Should I buy NI credits?

[Malorcamum]

Hi there,

I'm lucky enough to be in a position to retire in 10 years time at the age of 50. At the time of retirement, I will have only have accrued 17 full NI years. I understand you need 35 full NI years to claim the full state pension

The reason for this is I have a high paying job but I've had several long gaps in employment due to ill health.

I am able to buy 2 NI years back at a cost of £461.50, and £923. Is it worth it?

Assuming each year is worth 1/35th of the full amount (currently £230.25 per week), buying back 2 years would get me roughly £6.50 per week extra.

So £461.50 + £923 = £1384.50
£1384.50 / £6.50 = 213 weeks = 4.09 years

This means if I receive my state pension for more than 4 years, it's worth buying those NI years back.

Is my maths right here? I understand I won't be able to access my state pension until I'm 68, but it still seems like a good investment!

Martin Lewis recommends buying up missing years. Says it’s one of the best investments you can make.
Check him out on his website to see if his advice has changed.

Yes it’s worth it if you don’t think you’ll be able to get the years in any other way such as being a carer or working.
Its particularly worth looking for any part years you can pay for to make it a full year.

so you are 40 and only worked 7 years, is that correct ?

I would, and I would also try to work out how to add years from 50 to 68. Self employed contributions are cheap. You don’t need to make a huge profit

Do you have DC?

Buy as many as you can!

Have you checked your record as you may have credits from when at school or looking after children? As a pp said, consider working part time on a self employed basis after retirement. You don't currently need much income to gain credits but of course this may all change in the next 28 years.

In your case it's probably worth buying back as it will be difficult for you to get to 35 years.

I think you can only buy the previous 6 years.

Thanks for the advice everyone!

I’ve worked for more than 7 years, just had a lot of incomplete years and unfortunately the govt only allows you to buy back from the previous 6.

I actually did a comparison on how much I’d make if I invested the money instead- I’d actually be way better off investing assuming that the average rate of return is 7%.

I can see why it’s worth it to buy back years if you’re close to retirement though.

Check your individual state pension forecast.
Check your State Pension forecast - GOV.UK

THe '35 years for a full state pension ' only applies to those born this century whose working lives fall entirely under the new State Pension system introduced in 2016.You may find you need more or less.

Until April this year you had the opportunity to fill any years back to 2006, but unfortunately you've missed the boat on that one now and can only go back six years.

@Malorcamum it is definitely worth making up the part year to a full year.

The thing about state pension is that as it increases each April so for each year you buy the amount goes up. This means when you draw your pension it not only takes less years to get your money back but you have an income that increases each year.

Only you can decide if it’s right to buy voluntary NI - for me it was right but I only needed 3 years.

Sounds like you will have other income on top of this, so any increase in your pension will be taxed at your marginal tax rate. Probably still worth it though.

Also, you're not going to be able to access this for 28 years, you need to think about what return you could get on that money elsewhere in that (long) time. You can't just compare cost now with pay out later. Is it better to wait and buy the extra years nearer the time perhaps? I'm not an expert!

Assuming each year is worth 1/35th of the full amount (currently £230.25 per week), buying back 2 years would get me roughly £6.50 per week extra.

Your maths has gone awry here. Two years gets you £13.

I actually did a comparison on how much I’d make if I invested the money instead- I’d actually be way better off investing assuming that the average rate of return is 7%.

Have you forgotten to account for inflation? Your state pension will be index linked, whereas after 28 years your investment may be worth in real terms about half what it's worth in nominal terms, or less.