Chaps

Having been hear a year need to get my arse in gear and sort out UK contributions. I have the pension forecast from the UK, but am slightly confused in regards whether to apply to pay for class 2 or class 3 contributions. I have paid 21 qualifying years so wish to fund the final 9 over the next 9 years.

However, class2 seems to offer more for entitlements (not that I shall ever need them), BUT there is another section that states that class 2 payments are cheaper than class 3 since 2000. SO why would you NOT go for class 2?

Likewise, page 9 in the NI38 booklet states class 2 contributions have to be paid in respect of each week you are self-employed, which I am not, since later it makes no reference to class 2 contributions being only for self-employed people.

I am working here in Aus and while there's no intention to move back, never say never.

Can you anyone advise if class 2 is the right one to pay, given it's apparently cheaper and gives you more, or am I being a total muppet?

Thanks all

Andy

Edited to add - class 2 are currently £2.40, class 3 are £12.05.

I would of thought you would be paying voluntary contributions as you are not working in the uk.

I was employed in UK and pay class 2. I also paid lump sum to backdate contributions for the last 5 years.

You have to be working (in Aus) to pay class 2.

Personally if you can't get class 2 then class 3 is not worth it.

Even if you have to pay class 3 @ £12.05/week = £626.60 for the maximum
28 years (I believe you can only continue to pay voluntary with 2 years contributions), the maximum contributions would be 28 yrs * £626.60 = £17536.

Single person state pension is currently £95.25; Couple: £152.30.

Single person = £4953 per year.
£17536 / £4953 = 3.5 years. Therefore anything more than 3.5 years in retirement you are quids in. In reality most people will already have significant NI contributions already so the situation would be even better.

To get £4953 from another pension you would need to have a fund of over £100,000.

I believe regardless of class 2 or class 3 it is worth it.

I reckon by the time you and I retire the UK govt. will have stopped paying state pensions to people living overseas. I reckon it's a virtual certainty.

That I cannot predict. What about people who quit the UK whilst in retirement and relocate to Spain for example? Do you think the UK would then withdraw their pension entitlement?

you have a point,but i would say that if you have contributed to the UK by way of national insurance for the maximum 30yrs ,they then cannot deny you a pension.

there has been uproar this week when it was announced that expats living in spain and france have been claiming cold weather payments,that might seem absurd, but, if they have worked all or most of their lives in the uk then they are bloody well entitled to it.

there are thousands of eastern europeans flooding into the uk now and they seem to know the benefit system better than most brits,i do not think they should be entitled to all benefits until they have contributed to the UK economy for at least two years, this is only my personal opinion of course.

I agree with you. My opinion is that the UK (and the whole of Europe for that matter) is facing a huge demographic timebomb and will have to do some really radical things over the next 20 years or so. The "low hanging fruit" is going to be means testing the state pension and withholding it from people living abroad.

The politicians only care for power and votes and those overseas aren't going to vote anyway and most people back in the UK won't care 'cos they think we are all rich.

Okay here's my calculations.

To get 4953 per year I would have to buy an annuity for about £58000 (I used an annuity calculator for this).

To get a fund of £58k with 30 years contributions of £626.60, the average annual return would be just under 7%. Which is not a crazy figure.

So class 3 just about breaks even. But hold the phone for a second. The figures above have been calculated on my UK retirement age of 66. People who are not that much younger than me will have a retirement age of 70. Will it be good for them? Will life expectancy rise 5 years to make it borderline again? Who knows?

I'm happy to agree to disagree on this one.

They are to a degree heading down this route already. The state pension does not meet the minimum income guarantee (or whatever it's called now). This gap is filled with a means tested payment.

But nobody is going to have to put 30 additional years into this. Most will already have a decent contribution record. Myself only 7 more years.

And a couple get £152.30 state pension.

The best current RPI annuity rates are 5.6% for a 70 yr old:
http://www.annuity-bureau.co.uk/AF_C...rates_rpi.html
Which is inline with my estimate of a £100k annuity to produce a £5k pension

If you've only got a few years to pay class 3 then it would be worth it but that's not how you made your calculations.

There's something wrong with the annuity rates in that link. It seems that they are giving you only the interest which is not how annuities normally work. Using this calculator a 70 yo with £100k would get £8112 from Aviva Life & Pensions Limited. Annuity companies use life expectancy rate to give you a payment that is higher than what you would get from interest or yield alone.

Couple's pay does make it a bit more attractive. But what happens when the partner with the contributions dies? Also what happens if you die just before pension age? Where does that money go? As I said in the first post, personally I don't think class 3 is worth it. You, on the other hand, do think it's worth it, and you're perfectly entitled to have that opinion but I have a different measure of value. I prefer to keep control of my money and pass it on to my estate (if possible) whereas other people prefer the protection of the state.

As a correction to an earlier post. It looks like the UK pension age is rising to 68 rather than 70.

I'd probably do it if I only had 7 more years to go.

I am interested in this thread but am still confused - under what circumstances can you get away with paying the cheaper Class 2 contributions rather than Class 3? They have written to me saying if I want to contribute I need to pay Class 3 contributions but why can't I pay class 2?
(NB, was full time employed in the UK with only 10 years NI contributions to date, now full time employed in Oz.)