Buying Added State Pension Years

[SeanMc]

With Royal Mail having opted out of contributions to everybody’s State Pension which will mean, depending on service, a lot of people will not get the full State Pension. Is it worth buying extra years to make this up. Does anyone have a rough idea how much per year it would cost.

[NWpostie]

I don't think that's correct, we are still paying full national insurance contributions which goes toward our state pension, you're probably thiniking of contracted out of SERPS which our company replaces, that's been stopped and in its place were on PSE scheme.

To find out how much state pension you have and how long left to pay, sign up to government gateway account.

[vmaxv4]

Some background information I think you maybe looking for.
https://www.litrg.org.uk/latest-news/ne ... ed-out-nic

[SeanMc]

We are paying full contributions now but there was a period when RM ( like other large companies)opted out for a number of years eg if you have worked for RM for 35 years you won’t get a state pension of 35 years.See the info from vmax4.

[RobertT]

With Royal Mail having opted out of contributions to everybody’s State Pension which will mean, depending on service, a lot of people will not get the full State Pension.

The RMPP used to be contracted out of the State Second Pension, also known as SERPS, it meant that both us and the company paid a lower rate of NIC's, but in return RM agreed to provide a certain level of pension via it's own scheme.

That amount should have been at least as much as you would have got via SERPS. If you get a state pension forecast, it will probably have a COPE amount on it, that is the amount that HMRC estimate the contracted out element of your RM pension is worth.

Contracting out was scrapped in 2016 to coincide with changes to the state pension system, meaning NIC's increased for both us and RM.

The company introduced PSE about 6 months beforehand, which is a way to counteract the increase in NIC's.
It's also known as salary sacrifice, info here: https://www.pensionsadvisoryservice.org ... retirement

In practice everyone who had less than the full rate of the state pension(currently £175) has been building up more entitlement since 2016, and will continue to do so as long as they're working and earning a minimum amount, which is currently only £120 per week.

Is it worth buying extra years to make this up. Does anyone have a rough idea how much per year it would cost.

If you expect to earn enough qualifying years by working, then there's obviously no point in buying any more. But it's generally a good idea to buy them if you're short.

The cost will depend on which years you want to buy, but for the last year(2019/20) the cost is £15.30 for each week. More info here: https://www.which.co.uk/money/pensions- ... 0q09p37nsj

Each week you buy will give you an extra £5 per week in state pension, based on the current £175 rate, meaning the pay back time will be around 3 years.

You can only buy qualifying years that you've missed, not what you expect to miss. So if you expect 2021/22 to be a missed year, you can't buy that until 2022/23.

[SeanMc]

Top Man Robert T. That’s exactly what I was looking for.

[SeanMc]

So for every year you buy it will take 3.5 to recoup. Don’t think it’s worth it for me at 60 with 35 years service.

[SeanMc]

35 years service with the opt out years to come off that.

[RobertT]

Ultimately it depends how long you live after state pension age!

Obviously most people don't know how long that will be, but RMSPS figures suggest the average life expectancy of members is roughly equal to the the national average.

Have you got yourself a state pension forecast?

[SeanMc]

My Forecast is £158.30 pw to 5/4/20. If I contribute another 4yrs before 5/4/27 ( I am now retired so won’t be contributing)it will be the max of £175.20pw.

[RobertT]

So paying voluntary contributions will be the only option to increase your state pension!
Still a good deal over the long term, in my opinion.

But what about this tax year(20/21)?
You don't have to work the full 52 weeks, just enough to earn a qualifying year, so you might actually have £163.

[Schiff]

So for every year you buy it will take 3.5 to recoup. Don’t think it’s worth it for me at 60 with 35 years service.

So to buy 3 additional years, pay around £2500 then 3 years after state pension age you have broken even and will be quids in each year after that.

I would always jump on an investment opportunity like that.

[SeanMc]

So to get an extra £12pw ,£1872 over 3yrs I would have to pay £2,333. Does that sound right?

[RobertT]

So to get an extra £12pw ,£1872 over 3yrs I would have to pay £2,333. Does that sound right?

If you want to increase your state pension by £12, and assuming you have a qualifying year for 20/21, then it sounds about right to me.

[SeanMc]

Fantastic I’m up for that! Thanks for your help.