Once retired, is it ever not worth improving a pension by voluntary National Insurance contributions?

Question

I am recently retired (in Germany) and gather from my UK National Insurance record (on tax.service.gov.uk) that I have 11 full years¹ and a number of gaps which I may² be able to close with voluntary contributions. I see also that each extra year of contributions is worth ~ £4.56 extra pension per week, i.e. ~ £237 per year. Since the amounts I would have to pay for the various years fall in the range £625–£700, a contribution appears to pay for itself within three years, i.e. to give a return between ~ 34% and 38%. Even if I have to pay tax on my pension, this seems an extremely good deal, but I read on tax.service.gov.uk … Voluntary Contributions:

2. Seek guidance or financial advice

Paying voluntary contributions may not be your best option when planning for your retirement.

There may be some doubt² whether I am eligible to make these contributions, but if I am, is there any way it could be against my personal interest to make them?

Similar questions

• Making up National Insurance shortfall when working abroad — Asks if it is worth making up a shortfall, but this questioner is apparently quite some way from retirement, making the benefits less clear.
• National insurance shortfall after living in Germany — Asks if contributions to German state pensions can count towards NI.

¹ _{At the time of asking my NI record actually showed more, but did not take account of my living in Germany since 1986, so it showed credits from 2012 onwards to which I was not actually entitled, according to gov.uk … Eligibility; it also omitted a year for which I have a P60 showing I made contributions. Both these errors have been corrected as of 2018-04-10.}

² _{The record says “You can make up the shortfall” but I have not yet determined if my living in Germany affects my eligibility to make voluntary contributions. The record shows me eligible to make up the shortfall for the 10 years from 2006-07 to 2015-16 inclusive although the accepted answer by Michael D says one can normally only pay the last 6 years.}

Edit history

_{2018-04-18 NI record has been corrected. Shown as eligible to pay last 10 years shortfall.}

Answer 1

When the pension rules changed a few years ago, people like yourself who were not previously eligible for a UK state pension suddenly became eligible for at least a partial pension, as the minimum requirement was dropped to 10 years of contributions. You can find a good summary of the changes here: https://pensionslatest.blog.gov.uk/2015/10/13/pensions-revolutions/

Almost certainly it is worth it to pay the extra years. You are allowed to make voluntary contributions if you live outside the UK, but it is usually limited to the last 6 years. If you have 11 years and buy an extra 6, the pension you will receive will be (11+6)/35 = 48% of a full pension.

Another important point to check is whether you are eligible to pay Class 2 contributions instead of Class 3, as the cost is only about a third. In short, the rules are that if you were paying NICs up to the point when you left the UK, and continued working when you went abroad, you are eligible to pay Class 2 Voluntary NICs. (However Class 2 NICs will be abolished in April 2019 so make the most of them while they are still around).

Answer 2

I think the quote about it not always being the best option is just the authors of the page trying to play it safe. In almost all scenarios, if you are offered the opportunity to make up your contribution record and you otherwise wouldn't have a complete record, it's worth it.

The only ways it wouldn't make sense would be if your life expectancy was really low, or you just couldn't afford the payments.