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By Mike Freer, of BWCI
A READER has been in touch to ask whether it is still correct that they can pay UK National Insurance contributions to get a bigger UK State old-age pension and, if so, whether it is worth it.
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:
- Previously lived in the UK or three years in a row.
- 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:
- You worked in the UK immediately before leaving.
- You’re 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 £11,973 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:
- Starting at age 25: You’d need to invest around £150 a month.
- Starting at age 35: It jumps to £300 a month.
- Waiting until age 45: You’re looking at £600 a month.
This compares to paying Class 2 National Insurance contributions, at just £3.50 a week, or Class 3 contributions at £17.75 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” – typically the past six years.
Paying into NI 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, you can visit gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions.
