There seems to be a lot of confusion regarding the payment of National Insurance contributions (NICs) and the benefits of the state pension for UK expats.
What I want to achieve with this article, therefore, is to give you an idea of the basic facts regarding the basic state pension and the necessary steps that you would need to take, should you want to make contributions on a voluntary basis and/or make up missed payments.
Armed with this information, you will then be in a position to make an educated decision on how to proceed.
Basic facts
To achieve a full basic state pension you need to have achieved a certain number of qualifying years. A qualifying year is a year where one of the following applies:
- you have sufficient income to pay NICs
- you are treated as having paid NICs
- you are credited with enough NICs
If you are a man born after 6 April 1945 or a woman born after 6 April 1950, then you need to achieve a total of 30 qualifying years in order to achieve the full basic state pension.
For the tax year 2011/2012, the full basic state pension will be £102.15 per week. This will increase annually by the highest of one of three index rates: prices, earnings or 2.5%.
If you have fewer than 30 qualifying years, your pension will be reduced on a pro rata basis. For example, if you only had 15 years, you would get £51.08 per week (15/30 = 50% of £102.15).
Step 1 – find out where you are now
Your first step should be to contact the State Pension Forecasting Team in Newcastle and ask for a pension forecast.
This will tell you the number of qualifying years that you already have as well as the level of state pension that you can currently expect.
Their telephone number is (+44) 191 218 3600. If you contact them, they will then send you the completed relevant form for you to sign and return to them. (Remember, as with all communications with HMRC, to have your NI number handy when you call.)
Alternatively, if you want to speed the process up, you can download the relevant form here (PDF file, 295 KB) and send it directly to them. The address to send it to is:
State Pension Forecasting Team
The Pension Service
Tyneview Park
Whitley Road
NEWCASTLE-UPON-TYNE
United Kingdom
NE98 1BA
Allow them a few weeks to get back to you.
Step 2 – make voluntary contributions
The next step, if you don’t already do so, is to start making regular voluntary contributions. There are two types of contribution that you can make, either Class 2 or Class 3.
To qualify for Class 2 NICs, you must have been “ordinarily” employed or self-employed immediately before you went abroad. (If you are in doubt as to whether you qualify, contact National Insurance Contributions – International Caseworker Team on (+44) 191 225 4811.)
If you don’t qualify for Class 2, then you need to make Class 3 NICs.
Class 2 contributions have the following benefits:
• they count towards your state pension when you retire;
• they entitle you to Employment and Support Allowance (previously known as Incapacity Benefit) and bereavement benefits when you return to the UK.
Class 3 contributions have fewer benefits. Namely, they don’t entitle you to the Employment and Support Allowance when you return to the UK.
In addition, Class 3 contributions are more expensive. For Class 2 contributions, the payment is equivalent to £2.50 per week (2011/2012). Class 3 payments are equivalent to £12.60 per week (2011/2012)
As you can see, wherever possible, it makes sense to pay Class 2 Contributions.
To commence contributions (Class 2 or 3) you need to complete the form CF83, which can be found on the last 2 pages of the NI38 document. You can find a copy here.
Payments can be made monthly by Direct Debit or with an annual payment.
Step 3 – make up missed years
If you haven’t been making any contributions for some time and still do not have 30 qualifying years, then you can make up missed years going back for the last 6 years. Your State Pension Forecast (mentioned above) will tell you how much you need to pay to make up each of these years.
Instructions on how to make payments for these missed years will be on the forecast letter.
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Author: Ross Naylor
13 Comments
If i earn under just £155 a week, and sometimes only £146, does that not mean i am exempt from paying NICS due to my low income…. or are you implying that i need to be making up for lost years and paying my own on top ?
The other things is this – i was in a highly paid job before the recession and was contributing a high amount of NICS for about 10 years. Are you telling me that that my large contribution to NICS still only qualifies as 10 years out of the required 30 ?
Surely i am not getting punishsed by the Government for trying to get any type of work rather than simply claiming the dole, and getting my NICS paid for me ?
Hi John,
Thank you for taking time to respond to my article.
If you are not resident in the UK, then you do not have to pay any NICs no matter how much you earn.
The point of the article was to explain how those expats who wanted to make “voluntary” contributions could do so.
Re your second point “Are you telling me that that my large contribution to NICS still only qualifies as 10 years out of the required 30 ?”, I am afraid that is exactly the case.
Best regards,
Ross.
Hi Ross
I was making voluntary class 2 contributions while I am here in Australia. In the last three years I have stopped because I have given birth to two boys who are both autistic (I get a carers allowance in Australia and the children are registered disabled). I would like to pick up the last three years and continue paying in voluntray contributions. However as a full time carer for two disabled children, I don’t have formal employment.
1. Does this mean that I have to pay the more expensive class 3 contributions?
2. How would the NIC agency know if I am formally employed or not?
3. Why does one have to pay more when one is earning less / nothing?
Thanks for your great explaination, very useful.
Regards
Joanne
Hi Joanne,
The test for Class 2 contributions is normally based on whether you were “ordinarily” employed or self-employed immediately before you went abroad. Given that you paid Class 2 previously, I would assume that this was the case.
However, if you still have any doubt, I would advise contacting the National Insurance Contributions – International Caseworker Team on (+44) 191 225 4811.)
Best regards,
Ross.
Hi Ross
http://www.hmrc.gov.uk/ni/volcontr/abroad.htm states
“Provided the earlier conditions are met you can pay voluntary Class 2 National Insurance contributions if you are employed or self-employed abroad”
ie if you are living overseas, below retirement age but not working you can’t make class 2 contributions – is that correct, as I didn’t spot that as a criterion in your article ?
Yes according to https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions
Hi Ross
If I go to work temporarily in Australia for less than a full UK tax year, am I liable to pay NI contributions on the foreign income (I know I am liable on any tax above what the ATO has deducted as I still need to submit a self-assessment for renting my flat out)?
And will that year still qualify as a year I contributed NI, even though I only worked for a few months in the UK before moving?
Hi Ross,
What are the advantages of paying NI to a foreign national who comes to UK just for few years (3-6 years) on a working TIER 2 visa.
Is he needs to pay NHI on the top of NI?
Cheers!!!
I have recently been trying to catch up back payment years of NIC’s to boost my eligible pension. I have about 12 total paid years so far and am 15 years away from retirement with eligibility to pay 2 more back years. (29/30)total. However I’ve been paying the class 3 rate even though I was employed directly before I emigrated to Canada back in 1982. Should I be paying class 2 rates?
Similar query to Darren. I have made class 3 payments (for years 08/09 and 09/10) but now I realise that I qualify for class 2. I have never submitted the CF83 form. I wonder if I can correct these payments.
And if I submit the CF83 form now, indicating that I qualify for the past 6 years, can I then back date payment for the 6 years.
Regards
Quote:
“To qualify for Class 2 NICs, you must have been “ordinarily” employed or self-employed immediately before you went abroad.”
Am I correct to add registered unemployed also accepted?
They are in the process of changing all these rules , so that you have to have 35 qualyfying years and not 30
Hi Ross
I am a British expay living in Spain.
I work for an offshore company and therefore do not pay social security in Spain. If I pay NICS in the UK will this cover any medical issues I may have in Spain under the bilateral healthcare agreement?
Thanks