Key Post Is it worth paying UK Class 3 Voluntary NICs? (spoiler alert: you should)

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NoRegretsCoyote

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How do I qualify for Class 3 NICs?
If you are below pension age and have lived in the UK and/or paid NI contributions for at least three years in a row but are no longer living in the UK.

How much do voluntary Class 3 NICs cost?
As of early 2023 they are £15.85 a week. That's £824 a year.

Why can't I pay cheaper Class 2 NICs?
Class 2 NICs which are only £3.15 a week, about 20% of the cost of Class 3 NICs. However you can only pay Class 2 if you are working in Ireland still and were working when you left the UK.

Is it still worth it to make voluntary Class 3 NICs?
Almost certainly yes if you are eligible. £824 a year gets you one year closer to the 35 years needed to qualify for the full UK state pension which is about to increase to £203 a week. So 35 times £824 a year in contributions gets you £10,556 a year for life once you reach 67. In cash terms you break even in a little under four years.

What is the investment return?
I calculated it's a guaranteed inflation-adjusted return of 8.7%. It's based on a 67 year old living to 82. There is no guaranteed return better than this.

Can I pay voluntary Class 3 NICs even if I haven't worked or lived three years in the UK
Possibly. Some people (myself included) are allowed to pay them despite having less than three years working in the UK. My view is that you should apply to pay them (see next bullet) if you have any UK NI record at all. You have nothing to lose except the price of a stamp.

How do I pay voluntary NICs?
Head over to the key post here and check it out.
 
Coyote

That is brilliant thanks.


Am I right in saying that each year's contribution gets you an additional £5.29 a week in pension or £275 a year?

So the arithmetic is
Invest £824
Return £275 inflation adjusted

Even if you are only 30 now and have to wait 35 years for the return, the return will be inflation adjusted, so it's great value.

Brendan

Brendan
 
Brendan Burgess said:
Am I right in saying that each year's contribution gets you an additional £5.29 a week in pension or £275 a year?
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That's about right, yes.

Over longer term it's better to think in terms of investment return but for most people the cash in divided by cash out might be simpler.

NRC
 
But I am trying to work out the time value of money.

Is £275 inflation adjusted in 10 years, the same as £275 today?

I think it is.

Brendan
 
Brendan Burgess said:
Is £275 inflation adjusted in 10 years, the same as £275 today?
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No.

You discount by the rate of "pure time preference" - or basically the rate the market will pay you to give you back the same purchasing power in ten years as it holds today.

The closest you'll get to the rate of pure time preference is a Treasury inflation-protected bond.

The value is sometimes negative!

 
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Thanks Coyote

So is the inflation-adjusted £275 worth more in 10 years than it is today or less?

Brendan
 
Brendan Burgess said:
So is the inflation-adjusted £275 worth more in 10 years than it is today or less?
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Usually less.

Something you have today is usually more valuable than something you receive ten years, even adjusted for inflation.

But I think we are straying off the point here a bit. For anyone of any age under 67 it is still a very good investment return to make a Class 3 voluntary NIC.
 
What entitlements do you get if you pay 25 years contributions but you die before the age of 65? Does your wife get a widows pension?
 
I think I asked you a question in relation to this topic a few years ago, you said that you had qualified even though you didn't have the 3 year minimum work in UK, was that for class 3 contributions?
I have subsequently qualified myself for class 3 contributions even though I also didn't fulfill the 3 year minimum work in UK. However I did work in Ireland immediately on return from UK , I thought that fulfilled the requirement for class 2 contributions, however Im reluctant to query this given that I didn't fulfill the basic requirement anyway
 
I'm just wondering about this myself. I've been approved to pay Class 2 for 12 out of the last 14 years with two years I can pay Class 3. But as I have 31 years left until the current retirement age I'll have 35 years paid in 23 years thus 8 years before I can draw the pension. Is it worth me paying the two years of Class 3?

I'm guessing for any year I pay after I've paid 35 years of contributions will add an extra 1/35th on top the full UK state pension?
 
done4now said:
I believe so as long as I'm fully employed going forward.

View attachment 9174
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Hi done4now

Think I am in a similar boat to you and got a similar letter. I have:

10 years paid in full
9 years I can buy back
3 of the 9 are Class 3
6 of the 9 are Class 2
32 more years to the pension age

Just wondering if you confirmed with HMRC yet that you could continue buying Class 2 beyond this year based on the letter?

Also did your letter inform you to phone them first to confirm additional payments would increase your pension?
 

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No yet. But I've the exact same wording as you have in your letter under State Pension. They've set me four different letters to date now with the latest now omitting the Class 3 amounts.

I'll ring them tomorrow morning and see what my options are.
 
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If you have online access and it says there that your pension forecast is….. based on you paying another x amount of years then that suffices, you don’t need to call them.
 
Thanks both - I called them earlier this week (before your post) and they confirmed that. The handler just did an estimate for me based on paying back years (vs my online estimate which is a full pension estimate if I pay back years and future years)

I also asked whether I can expect future years to be Class 2 so I don't need to pay my 3 Class 3 years. I got a fudged answer "subject to HMRC future policy unique to you". I've decided I won't buy them back in the meantime.
 
Just wondering does anyone really know how they determine whether you are class 2 or 3. Originally when I applied in late 2022, I was not accepted at all as I did not fulfill the minimum 3 years work record in uk. The letter said though that I could qualify based on prsi payments in Ireland or other European countries after leaving UK. Since I worked in Ireland immediately on returning I was able to send them my prsi contributions document. After about 16 months I received a reply saying that I could now qualify and already have 5 years contributions and would need at least 10 years to qualify for minimum pension. All the payments to buy back though were at class 3, 824 pounds per year.

However from reading many of the posts on these threads I see many other people with similar work records to mine have qualified for a combination of class 2 and class 3. The only differentiate rule that I can see is that you qualify for class 2 if you worked in Ireland or other European country immediately on leaving UK which I did. Does anyone know anymore on this , how do they decide if you are class 2 or class 3?
 
As I understand it, when you can show that you've been paying prsi you're entitled to class 2. Otherwise class 3 applies.

Does the contributions statement you sent them include gaps in prsi contributions, and if so do they correspond with the class 3 decisions made?

If so then it seems correct to me, but if not I'd be considering an appeal if I were in your shoes.

In my case, I was employed full time here from the week after I returned from the UK. I disclosed in the cover letter I sent with my CF83 that I took a month off post retirement from my long term job, but then resumed employment. I also enclosed copies of my new payslips as proof, as well as my contributions statement (as you did).

I was granted class 2 contributions across the board, except for the 4 weeks I disclosed that I wasn't working. They were class 3. Hopefully that helps.
 
Zobeda said:
Does the contributions statement you sent them include gaps in prsi contributions, and if so do they correspond with the class 3 decisions made?
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I don't understand, obviously the gaps in prsi contributions corresponds with the years I was working in uk. However I didn't qualify based on 3 year minimum work in uk record but I think on the combination of uk work contributions and prsi contributions. Although the last letter I received didn't explicitly state that ,it just said I now qualify and already have 5 years contributions?
 
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