UK National Insurance - is it worth paying?

[Taxing]

I've been in Singapore 2 years, and following the 12 months compulsory payment of Class 1 contributions, I've decided not to bother continuing to pay class 3 contributions. As far as I can see, the only benefit from paying it is to get the state pension when I hit retirement age.
Given that by the time I hit pensionable age the state pension is going to be worth tuppence at todays prices, and the pensionable age is only going to increase during that time.
So I wonder if I'm missing something?

[Lester25]

Not sure what you mean by the pension only being worth tuppence. It goes up every year by the rate of inflation, so should be worth in real terms when you retire the same as it is now. Broadly speaking, for every year that you contribute Class 3 NI your final state pension will be 2% higher. I think it is around 65 pounds per week now (someone please confirm) for someone with a full record of NI contributions. Therefore you would be paying approximately 330 pounds pa in Class 3 contributions now for a guaranteed additional 1.20 per week from retirement until death.

One thing to note is that if you retire in certain countries (eg Australia) your UK pension will not go up after you retire. In other places (eg EU countries, USA) it will go up every year by the rate of inflation.

[Taxing]

Agreed on the inflation linked front at the moment, but the UK demographic is getting older - the government will not be able to sustain pension rises at inflation rates for much longer, unless it increases the tax burden substantially.

[Just retired]

I'm glad I kept up most of my Class 3 contributions as I now get 87% of the full amount of pension. I let my payments slip for a year or two then realised what I was missing and started up again by back-paying where I could. It's a reasonable return paid without deduction of tax. One declares the income to the jurisdiction where one lives if one is required to.

[opted out]

If you have opted out of the scheme does this still apply?

[clueless2]

I took financial advice before I came here.  I was strongly advised not to bother paying NI, the advisor was of the opinion that when I retire (in 30-35 years) there can be no way that the govenment pension can be worth anywhere near what it is today.  He saw paying NI as throwing money away.  Better to use the money to pay into a private pension in the UK.

OK he was selling pensions so you take his advice with a pinch of salt.

[Lester25]

Be very wary about anyone who advises you to opt out of either the state or occupational pensions and take out a personal one instead.

If you are working overseas you cannot contribute to a personal pension in the UK anyway.

By the way, with around 30% of the electorate currently receiving the state pension, how many governments do you think are going to have the electoral guts to abolish the link between RPI and the state pension?

[This message has been edited by Lester25 (edited 07-10-2002).]

[clueless2]

Lester25

Contributing to a UK personal pension is legal for up to 5 years after you leave the UK (I think you must have the pension started before you leave).

I don't think the question is which govenment will dare to reduce the value of the state pension.  The question is where is the money going to come from?

From memory (so the numbers may not be quite correct), I think the gist of the problem is that currently there are about 3 people working and paying tax for every pensioner.  In 30 years time there is likely to be approximately 1 for 1 (due to the ageing population).  So who will pay all for all the pensioners?

OK so we will probably end up retiring aged 70, and the UK will skimp on the health budget to save money, but still things don't add up.

My feeling is that they will gradually means-test the state pension, like they did with eye care/dental/retirement homes etc.

[Chiku]

The idea I get from reading Rich Dad, Poor Dad is -- Don't contribute!  

[Msimbati]

Lester25, pse could you confirm about paying into a Private Pension Plan for 5 years after leaving UK.  Where did you get this info?  I've had a PPP in UK (started several yrs b4 I left UK) and was advised I cdn't pay into it whilst I was abroad.  I decided to pay class 3 contribns to keep a 100% record going and back paid them for 2 yrs I missed and now pay them monthly.

[Lester25]

When I left the UK in 1996 I was told that I couldn't continue to pay into a UK PPP whilst I was abroad. I was, however, allowed to continue payments to an occupational pension scheme (run by my employer) whilst on an overseas secondment for up to 3 years. Those were the rules then, they might have changed.

The issue is that a PPP attracts a tax rebate at 25% which is paid direct into the PPP. If you are a non-resident you are not entitled to the tax rebate and it seems most PPP providers are not able to accept post-tax contributions without reclaiming the tax.

If you are overseas and wish to maintain some kind of pension contributions over and above NI contributions your best bet is 1) to join an occupational scheme if yr employer has one 2) to join a local pension scheme (eg CPF in Singapore) 3) to take out an offshore scheme (e.g. Royal Sun Alliance). Be very wary of the high fees charged by some of these schemes however.

[clueless2]

The info is in the UK inland revenue booklet at:
www.inlandrevenue.gov.uk/pensionschemes/guidance.htm

You need booklet IR3, page 21.

The relevant bit of the booklet:

I do not pay UK tax. Can I still contribute to my personal pension scheme?
If you are a member of a personal pension scheme and you move overseas, but no
longer have UK taxable earnings, you may still pay up to the earnings threshold to
your personal pension scheme in a particular tax year if you are, or have been,
resident and ordinarily resident in the UK
• at some time in that year, or
• at some time during the previous five tax years.