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Retirement planning for wife ISA v NI Top up etc
AnthonyL
Posted: 03 May 2018 18:58:01(UTC)
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My wife, in her 50's has only been eligible to pay NI since 1997 and in that time has only had a few years' work so is well short on NI contributions.

Are voluntary contributions worthwhile (any recommended calculators) or is the money best used in ISAs?

Thus far she as a small personal pension with Standard Life valued at ~£30k including with profit bonuses and both for last and this year she's opened a SIPP with the £2,880 contributions to maximise the £720 from HMRC. The intention is do continue to do this every year (not sure is back contributions are permitted). So maybe an additional £36k + growth giving a bit of a pot at the end.

Joe 90
Posted: 03 May 2018 19:28:49(UTC)
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Write a letter to the pension authorities and ask how much your wife is allowed to pay in, and ask for a pension forecast. Then do the maths. My missus is paying in unpaid years. I calculated that she only needs to live to 70 to make it worthwhile.
TJL
Posted: 03 May 2018 19:44:54(UTC)
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If you go to the HMRC website you can now register then log-in to your own account and see all kinds of tax and NI information (although I think it might be a 'Beta' service at the moment).
Worth a look, but (to my knowledge) it has not been publicised much.
https://www.gov.uk/log-i...er-hmrc-online-services
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Jim S on 21/06/2018(UTC)
AnthonyL
Posted: 04 May 2018 15:56:18(UTC)
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I've now got the figures from the HMRC website <gripe>I know it's beta but some links seem to go around circular routes and the 0800 number given on the Pension Summary does not accept voice calls)</gripe>

The good news is that more years have been paid up than I recall so approx:
13yrs paid
13yrs not fully paid
13yrs to go to retirement

Filling in the allowable back years will cost ~£3,600 giving an extra ~£1,100pa on receipt of the pension. So sounds good value if my wife lives for several years after receipt of pension. But of course nothing if she dies beforehand.

The £3,600 at 5% invested would be ~£6,500 at retirement giving ~£190pa at 3% drawdown and still having a lump sum available.

I faced a similar situation several years ago and opted to contract out into a Personal Pension which has thus far worked better than I'd expected and of course the SIPP (now in drawdown) can pass on to my wife.

But as things now stand we are heavily dependent on fund performance. Dilemma and further input welcomed.
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Tim D on 04/05/2018(UTC)
Joe 90
Posted: 04 May 2018 18:32:21(UTC)
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I suspect you won’t be required to pay the full £3,600 in one go. This will affect your calculations.
Chris Howland
Posted: 04 May 2018 20:07:30(UTC)
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Been round this myself for Mrs H quite recently.

You can only pay additional contributions six years in arrears, i.e. if you reach state retirement at 67, you can contribute until you are 73. For the current tax year the cost is about £40/month. I don't think you can contribute and draw the state pension at the same time though.

Seems to be pretty good value to me - assuming that Mrs H lives long enough!

Chris
Chris Howland
Posted: 04 May 2018 20:18:03(UTC)
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Apologies - just checked the gov.uk web site. For 2018/19 the rate for class 4 contributions is £14.65 per week.
AnthonyL
Posted: 04 May 2018 20:39:04(UTC)
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I believe I'm looking at Class 3 contributions (not in employment nor self-employed).

Yes the site says can only go back 6 years but I'm not sure if I fully trust it - for instance it says contributions can be made for the incomplete year 2006/2007, but copying/pasting:


"2004-05
Year is not full
You did not make any contributions this year
It’s too late to pay for this year. You can usually only pay for the last 6 years."

Furthermore in response to Joe90 the system states eg:

"2015-16
Year is not full
You did not make any contributions this year
You can make up the shortfall
Pay a voluntary contribution of £733.20 by 5 April 2023. This shortfall may increase after 5 April 2019."

And it has the same dates for all the "Not full" years going back to 2006/2007. So the calculations get complicated if delaying to 5 April 2023 assuming the system is correct and taking the risk of no big increase in contributions after next year. Of course "all our agents are busy" when trying to get through to speak to someone.

The attraction of self-investing is that the rules seem to have moved in favour of the investor as far as ISAs and SIPPS have been concerned. There is this nag that the government would rather wash its hands of the whole pension issue.

I'm still in dilemma land.
Stephen B.
Posted: 05 May 2018 10:55:04(UTC)
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In general making voluntary contributions is a no-brainer, you only need to draw the pension for a few years to be in profit, so unless you have any reason to think you won't survive that long it's definitely likely to be worthwhile. The only caveat is if there's any chance of future employment which would give you enough credits anyway - years beyond the maximum are worthless.

It may also be worth considering that self-employment let's you contribute at a lower rate - these days there are lots of ways to be self-employed at a low level and voluntary contributions don't depend on any minimum level of profit. The government had said that it planned to abolish the reduced rate for the self-employed, but it seems to have backed off from that.

The limit for backdated contributions is normally 6 years, but the clock was stopped somewhere around 2007 when the "new" state pension was announced. This is I think the last tax year when you can still make backdated contributions at the rate which applied to those years, so you should get a statement now and do the sums - it's quite a complicated calculation for people who have contributions in both the old and new schemes (generally voluntary contributions in the new scheme are worth more, i.e. you buy more pension per pound).

It's also worth considering that the rules have changed several times and may do so again - in particular the maximum number of years might reduce again, making some of the voluntary contributions worthless. Given the ability to go back 6 years it may be worth saving the last 6 years of contributions to be paid in the year before the pension will be drawn.
2 users thanked Stephen B. for this post.
Tim D on 05/05/2018(UTC), Mike L on 06/05/2018(UTC)
Stephen B.
Posted: 05 May 2018 11:01:34(UTC)
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By the way, I forgot one gotcha. The old scheme had a maximum of 30 years, the new scheme is 35 years - but the old scheme limit is still applied for contributions related to that scheme, so *don't* make contributions backdated to those years which would take you above 30 years in total as they will be worthless even if the total number of years is less than 35!
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Mike L on 06/05/2018(UTC)
Stephen B.
Posted: 05 May 2018 11:12:56(UTC)
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AnthonyL;61774 wrote:
And it has the same dates for all the "Not full" years going back to 2006/2007. So the calculations get complicated if delaying to 5 April 2023 assuming the system is correct and taking the risk of no big increase in contributions after next year.


Normally I think the rate for voluntary contributions just rises with inflation each year, although the government potentially has the option to make a step-change. *However*, for the "frozen" years the contribution rate for those years was frozen at the cash value applying for those years, so what will happen in 2019 is (probably) that a decades' worth of inflation will be applied in one go, so there will be a big step at that point, at least for the oldest years.
AnthonyL
Posted: 06 May 2018 07:26:26(UTC)
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StephenB - many thanks for your inputs and explanations included as well as suggestions, all very helpful and informative.
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