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27% Return on Investment

Graph illustrating high return

We have just read an item by the Retired Old Blogger about how he can make a 27% return.  In fact the situation is even better than he says, because a whole host of people can benefit from this return on investment, especially women.
 
If you are going to retire after 5 April 2010, you only need to have made 30 years of National Insurance Contributions to be entitled to a full pension.  If, for whatever reason, you haven't actually paid your contributions for a total of 30 years and you have missed the last 6 years of payments,  you can effectively buy back those 6 years.

It gets better if you're a man born between April 1943 and April 1950, because you can buy back any 6 years after April 1975.  Any woman born between April 1948 and October 1952 can do the same thing.  So these individuals will be able to top up their pension contributions by up to 12 years.

A simple calculation shows you how valuable this is.  The full states pension from 5 April 2010 is £5,077.80.  Each year you make a contribution entitles you to 1/30th of the maximum pension.  Voulntary Class 3 contributions will cost you £626.60 a year, and for that one-off payment you get 1/30th of £5,077.80.  This amounts to £169.26 and represents a 27% return on £626.60.  You only need to live for 3.7 years to get your money back and your return actually gets better each year that the pension is increased. You would be hard pressed to make 3% return on a bank deposit and even an annuity is unlikely to pay more than 4.5%.  If you qualify, you really must take advantage of this if you possible can.

For more information on the changes to pensions you can click this link to go to the Pensions Advisory Service website.

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