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Voluntary national insurance contributions

Financial discussion for any financial queries for Expats
swimmingincircles
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Voluntary national insurance contributions

#203414

Postby swimmingincircles » February 23rd, 2019, 12:18 pm

Dear All,

I am currently considering making voluntary national insurance contributions.

I know that I would need to consider my personal situation. However, I was wondering what the general consensus is.

Do the readers of the board think that it is preferable to make voluntary national insurance contributions?

Thank you.

tjh290633
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Re: Voluntary national insurance contributions

#203453

Postby tjh290633 » February 23rd, 2019, 3:56 pm

There used to be a very good case for paying voluntary contributions, as the return could be very good. I'm long past the age where this concerns me, but if you look at the potential returns it could, as "1066 and all that" put it, be A Good Thing.

TJH

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Re: Voluntary national insurance contributions

#203493

Postby Lanark » February 23rd, 2019, 8:07 pm

If the extra contributions mean you will get enough qualifying years to get a full state pension then they are worth buying.

You need at least 10 qualifying years to get ANY State Pension.
You'll need 35 qualifying years to get the Full State Pension.

Most workplace pensions are now contracted in so you will need to add up the qualifying years you already have plus the years you still intend to work.

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Re: Voluntary national insurance contributions

#203494

Postby Lootman » February 23rd, 2019, 8:15 pm

Lanark wrote:You'll need 35 qualifying years to get the Full State Pension.

It's only 30 years when computed under the old rules which, I suspect, are more relevant to anyone over age 50 or so who has been on good money.

So for example I will collect about 170 per week under the old rules, despite only paying in for 27 years. Under the new rules I'd get more like 130 per week. Even with 35 years under the new rules, I'd still get less. You get whichever computation is the better.

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Re: Voluntary national insurance contributions

#203508

Postby Lanark » February 23rd, 2019, 10:07 pm

I think the new rules apply to everyone who reaches retirement age after 6th April 2016

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Re: Voluntary national insurance contributions

#203510

Postby Lootman » February 23rd, 2019, 10:27 pm

Lanark wrote:I think the new rules apply to everyone who reaches retirement age after 6th April 2016

In terms of entitlement to a state pension that is not correct. The pension statement estimate that you receive from DWP is based on a computation of your entitlement under both the old and new rules, and you get the more favourable of the two. It's a shame that they don't give both numbers so that that is made more clear.

That is why the state pension I will receive, according to my latest pension statement, exceeds the maximum possible under the new rules despite the fact that I am 8 years short of the new 35 year requirement. The old rules have an earnings-related component. The new rules do not. So many people who have been well paid will get a pension computed under the old rules.

At some point everyone will be on the new rules, but that is a ways off for now. One friend of mine has just retired and is getting over 200 a week, again based on the old rules.

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Re: Voluntary national insurance contributions

#203516

Postby mc2fool » February 23rd, 2019, 11:38 pm

swimmingincircles wrote:I am currently considering making voluntary national insurance contributions.

I know that I would need to consider my personal situation. However, I was wondering what the general consensus is.

Do the readers of the board think that it is preferable to make voluntary national insurance contributions?

As TJH says, voluntary NICs have a potentially stonkingly good rate of return. For example for this current year the class 3 NIC costs £761.80 and that will add £244.18 per annum onto your state pension. So, as long as you live long enough to draw the state pension for at least 3 years and 2 months you'll be quids in (and in fact it's even better than that as the £244.18 will increase).

However, there are limits and situations under which it may not be worth making some (or even any) voluntary NICs, and with the transition rules for those retiring post 2016 but with at least some pre 2016 contributions it's not as easy as it was to figure out if that's the case or not.

What you should do, if you haven't already, is get yourself a State Pension Forecast. Preferably, if you can, online, or if that's not possible then by phoning or writing to the Future Pension Centre. https://www.gov.uk/check-state-pension

Having got that then post the information on the Pensions - Practical Problems board, which is the best place to ask and already contains several real life cases from posters. The information you'll need to present is:

The £ figures they give you.
The number of qualifying years up to and including 2015/16 you have.
The number of qualifying years from 2016/17 onwards you have.
Your COPE (contracted out pension equivalent).
Which years you have NI gaps for.

Note that if you have gaps for up to and including 2016/17 that you might want to fill, the price of NICs for those years goes up on the 6th of April, so time is short if you want to save a few quid on them.

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Re: Voluntary national insurance contributions

#203519

Postby JohnB » February 24th, 2019, 12:26 am

Ring the pension forecast helpline. They won't send you any paper details, but are happy to reel off loads of numbers from their screens for different scenarios. Have a spreadsheet and listen carefully.

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Re: Voluntary national insurance contributions

#203525

Postby BBLSP1 » February 24th, 2019, 6:30 am

I think it’s still worthwhile. I have been an expat for over 20 years and had paid voluntary Class 2 NI contributions to get me up to the then 30 years for a full state pension by tax year 10/11. However, the rules changed and now 35 years’ worth of contributions are required for the full pension. Due to the way it is structured, for me further contributions prior to 16/17 were of no value, so I have resumed contributions from 16/17.

You need to get hold of Form CF83 and ‘to whom it may concern’ letters confirming your employment – you have to be employed for voluntary Class 2, otherwise it is the more expensive Class 3. There are time limits on payment, and also the later you pay the cost goes up by a small amount.

For example, for 16/17 you would currently need to contribute £ 153.40 for Class 2, but after 05 April this year it becomes £156 and will go up again in 2020; you will no longer be able to pay for 16/17 after 05 April 2023.

For an investment now of £153.40 you will get approximately an additional £244.18 pa of pension (index linked) upon retirement. (Each additional year of payment gives you the current full pension of £8,546.20 divided by 35 years)

For other years the amount paid to get this £244 will vary and you need to check your own circumstances, especially to decide if additional contributions prior to 16/17 are worthwhile.

And of course, the rules of the game can change at any time!

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Re: Voluntary national insurance contributions

#203529

Postby BrummieDave » February 24th, 2019, 9:30 am

I have been trying to work out this exact issue for Mrs BD, whether it's worth buying some extra years.

It's so damn complicated!

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Re: Voluntary national insurance contributions

#203548

Postby Lanark » February 24th, 2019, 12:01 pm

Lootman wrote:
Lanark wrote:I think the new rules apply to everyone who reaches retirement age after 6th April 2016

In terms of entitlement to a state pension that is not correct. The pension statement estimate that you receive from DWP is based on a computation of your entitlement under both the old and new rules, and you get the more favourable of the two. It's a shame that they don't give both numbers so that that is made more clear.

That is why the state pension I will receive, according to my latest pension statement, exceeds the maximum possible under the new rules despite the fact that I am 8 years short of the new 35 year requirement. The old rules have an earnings-related component. The new rules do not. So many people who have been well paid will get a pension computed under the old rules.

At some point everyone will be on the new rules, but that is a ways off for now. One friend of mine has just retired and is getting over 200 a week, again based on the old rules.

Thanks, I found a page which explains this transition:
How is the new State Pension calculated?

Your NI record as at 6 April 2016 was converted into a ‘starting amount’ under the new State Pension.

This won’t be lower than the amount you would have received under the old system.
If your starting amount is higher than the full new State Pension

Under the old system, if you were employed (rather than self-employed) you paid Class 1 National Insurance which entitled you to the Basic State Pension and an Additional State Pension.

The Additional State Pension was based on your earnings as well as the National Insurance contributions you had made or been credited with.

If you had built up substantial entitlement to Additional State Pension this might mean that you have already earned a pension under the old system which is worth more than £164.34 a week.

If this applies to you, you will get the full new State Pension amount and you’ll also keep any amount above this as a ‘protected payment’ which will increase by inflation.

However you won’t be able to build up any more State Pension after April 2016.
https://www.moneyadviceservice.org.uk/e ... -explained


I suspect that for many people who are a ways off retirement, it will just mean that they reach full entitlement earlier, but as you have to keep paying NI until you do actually retire, that may not be much of a benefit.
I guess you could retire early if you have the savings to do so.

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Re: Voluntary national insurance contributions

#203551

Postby PinkDalek » February 24th, 2019, 12:16 pm

swimmingincircles wrote:I am currently considering making voluntary national insurance contributions.

I know that I would need to consider my personal situation. ...


This board being "International & Expat Investors" it might be an idea if the OP, who elsewhere wrote I recently became a non-UK resident. I now work in the Middle East. reads this for starters:

National Insurance if you go abroad
https://www.gov.uk/national-insurance-if-you-go-abroad

Check the conditions under Working in any other country in case they apply (I doubt they do) and also, just in case, If you work for the UK government or armed forces.

Then one could study https://www.gov.uk/government/publicati ... broad-ni38 (I haven't!).

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Re: Voluntary national insurance contributions

#203571

Postby JohnB » February 24th, 2019, 3:23 pm

The interbational NI helpline were a lot less useful to me. I rang them twice, and got different and conflicting information each time, and they couldn't advise on whether my time abroad would qualify me for class 2, just said fill in the form and wait for a case worker adjudication.

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Re: Voluntary national insurance contributions

#203752

Postby bjmarren » February 25th, 2019, 4:43 pm

Hi JohnB,

From my memory of being in your situation, which I admit was many years ago, the eligibility to pay Voluntary contributions depended on your situation prior to moving and working abroad. In my own case, I was working for a recognised Government Department and as such I was obliged to continue paying Class 1 contributions for the first 52 weeks whilst working abroad. After that I had the option of paying Class 3 or nothing, as long as I was working for the same organisation abroad. In my case this was the British Council (BC), who followed the same rules as if I was employed by the Diplomatic Service. As long as I was continued to be employed by the British Council, on a UK contract, I could continue paying Class 3 contributions whilst abroad. I eventually finished working for the BC, but stayed in the same country, but continued to pay Class 3 until I learnt that I could pay the vastly cheaper Class 2 contributions, as I had become "employed abroad or self employed abroad". I think the information from the NI helpline regarding "wait for a case worker adjudication" is related to them waiting to learn about your situation immediately prior to moving abroad, and your current situation, but that is soley based on my own experience of many years ago.

As far as I understand it, the option to pay Class 2 contributions has only been agreed up to the end of the 2018 financial year but I may be a bit behind the times on this.

Cheers,

Brendan

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Re: Voluntary national insurance contributions

#203775

Postby JohnB » February 25th, 2019, 5:49 pm

Its just as well I keep records back to 2006, as I couldshow I'd resigned from a UK company (just before they went bust) to work for an American organisation. The CF85 form is designed for future NI contributions, its an odd exercise filling it in from 12 years in the future. Its a gamble, as the waiting list for assessment is 8 weeks and I sent the form 8 1/2 weeks before the end of the tax year. One helpline advisor said the amount to pay was based on when I made the claim, not the answer, the other did not.

swimmingincircles
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Re: Voluntary national insurance contributions

#205653

Postby swimmingincircles » March 5th, 2019, 11:45 am

I am deeply thankful for everyone’s help. Thank you so much.


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