Class III NI contributions

Something vaguely seen this morning.

If you’ve not got 35 years of NI contributions then you can buy more. Pay £900 a year (or so) to buy an extra year’s contributions. This returns you £5 a week, or £260 a year. That’s a near 30% annual return and inflation protected too.

That might be the best investment on the planet right now.

At which point, so, how to turn that into a business?

Charge folks £50 to see if they need to/could do this? Then Something more to actually fill out all the HMRC docs to make it happen?

Does anyone, in fact, do this already as a specialty?

I assume that the NI payment records are not available in any online form so therefore it can’t be automated….

26 thoughts on “Class III NI contributions”

  1. Depends on how long you expect to live after retirement, whether your salary was enough so that you could afford the payment, and what other income you have in retirement as a state pension may well be paid gross, but they count it and take the tax off any other income you may have.

    Tim, do you really believe that the government gives a good deal to anyone?

  2. Bloke in North Dorset

    Everyone’s NI contributions and status is online once they’ve set up an account with Gov/HMRC. There’s probably a bit extra in setting people up they haven’t already and I have to compliment HMRC I think the process is straight forward.

  3. What Excavator Man said. Plus the state pension could change in future. The retirement age has been increased to 70 and this has been accelerated several times and could be again. And who knows if one day it may be means tested.

  4. This sounds like the scams that “help” people to apply for stuff that government lets you apply for free of charge. E.g. SORNing or taxing a vehicle.

  5. The cheap way to buy extra years is to make Class 2 NICs, currently £3.05 a week. If someone retired at (say) 55 and then did a little undemanding self-employed work (baby-sitting, dog-walking, journalism, …) this would be profitable.

    And, Mr Tim, I understand that people lolling about abroad can also buy Class 2s. To get paid a pension under the new rules you need to have made a total of at least ten years worth of contributions.

  6. 4 years ago I requested a pension forecast for a female relative in her early 60s with an incomplete contribution record.

    Her expected figure was shown as £119 per week. The report also contained a full list of NI contributions by year, the cost of each annual top up where there was a shortfall and a summary of the deadline for making each year’s voluntary payment. Top-up payments totalling around £4k did the trick and have added over £2k to her forecasted annual pension.

    The whole exercise was only slightly harder than filing your own tax return online. The hardest part was obtaining the necessary bank details and reference in order to actually make the payment. Most people should be able to do it, those who aren’t confident enough should be an easy fee for any competent accountant (not from Ely).

    I saw part of this article (the non-paywall but anyway) in today’s telegraph and some of the comments beggared belief.

  7. This sounds vaguely like the situation knocking about in the late ’90s or early ’00s with AVCs. Can’t quite remember how it worked, but there seemed to be a tax rebate for 40% earners on the whole lot paid in.

    Didn’t last long.

  8. About 15 years ago and five years after I had left the UK and therefore stopped paying NIC, they wrote to me pointing out the shortfall in number of my qualifying years and offered me the opportunity to buy more years… I think it was two or three years… at the minimum rate. There was a time limit in which I could do this and it was near the end of that limit which is why they wrote.

    So I did. It required no advisory service or complex form filling… just tick a box and write a cheque.

    I know you can apply for a pension quote and this tells you qualifying years you have accrued, then unless you have passed the cut-off point you should be able to buy more years easily.

  9. Bloke in North Korea (Germany province)

    “undemanding self-employed work (baby-sitting, dog-walking, journalism”

    How many NVQs, C&G, hygiene certificates, background pedochecks, biannual nappy changing retraining, liability insurance, diversity and inclusion indoctrination sessions &c do you need to be a self-employed babysitter?

    In fact, how many of them do you need to be a dog walker?

    Obviously journalists need no qualifications or moral scruples whatsoever.

  10. Save £900 a year and be far better off. Plus you keep not lose your original capital. Yes a private investment might go sour/south. But it might also turn into a Poseiden Nickel.

  11. I retired at 42.

    They contacted me to tell me how much I had to pay to ‘top up’ and I decided to keep it and spend it myself.

    They have since moved my pension age out to 67 (I think) and it will probably move further before I get there (I’m 61).

    I think I made the right decision.

  12. I’ve seen adverts for expats on unlocking/claiming U.K. pension in the past and have had conversations where most people weren’t aware of this. Part of the issue as you said is lack of online options and setting up an account can mean phone calls in U.K. business hours which is a pain depending where you are.
    What is trickier is stuff like NHS or civil service pensions or any old schemes you haven’t paid into for a decade or more, I had a lot of issues with a scheme from a job 30 years ago just getting them to agree who I was as I no longer had a reference number for them to look me up. There’s limited ability to do anything with these scheme and as you aren’t paying in anymore cashing in early maybe better than waiting another 5 years or more to claim, for one of my wife’s we figured out take the money from 58 was better than leave it until 65 given the difference in the amount paid per month. Small amount but it’s a nice holiday every year (or would be if holidays still existed)

  13. Defer your state pension, 1% extra for every nine weeks (not quite 5.8%pa). It’s a better deal than keeping cash on deposit. Of course male age 67, life expectancy 17 and a bit years, so I’ll probably just about get that year of deferred income back.

  14. I suspect that deferral of state pension under the new rules isn’t normally worth it unless you also reap a tax advantage. But maybe if you want to balance a “portfolio” with something in roughly the style of index-linked bonds it might appeal. Or if you just want the longevity insurance of an annuity.

    Whatever you do there’s a decent chance that your gains will all be eaten up in “care” costs for self or spouse. Short of the legalisation of euthanasia, or the Swiss jaunt, it’s hard to see a solution to this problem.

  15. Mrs Daedalus has just paid in £3.1K to make her contributions up as, she worked part time or not at all while the kids were younger and she had a shortfall. It gives her an extra £18.00 a week so it will take 3 years for her get her money back. Hopefully she will carry on as long as her mum who is now in her 90’s. So say another 25 years is an extra £23K, not too bad for £3K.

  16. There are bear traps in this “making up” process. I have heard of people who’ve paid what was asked, only to be told gotcha, those years don’t count, or words to that effect. This was touched on in the DT article, but without any useful details. You won’t find it on the website either.

    I have also heard, that if you call the relevant government office and actually talk to a real person, they are very helpful.

    Seems good advice…

  17. Pension Credit
    So for many people the extra income you will get by topping up your NI contributions is NIL.
    But for anyone with a non-negligible private sector pension, even a fairly modest one, the return on capital is very high you expect for half-a-dozen years beyond NPA.
    So check firstly what your income after tax and benefits will be on basis 1 without additional NI conts and on basis 2 with the benefits, if any, they yield; then secondly get a health check and a crude estimate of life expectancy.

  18. It’s a great investment but quite hard to do. You need to get a pension forecast then navigate a horrendous set of phone menus to talk to the pension service about it. All they can do is agree with you, as they can’t take the payment. Instead they give you an HMRC number to call with an even more horrible menu system to navigate. If you respond in any way you wont get through to the right person, but if you don’t press any buttons on the phone and ignore the insistent “please say yes or no” prompts you eventually end up talking to a person who can give you the payment account details and reference.

  19. “Short of the legalisation of euthanasia,”
    Wasn’t self euthanasia made legal? Seems a waste of money contracting out.

  20. The top up process is quite straightforward, but you have a maximum state pension limit and if the NI record contains gaps eg through early retirement you need to take care not to pay for years if doing so would theoretically take you above the maximum state pension limit. The HMRC site does clearly state the maximum state pension you can expect to receive but is not so clear about the number of years you need to pay to max it out. Additionally, if for example you need to contribute 2 years NI and you have more than 2 years of gaps, you can pick the cheapest 2 years in your record, each year contributes equally up to the pension limit. The Dept of pensions were considerably helpful about this point, much more so than HMRC

  21. Depends how close to retirement you are. If you’re 65 then it’s a no-brainer. But if you’re e.g. 45 and emigrating, and for whatever reason there’s a gap in your NI contributions, then the pay-off looks a bit different. (For example, if you’re emigrating to Aus/NZ, you won’t get annual pension increases.)

    Quick run through the numbers: a 45 year old male, retires at 67, lives until 83. Current cost is £800 to fill one year’s gap, which gives you £5.13/week extra pension. The total benefit (ignoring inflation) is £4,280. If you invested that same £800 over 30 years, you would need a tax-free inflation-proof yield of 5.75% to match that.

    That 5.75% inflation-proof tax-free yield is still very good value. Depends whether you can spare the money; how much you trust the government; whether you intend to return to the UK; and how good your health is.

  22. What is totally incomprehensible to me is that with AVC I contribute about £150 a year, and in exchange they tell me I’m going to be eligible for £180 a week!

    Though it does say “Your forecast is not a guarantee and is based on the current law”

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