"I am 50 should, I make Class 3 contributions to UK pension?"

[Brendan Burgess]

Class 3 is still worth paying for most people.

Each year will cost you £824
Each year purchased will get you an extra £275 a year in state pension and the £275 increases with inflation.

If you are 65, getting an immediate return of £275 a year on £824 is great value. You will break even in 4 years.

If you are 30, paying £824 now to get £275 a year in 35 years is probably not worth it.

Where is the break-even?

Brendan

 

[Brendan Burgess]

You need 35 contributions to get the maximum pension, so clearly it's not worth paying contributions in excess of 34 years.

So if you are 30 and have 5 years contributions, the earliest you should consider starting to contribute is age 35.

Brendan

 

[cremeegg]

The extra £275 is based on the current pension rate, this will increase in line with UK pensions, so by the time a 50 year old retires the nominal amount will likely be far higher, and given he political support for pensions, it will probably be higher in real terms also.

In fact an increase for next month, April 2023, has already been announced, bringing the £275 above to £302 (£203/35*52 for anyone who would like to check my sums).

State pension increase 2023 - Times Money Mentor

www.thetimes.co.uk

 

[llgon]

So if you are 30 and have 5 years contributions, the earliest you should consider starting to contribute is age 35.

I was in similar position where I didn't have to make the maximum 16 years in order to be on course for 35 years at age 66. However, I chose to pay the 16 years and if I continue my annual contributions I will have 35 years at age 59.

I did this due to the possibility that the cost of contributions may rise substantially in the next 15 years.

 

[Brendan Burgess]

Each year will cost you £824
Each year purchased will get you an extra £275 a year in state pension.

So, would I borrow £824 at age 50 to get £275 a year from age 66 , and the £275 increasing with inflation?

If I roll up the interest at 4%, it will amount to £1,543 by age 66.
But if the pension increases at 3% , I will be getting £440

Is this the right calculation to do?

It still seems like great value.

Brendan

 

[Brendan Burgess]

Even at age 30, it is the right thing to do.

£824 with interest rolled up at 4% for 35 years is £3,251

A £275 pension increasing at 3% a year for 35 years would be £773

So about 5 years pay back period is one way of looking at it. But 39 years in another way.


Brendan

 

[llgon]

Thinking about it more, it makes no sense for the UK to allow voluntary contributions from those living long term abroad with no intention of returning. There must be a strong possibility that at some stage in the future this will be stopped.

So if you are 30 and have 5 years contributions, the earliest you should consider starting to contribute is age 35.

Given that possibility this could turn out to be very bad advice! Better to grab the opportunity while it's there in my opinion.

 

[Brendan Burgess]

So if you are 30 and have 5 years contributions, the earliest you should consider starting to contribute is age 35.

There must be a strong possibility that at some stage in the future this will be stopped.

Given that possibility this could turn out to be very bad advice! Better to grab the opportunity while it's there in my opinion.

So maybe contribute now. And when you have 35 years contributions made, stop contributing?

 

[NoRegretsCoyote]

I did this due to the possibility that the cost of contributions may rise substantially in the next 15 years.

This part is very relevant.

I don't think the rules will ever be more generous than today, and in future likely to be stricter.

 

[llgon]

So maybe contribute now. And when you have 35 years contributions made, stop contributing?

Yes, I've contributed as many years as I can and plan to continue to do so until I've got 35.

 

[Wiresandmore]

Thinking about it more, it makes no sense for the UK to allow voluntary contributions from those living long term abroad with no intention of returning. There must be a strong possibility that at some stage in the future this will be stopped.



Given that possibility this could turn out to be very bad advice! Better to grab the opportunity while it's there in my opinion.

I‘ve struggled to understand why the UK would allow this. As you say, if you can, get it all setup prior to the deadline

 

[NoRegretsCoyote]

I‘ve struggled to understand why the UK would allow this.

I think it is more to benefit the large number of UK citizens abroad (about a million) so that they can't claim they are left in penury in their old age.

The UK state pension is still not very generous compared to what you would get from many state systems from a working lifetime's contributions.

 

[iamaspinner]

I have 3 years of contributions. Following the advice in this and other threads I should buy back the 16 years (even at class 3 rate) and keep on doing so until I have 35 years or whatever the minimum is for full pension if it changes.

Excuse my ignorance once more, but I am trying to get myself educated. How do I get a return of £275 a year on £824?

 

[NoRegretsCoyote]

Excuse my ignorance once more, but I am trying to get myself educated. How do I get a return of £275 a year on £824?

Basically you pay £824 for each year and build up a 1/35th share of a UK state pension which is now £10,600 a year. 1/35 of £10,600 is more like £300 a year for life.

So to make it very simple: every £824 you contribute today gets you an extra £300 per year for life after you reach 67. Bear in mind that the pension is likely to remain indexed to inflation as well.

 

[cremeegg]

I have 3 years of contributions. Following the advice in this and other threads I should buy back the 16 years (even at class 3 rate) and keep on doing so until I have 35 years or whatever the minimum is for full pension if it changes.

Excuse my ignorance once more, but I am trying to get myself educated. How do I get a return of £275 a year on £824?

It is no longer £275, it is now £302, since this thread started the UK has increased its state pension.

For every year you contribute at a cost of £824 (class 3) your pension will increase by 1/35.

So the full pension is £203 per week, if you have 3 years contributions you get £203/35 times 3 = £17.40 a week or £904.80 a year after you retire.

If you pay one more year's contribution at £824 your pension will be £203/35 times 4 = £23.20 a week or £1,206.40

So for a payment of £824 you get a return of £1,206.40- £904.80 =£301.60

Thats the maths, now if some one could explain the application process for me. !

 

[iamaspinner]

now if some one could explain the application process for me. !

I know! It looks like a simple enough form but there are too many questions I don't know how to answer. Perhaps we should open another thread about filling in CF38...

 

[NoRegretsCoyote]

Perhaps we should open another thread about filling in CF38...

Read through the key post.

 

[joe sod]

I worked in uk for 2 years back in 90s ,I applied for this voluntary top up of NI contributions however I was unsuccessful because I didn't have the 3 continuous years work record in the UK.
Some other people on these threads have been successful even though they also didn't fulfil the minimum 3 year requirement.
I suppose that's the end of the matter for me ,there is no other way to do this?

 

[DannyBoyD]

When did you apply?

 

[cremeegg]

Read through the key post.

While I greatly appreciate the effort people have put in to this, there are many issues on form CF38 which the key post does not address.

Q18
'Are you or will you be working abroad for an employer.' Well in 20 years I have worked for various employers and been self -employed.
'If yes what is their UK address.' Does N/A suffice.
'What is their address abroad'. Is my current employers address sufficient.

and lots more head-scratchers.

In the end I took a minimalist approach and filed in my current info only.