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Introduction
New rules increasing the amount of National Insurance payment years needed to be eligible for a UK state pension may make it beneficial to prompt expats to top up their contributions. The changes come into effect on April 6, 2016, and affect anyone retiring after that date. Rather than needing 30 years of National Insurance (NI) payments to qualify for a full state pension, as is currently the case, retirees under the new regime will need 35.
This means that anyone who has missed out on paying NI due to being abroad may wish to consider paying top up contributions.
The idea of the new pension arrangements is to offer a flat-rate pension – expected to be worth around £155 a week – and do away with the other elements that currently make up the state pension, such as the additional state pension and savings credit.
Things to consider
– Fewer qualifying years of National Insurance contributions reduce the weekly amount accordingly.
– To qualify for any amount of the new pension in future, you will need to have at least 10 years of qualifying National Insurance (NI) contributions.
– If you are working abroad, you may still be eligible to pay NI contributions in the UK depending on where you are working, who for, and for how long.
Summary
Experts have recommended that expats and former expats seek advice on whether they should make voluntary contributions to plug any gaps in their NI contributions. The decision will depend on personal circumstances as it may be more prudent to put the money into a separate investment.
Dawn Register, partner at BDO Tax Dispute Resolution, said: “Financial advice considerations need to be taken into account as it largely depends on life expectancy and future intentions on where you are going to live. It may be worth checking whether or not you are entitled to a full state pension, and you can check by asking the National Insurance office. Then you can make a decision on whether you want to plug the gap.”
If you leave the UK you may need to decide whether you wish to pay voluntary National Insurance contributions while you are away. This is likely to depend on whether you plan to claim the UK state pension in the future, whether you’re likely to be returning to the UK and on the state pension entitlements you’ve already built up.
Either way, you should make sure that you understand the rules which govern your entitlement to the UK state pension.
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