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Pensions by Mike Freer of BWCI
SEVERAL readers and friends have asked me to repeat my recent response about whether it is possible to pay UK National Insurance contributions to get a bigger UK state pension and, if so, whether it is worth doing so.
In many cases for British expats, that is correct. As always, it depends on individual circumstances.
To be eligible to pay Class 2 or Class 3 voluntary contributions, you must have either:
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Previously lived in the UK for three years in a row.
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Paid contributions or had Class 2 contributions treated as having been paid for at least three years.
To pay Class 2 voluntary contributions, both of the following must also apply:
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You must have worked in the UK immediately before leaving.
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You are currently working abroad (or you worked while you were abroad).
Many British expats may not realise that paying National Insurance contributions while abroad could be one of the smartest financial moves you make.
The full UK state pension is currently worth £11,502 per year. To replicate this with a private investment, you would need a lump sum of around £288,000 by the time you retire.
To save £288,000, you would need to save monthly, depending on your age and market returns.
For example:
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If you start at the age of 25, you would need to invest around £150 a month.
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If you started at 35, that figure would jump to £300 a month.
lIf you wait until you are 45, you would be looking at £600 a month.
This compares to paying Class 2 National Insurance contributions at just £3.45 a week, or Class 3 contributions at £17.45 a week, to secure your eligibility for a full UK state pension. It’s an incredibly cost-effective way to ensure financial security in retirement. You may also have the opportunity to pay “back years”.
Paying into the UK National Insurance while working overseas could save you thousands in future retirement costs.
Of course, nothing is risk-free, as the government could always change the rules but, for many, this risk will seem small compared to the types of risk associated with other types of pension provision.
To check whether you are eligible, please review the information at gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions
