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Voluntary national insurance contributions

Financial discussion for any financial queries for Expats
monabri
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Re: Voluntary national insurance contributions

#331127

Postby monabri » August 5th, 2020, 2:39 pm

Remind me , should he only buy years from tax year 2016 onwards ... they would be a bit cheaper than tax yr 2017..18..19 etc.

Is it a recommendation that he does NOT buy earlier years as they would have no added benefit?

mc2fool
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Re: Voluntary national insurance contributions

#331150

Postby mc2fool » August 5th, 2020, 3:22 pm

monabri wrote:Remind me , should he only buy years from tax year 2016 onwards ... they would be a bit cheaper than tax yr 2017..18..19 etc.

Is it a recommendation that he does NOT buy earlier years as they would have no added benefit?

Anyone that has less than 30 qualifying years up to 5 Apr 2016 will always benefit from filling any pre-2016 gaps. However, whether they'll benefit by an "old" years amount (£4.48pw) or a "new" years amount (£5.01pw) depends on how their starting amount is arrived at, and there is no easy way to know without doing the arithmetic.

Buying post 2016 years will always add a "new" years amount, up to the max, but depending on how many years one has to go and how many to fill, buying some pre 2016 years may be the only way to get a full(er) house.

Regarding costs, all past years now cost the same, £15.30pw, except for the last two years, 2018/19 & 2019/20, which cost £14.65 and £15.00 respectively.

richfool
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Re: Voluntary national insurance contributions

#331220

Postby richfool » August 5th, 2020, 7:38 pm

mc2fool wrote:
richfool wrote:My son who had paid 8 years UK NI contributions before he emigrated to Australia about 10 years ago, has just asked me would it be worth him contributing at least 2 more years NI contributions in the UK in order to qualify for the minimum UK state pension (i.e. 10/35) when he reaches 68 or whatever the retirement age is when he gets there. Would he be right in thinking that it would be worth it? He does realise that whatever pension he did then receive would not increase each year because he now lives in Australia.

As long as he believes he'll live long enough to collect it, absolutely. :D

At the moment he will get nothing. If he pays class 3 NICs for 2018/19 & 2019/20 that will cost him (£14.65+£15.00)*52 = £1541.80 and he will get at least a current-value £2382.19pa when he reaches state pension age.

That's assuming his already 8 years is better counted under the old system and there's no additional state pension. I.e. ((8 * £134.25/30) + (2 * £175.20/35)) * 52.
If it's better counted under the new system and there's no contracted out deduction (COPE) then it'll be (10 * £175.20/35) * 52 = £2602.97.
And, of course, it could be somewhere in between the two, or even higher if there's a large ASP, the only way to know for sure is to get a pension forecast.

Note that while the pension won't increase once in payment the amount he will get when payment starts will increase until then. So it's a pretty good deal. ;)

Indeed, he may consider continuing to buy more years as the payback period for class 3 NICs is (and long has been) just over 3 years, and that's not considering the increases, so as long as he expects to live more than that past state pension age, it's a win. E.g. currently a year costs £15.30*52 = £795.60 and gets you an extra current-value (£175.20/35)*52 = £260.30pa.

Thanks for that mc2fool. That fits with what my son was thinking.

Would I be right to assume that he should start by paying the oldest (missed or incomplete) years first, then work forwards from there?

He was planning to only pay the minimum number of years to qualify for a minimum pension. (He has emigrated to Australia and is unlikely to return). So you think it would be desirable for him to keep on contributing as many years as possible, - to try and achieve nearer to a maximum UK pension? He does have UK sourced income (property related), so may be able to do that, though noted that the UK state pension ultimately would be taxable and he would not qualify for annual cost of living increases.

mc2fool
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Re: Voluntary national insurance contributions

#331244

Postby mc2fool » August 5th, 2020, 8:57 pm

richfool wrote:Would I be right to assume that he should start by paying the oldest (missed or incomplete) years first, then work forwards from there?

No, not necessarily, it depends on what we wants to achieve overall, and what his exact situation is. There are potentially a lot of variables and what I strongly recommend to start with is that he gets a pension statement and a copy of his NI record.

https://www.gov.uk/future-pension-centre
https://www.gov.uk/check-national-insurance-record

If he gets that and you present the data here we can work out all the possibilities in fine detail. Note that, because of the quirks of the transition to the new system, he may be able to get a full "new" state pension with less than 35 years or he may need more than 35 years to get the max. Or is may just not be possible to get the max. The only way to know is to get the info above.

Now, a few things that are true irrespective of that:

a) You can normally buy voluntary NICs for only up to six years after the tax year you want it for.
b) Exceptionally to that, (as part of the transition in the UK pension system) he'll be able to make up gaps between 6 April 2006 and 5 April 2016 up to 5 April 2023.
c) The cost of voluntary NICs is frozen for two years and then goes up to the current rate. This means that currently the cost of class 3 NICs for 2018/19 & 2019/20 is £14.65pw & £15.00pw respectively. All other years (inc this year) are £15.30pw. At the end of this year the 2018/19 one will go up to next year's cost and this year's will be frozen at £15.30pw for two years.

So, clearly, if all he wants is to get to 10 years then he should just buy 2018/19 & 2019/20 and that's it.

If, OTOH, he wants to go for a full "new" state pension AND he has plenty of time to go, i.e. is under 40 years old, then he should buy 2018/19 now and then buy the following years each year going forward, no more than 2 years in arrears.

And if he wants to go for a full "new" state pension and he doesn't have plenty of time to go, i.e. is over 40, then he might well have to do the above and buy some pre 2018/19 ones, and of course that's subject to the deadlines (a) & (b).

BTW, if he has any incomplete years he should certainly look into that, 'cos it may be that he just has to pay a few weeks NI to gain a whole year.

He was planning to only pay the minimum number of years to qualify for a minimum pension. (He has emigrated to Australia and is unlikely to return). So you think it would be desirable for him to keep on contributing as many years as possible, - to try and achieve nearer to a maximum UK pension? He does have UK sourced income (property related), so may be able to do that, though noted that the UK state pension ultimately would be taxable and he would not qualify for annual cost of living increases.

Well of course each has to consider his own circumstances, but the rate of return -- (gross) payback in just over 3 years and increasing up until then -- is pretty much unmatched from any other kind of pension scheme.

richfool
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Re: Voluntary national insurance contributions

#331439

Postby richfool » August 6th, 2020, 7:11 pm

mc2fool wrote:No, not necessarily, it depends on what we wants to achieve overall, and what his exact situation is. There are potentially a lot of variables and what I strongly recommend to start with is that he gets a pension statement and a copy of his NI record.

https://www.gov.uk/future-pension-centre
https://www.gov.uk/check-national-insurance-record

If he gets that and you present the data here we can work out all the possibilities in fine detail. Note that, because of the quirks of the transition to the new system, he may be able to get a full "new" state pension with less than 35 years or he may need more than 35 years to get the max. Or is may just not be possible to get the max. The only way to know is to get the info above.

Now, a few things that are true irrespective of that:

a) You can normally buy voluntary NICs for only up to six years after the tax year you want it for.
b) Exceptionally to that, (as part of the transition in the UK pension system) he'll be able to make up gaps between 6 April 2006 and 5 April 2016 up to 5 April 2023.
c) The cost of voluntary NICs is frozen for two years and then goes up to the current rate. This means that currently the cost of class 3 NICs for 2018/19 & 2019/20 is £14.65pw & £15.00pw respectively. All other years (inc this year) are £15.30pw. At the end of this year the 2018/19 one will go up to next year's cost and this year's will be frozen at £15.30pw for two years.

So, clearly, if all he wants is to get to 10 years then he should just buy 2018/19 & 2019/20 and that's it.

If, OTOH, he wants to go for a full "new" state pension AND he has plenty of time to go, i.e. is under 40 years old, then he should buy 2018/19 now and then buy the following years each year going forward, no more than 2 years in arrears.

And if he wants to go for a full "new" state pension and he doesn't have plenty of time to go, i.e. is over 40, then he might well have to do the above and buy some pre 2018/19 ones, and of course that's subject to the deadlines (a) & (b).

BTW, if he has any incomplete years he should certainly look into that, 'cos it may be that he just has to pay a few weeks NI to gain a whole year.

Thanks for the above mc2.

I conferred with my son and gave him a link to this thread. He had already checked with the NI pension records, which was where he got the figure of 8 (full) years from. Thanks to your guidance/reassurance he intends to buy 2 further years' contributions (at this stage) and his wife 1 year's contributions (as she has 9 already), in order to bring them both up to the minimum 10 years required for a minimum pension. I have suggested he may want to keep an eye on future developments in case DWP move the goal posts in the future. I also suggested he may wish to consider purchasing further years contributions in the future, if and when funds allow.

As I understand it, he doesn't want to divert too much funding to the UK NIC's as he is prioritising paying off his mortgage in Oz, along with funding his pension (Super) there and bringing up his family.

Thanks again, richfool.

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Re: Voluntary national insurance contributions

#331463

Postby grpaway » August 6th, 2020, 11:16 pm

Class 2 NIC £3.05/week

This level of National Insurance is paid by people who are employed or self-employed abroad and have paid Class 1 NICs for the first 52 weeks of work. The conditions for eligibility include: that you were a UK taxpayer just before you started working abroad, or that you paid NICs to a particular total for 3 years before you moved, or that you worked in the UK at any time before moving abroad for 3 consecutive years.

Class 2 NICs contribute towards: state pension, bereavement benefits and other state benefits (such as Employment and Support Allowance).

Try form cf83

It’s worked for my children who work and live abroad

Good luck

JohnB
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Re: Voluntary national insurance contributions

#331464

Postby JohnB » August 6th, 2020, 11:31 pm

Class 2 worked for me to fill a 2 year gap when abroad. The form was straightforward, but don't delay as they take ages to process it (and in my case ignore a covering letter with a cheque that said which years it was for)

mc2fool
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Re: Voluntary national insurance contributions

#331579

Postby mc2fool » August 7th, 2020, 2:55 pm

richfool wrote:He had already checked with the NI pension records, which was where he got the figure of 8 (full) years from.

And that's sufficient if all he wants to know is how many additional years he needs to get up to the minimum 10 years required, but it's not, on it's own, enough to figure out how many he'd need to get a full new state pension or which years he'd have to get to do so, which was the context in which I recommended getting the full info and presenting it here.

As I understand it, he doesn't want to divert too much funding to the UK NIC's as he is prioritising paying off his mortgage in Oz, along with funding his pension (Super) there and bringing up his family.

That's very understandable, and the only thing I'd say about it is that, given that there are deadlines which could restrict his future choices, it'd be a good idea to at least get the info and figure out the options available before any deadline hits. If he still decides to stop at 10 then at least he'll do so in full knowledge of his options and before any disappear. There's no immediate rush, his first "hard" deadline (putting aside just cost increases) is April 2023 ... although if he's anything like me on procrastinating about paperwork, the sooner the better. :D

He should definitely investigate class 2 NICs, 'cos if he qualifies they're just a fifth of the cost (note that class 2 NICs are only frozen in price for 1 year).

https://www.gov.uk/national-insurance-if-you-go-abroad has some details, including, at the bottom, links to contact and to the leaflet NI38 with form CF83.

bjmarren
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Re: Voluntary national insurance contributions

#331844

Postby bjmarren » August 9th, 2020, 7:13 am

Hi mc2fool,

I'm sort of piggy back on the back of this thread. I

[*(note that class 2 NICs are only frozen in price for 1 year).]
(note that class 2 NICs are only frozen in price for 1 year).

bjmarren
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Re: Voluntary national insurance contributions

#331846

Postby bjmarren » August 9th, 2020, 7:17 am

Hi again,

Sorry, my finger was a bit trigger happy! I need to pay Class 2 for 2018/19 and 2019/20 (employed abroad). Given that the Class 2 rates are only frozen for a year, do I have to pay the current 2020/21 rate for the 2018/19 year, given that they are now outside the time fame the frozen period. Hope that makes sense!

Brendan

mc2fool
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Re: Voluntary national insurance contributions

#331851

Postby mc2fool » August 9th, 2020, 8:40 am

bjmarren wrote:I need to pay Class 2 for 2018/19 and 2019/20 (employed abroad). Given that the Class 2 rates are only frozen for a year, do I have to pay the current 2020/21 rate for the 2018/19 year, given that they are now outside the time fame the frozen period.

Yes, exactly so. https://www.gov.uk/voluntary-national-insurance-contributions/rates

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Re: Voluntary national insurance contributions

#331974

Postby bjmarren » August 9th, 2020, 3:39 pm

Hi mc2fool,

Thanks for confirming.

Brendan

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Re: Voluntary national insurance contributions

#332340

Postby TahiPanasDua » August 11th, 2020, 9:22 am

As a side comment, let me be a lesson to all. I worked 42 years overseas and by the time I realized what a good deal paying voluntary national insurance contributions was, I was too late to start.

TP2.

Redman
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Re: Voluntary national insurance contributions

#383448

Postby Redman » February 3rd, 2021, 7:47 pm

I found the HMRC staff (using chat) very helpful when topping up. As long as you have done your homework and are sure what years you want to pay into, it's a doddle. They will tell you exact costs plus provide the relevant account details for you to make a bank transfer. You can also pay "in advance" if that's what you want (eg to get this all done in one go): for example pay now up until 2022. Amounts paid will not necessarily appear instantly on your Pension Forecast etc but they do get in there within a few months. Straightforward.

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Re: Voluntary national insurance contributions

#383598

Postby yorkshirelad1 » February 4th, 2021, 11:09 am

Lots of people posting that paying voluntary contributions offers in general a good return.
Wtihout being morbid, paying all those extra years voluntary contributions isn't a good return if you don't live long enough to pick up your pension....
And factor in that the state pension age keeps getting pushed further and further away.
If you're not close to state pension age, and only have a few years to catch up, you might like to wait a while...

tjh290633
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Re: Voluntary national insurance contributions

#383682

Postby tjh290633 » February 4th, 2021, 4:14 pm

yorkshirelad1 wrote:Lots of people posting that paying voluntary contributions offers in general a good return.
Wtihout being morbid, paying all those extra years voluntary contributions isn't a good return if you don't live long enough to pick up your pension....
And factor in that the state pension age keeps getting pushed further and further away.
If you're not close to state pension age, and only have a few years to catch up, you might like to wait a while...

The same applied to buying annuities. If you can pass the fund on to your heirs and successors, then a SIPP can make sense.

You have to look on the bright side of life, but perhaps life assurance might be a better choice if you start young. Pity that you can no longer get LAPR.

TJH

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Re: Voluntary national insurance contributions

#383727

Postby 1nvest » February 4th, 2021, 7:40 pm

Is it not the case that when living abroad and being paid the state pension that is a fixed amount rather than being inflated by CPI/RPI? So erodes over time?

mc2fool
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Re: Voluntary national insurance contributions

#383729

Postby mc2fool » February 4th, 2021, 7:44 pm

1nvest wrote:Is it not the case that when living abroad and being paid the state pension that is a fixed amount rather than being inflated by CPI/RPI? So erodes over time?

Depends on where you live. https://www.gov.uk/state-pension-if-you-retire-abroad/rates-of-state-pension

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Re: Voluntary national insurance contributions

#532006

Postby xiox » September 24th, 2022, 8:43 am

I filled in the form and I can apparently eligible to make Class 2 back payments. Can anyone tell me exactly how I can make these payments? This page https://www.gov.uk/pay-class-2-national ... nk-details suggests I can just make a transfer with a reference like 'QQ123456AICJONESA' (NI+"IC"+surname+inital). However, how do they apply any payments? Can I send one big transfer for several years and they'll allocate it to oldest first?

mc2fool
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Re: Voluntary national insurance contributions

#532013

Postby mc2fool » September 24th, 2022, 9:23 am

xiox wrote:I filled in the form and I can apparently eligible to make Class 2 back payments. Can anyone tell me exactly how I can make these payments? This page https://www.gov.uk/pay-class-2-national ... nk-details suggests I can just make a transfer with a reference like 'QQ123456AICJONESA' (NI+"IC"+surname+inital). However, how do they apply any payments? Can I send one big transfer for several years and they'll allocate it to oldest first?

Did they not give you any information by return on receiving your form?

In any case, if there's any possible ambiguity at all I'd send them a cheque along with a cover letter detailing which years you are paying for and write that on the back of the cheque too.


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