go to get to the full 35 years and I think about 10 for him. We'll get a detailed statement and take it from there and good idea re the self employed contribution too, we both have self employed accounts so will look into that also, thanks.

You're right, it is worth learning more about the state pension, and I can see that RE could effect it too. I hadn't heard of Steve Webb, thanks for the tip.



jade

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Re: Is it worth topping up a UK state pension with class 3 NICS?
« Reply #8 on: October 10, 2016, 05:53:11 AM »
This was linked to within your links, and is by far the best summary with examples I have read to date:
http://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

If you have contributed to NI but not reached the ten year minimum of contributions, it is probably worth topping up to at least ten years of contributions. If you expect your state pension to be in the 40% tax bracket at retirement age, then it is probably not worth it.

Based on your case study, I would guess that your taxable income will come mostly from your pension at retirement age, and thus would mostly be taxed at 0%, thus you should aim to make 35 years of contributions by top-ups or otherwise. When I run the numbers on this scenario, compared to other investments, I break even six years into retirement, so the pension top-ups win.

Thanks Tawyer. :)

I was fiddling around with that article link on my mobile and never got back to it, I will get reading that now.

I have about 22 NI years already and my husband about 25. It seems this second state pension / SERPS bit is till an anomaly, even if he reaches his full 35 years NI contributions, he'll still be down state pension at retirement (and even adding more "normal" NI years won't make that up). Thanks for running the numbers for us, that's appreciated... it sounds like it will be a winner to do the top ups then. We'll log in to the website to check too with our breakdowns. Thanks for the info.