Lamin

My Canadain wife has paid 11 years of NI contributions towards her UK pension. She recently received a letter asking if she would like to continue paying in, I think the max she needs is 33 years. So in her case contribute for another 22 years.

We realise that the UK pension is not index linked, so we are wondering would we be chucking money away if we continued.

Also do the 11 years she has count and a small amount is paid out at retirement or are they just "written off"?

Many thanks.

Tangram

I believe the years are pro rated and the max is 30 years.... but I may be wrong.

JonboyE

It is 30 years and yes, she will get 11/30ths of the state pension. [edit: Tangram is correct] This, of course, is under current rules. I am almost certain that the current rules will change in the not too distant future. However, assuming they do not ..

.. if there is a chance that you might go back to the UK when you retire then almost certainly keeping up contributions is the right thing to do.

If not, you will have to think of the cost of an annuity. Say the extra 19 years will increase her pension from £30 to £90 a week. This is equivalent to an increase of £3,120 a year. How much does an annuity for £3,120 a year cost? Is it more or less than the cost of the voluntary NI contributions? Then there is the exchange rate risk. You might gain or lose. Who knows?

In short, there is not a right or wrong answer.

I have eight years to top up and I will do so.

mumof2

I had 8 years to top up so have been doing so, not sure if right or wrong but i figured you never know whats round the corner

Steve_

Yes, absolutely it is worth doing it, especially if you qualify for Class 2 contributions (i.e. working abroad) rather than the more expensive Class 3 contributions (not working), read the HMRC booklet NI38.

Class 2 contributions are a pittance, I can never figure out the formula they use but it seems to be around £10-12 a month. Well a current pension payout pa is around £7,000. And to get it you have to have 30 years worth of contributions.

So say you already have 10 years worth of contributions, and you need to make another 20.

So it's 20x12(or less than that actually)x12= £2,880. You get that much out of your pension in the first few months. Cost of living adjustments or not (and I have to say I think in 20 years time there will probably be some sort of totalization agreement between the UK and Canada anyway) it's a bargain.

ralphster

That's assuming everything remains as it is today. You have to factor in the risk that in 20 years (or maybe next year...) governments might not be paying the same level of pensions are able to do today.

There is no denying the figures, but based on the current economic situation, I would tend to assume that down the road there will be less state pension available (and some might say "if any at all").

If you invested the £2.2k yourself (for example, in physical gold), what could it be worth in 20 years?

Difficult call...

Novocastrian

Can I add a point which won't be of interest to most, but to some?

If you plan (like we do) to retire in an EU country other than the UK, (in our case France), then once you or your spouse is in receipt of a UK state pension however small, you are both eligible to access the French state funded health care scheme. Even 1 pound a week is enough.

As I said, not of general interest, but important to us.

jimf

I received a letter from HMRC a few days ago which I haven't yet read properly other than to see that they were offering me the change to contribute NI for 2009/10 for the cost of approx 600GBP. I have 23 years and the letter mentioned 30 years for a basic state pension and 40 years for some other benefits.

If I put 600GBP into a private pension then my rule of thumb is that that would translate into 30 to 60 GBP extra pa pension. Tax relief on the contribution would make it a bit better than that in practice. If each years worth of contributions is pro rated ie 30 years and 7000GBP state pension pa then the one year contribution could realise an extra 230GBP pa state pension. Perhaps it is worth looking into further?

Steve_

Well yes, but given that I'm not psychic and it's such a tiny amount of money then I can't see a reason not to do it. Admittedly I only have a few years of contributions left to make so for me it's a no-brainer.

Steve_

Another point worth making is that it is hard to qualify for the Canadian equivalents such as CPP and OAS and they aren't worth much even if you do. CPP is only supposed to provide at a maximum 25% of a salary of whatever it is iirc, currently around $40,000 (so $10,000), and to get that you have to have been making contributions for ages, OAS you have to be resident for the full 40 years to get the full amount and you only qualify abroad if you have been in Canada for at least 20 years.

Whatever you might get from your UK state pension I think it's worth having if you only have to pay in Class 2 NI contributions.

Atlantic Xpat

A related question then.....having been out of the UK for getting on for 8 years, and having 14years NI contributions before I left, can I buy back the last 8 years and continue to contribute to get in my 30? (Assuming it's worth it).

Almost Canadian

You can. I don't believe that it is worth it to do so though. Putting the same amount into your RRSP is likely to achieve a better return, when the tax relief and ability to be able to leave it to others upon your death, is considered. I know others will disagree.

Steve_

Well yes I will disagree, because the risk to your State pension is mainly legislative (and thus unknowable unless you're close to retirement age), an RRSP is an investment. Is there any investment that costs say £2,000-3,000 total that pays off £7,000 pa from retirement age until you die?

jimf

I think you only have 6 years to pay the backdated contributions and you pay them at the highest rate applicable in those 6 years. If so I think it allows the decision to be put off for a while. I notice that the letter I received mentions that it may not be possible to obtain a refund for these contributions, implying that in some circumstances it would be possible to obtain a refund.

Almost Canadian

I accept that risks to the state pension are legislative. But do you really believe that there will be much opposition from voters in the UK when, if the time comes, the government of the day decides to do away with it for those that haven't been resident for x years in the UK prior to withdrawal? Do any voters in the UK give a damn about the fact that the state pension is not index linked in Canada?

The current, funding as you go, is unsustainable. I cannot foresee it being in place when I retire in 25 years. I would not put it past the government to raise the retirement age.

You have not dealt with the fact that an RRSP can be left to whomever you choose do. Try getting your wife to draw your state pension if you die the day after you retire, or the fact that you can use that money now, if you so wish