john5655

Absolutely, but subject to the Dirty Harry Test, "are you feeling lucky", because you need three years of life beyond state pension age to make this a winner, and for some folks.....

nun

That's an amazingly pessimistic outlook.

If you have a terminal disease the extra 5 years of payments might not be a good idea, but the average healthy individual would be a fool to pass up the chance to pay the extra Class 2 NI to have the possibility of getting the new pension. It's a bet with good odds and a fantastic payout.

dunroving

How do you calculate that? As has been pointed out many times on these threads, it is more like 7 months for Class II.

Class III may be three years - and life expectancy is way beyond that. If you don't make it all back, you won't care anyway because you'll be dead.

[ETA, calculations below]

Cost of Class II is £143/yr (from HMRC Web site)

Cost of Class III is £180.70 per quarter, or £722.80/yr (from HMRC Web site)

Additional pension per additional year is 1/35 of flate rate pension of £144/wk (£7,488/yr), so £213.94. In order to make back what you have paid in additional NICs, it would take:

Class II - 0.67 years, or 8 months

Class III - 3.38 years or 3 years and 4.6 months

(these figures are slightly different than last time I went through these calculations so I am not sure which of the figures has/have changed. Last time it came out as 7 point something months to make back Class II)

Editha

In the UK currently, the life expectancy of a man at 65 is 18 years; i.e. he will live to 83. So, unless you have a life limiting condition, you don't have to feel lucky, you just have to feel average.

john5655

My apologies to you and Nun. My attempt at humour was obviously a resounding failure. More emoticons needed???

john5655

requote from my post from yesterday, yes 3 years is based on Class 3, which is what I have been paying as I am not qualified for Class 2

dunroving

Ah, OK, the reason I was confused was because you were responding to my post #45, which was all about Class II.

As others have said, even Class III doesn't take a lot of luck, as most people live more than 3 years post-retiremenet. However, many people may not be able to afford to pay Class III's.

robin1234

I don't get the logic behind the British pension in this respect. The actuarial logic, I guess ... The Class II NIC seems too cheap. Unless loads of people die before collecting, or die after only collecting for a couple of years, then the system must be giving out millions of unfunded pounds ech year.

Along the same lines, the British state pension rewards pensioners by a 10.5% increase for each year they delay claiming. Surely somewhere in the 5% range would be more realistic, since the life expectancy of a 65 year old in close to 20 years, I believe.

Editha

The 10.4% annual increase for deferring the pension is being reduced to 4. something for single tier pensions.

At the moment the 10.4% does look too good to be true, particularly since it is without time-limit -- e.g. you could put off claiming for ten years and get your pension doubled. For a woman like myself, who reaches state retirement age at 62, that might actually be worthwhile.

The explanation has to be that it was introduced when interest rates were higher, and government was anxious to solve the pensions crisis, so giving a good incentive to defer retirement seemed worthwhile. The odd thing is that take-up has been very low.

Cape Blue

Do you think that there will still be a State pension for those who also have a private one? I can see in 10-20 years time that the State pension will become means-tested and that anyone who has a private pension or alternative income will have their State pension reduced or stopped entirely.

I paid several years of class 2 a few years ago, makes me wonder it it was a waste of money.

Editha

That would actually be an abolition of the state pension altogether, since a means tested benefit would be more akin to the pension credit benefit we have now.

Of course anything can happen, but I don't think there is any reason to be so pessimistic. There are good reasons, political and economic, for UK governments to want to keep a reasonable level of non-means tested pension, and the reform currently going through parliament -- the single tier pension -- is supposed to be a long term reform.

Cape Blue

I think it is highly likely - as pension costs continue to rise with longevity (and there are less tax-payers to support it) the UK Gov will need to find ways to reduce their exposure - increasing retirement age is one way, means-testing is another.

robin1234

I think all kinds of catastrophic things might happen. Extreme climate change, hyperinflation, nuclear war etc. but that a government like the UK or the US would renege on its responsibility to pensioners who've paid their contributions over the years is unlikely. Sure, they'll tweak it, increasing the age etc., but simply abolishing it is not something I worry about.

Cape Blue

They would only be reneging on those people who had sufficient private pensions and incomes - perhaps 10-20% of the populace. It would not be a complete abolition, just a means-tested phasing - very easy to do and I think a lot more likely than not.

Editha

So what? Are you expecting to be in the top 10%?