Don't Miss Out on the Opportunity to Boost Your UK State Pension

Insight | by Ranald Hall
Financial planning 1

Don’t miss your chance to fill any gaps in your National Insurance (NI) contributions. The UK government’s 5 April 2023 deadline for NI contributions is looming – so if you’re a man born after 5 April 1951, or woman born after 5 April 1953, make sure that you don’t let this important opportunity slip away. Get ahead by speaking with an adviser now – as it could mean greater financial security down the line.

To be eligible for the UK State Pension minimum payment, you need to have made at least 10 years of qualifying National Insurance (NI) contributions. If you have 35 years of NI contributions, you can expect to receive the full State Pension of £9,628 per year, and in April this will increase to £10,600 per year.

If you want to make up any shortfall on your NI record, you need to make additional NI contributions. If you’re working in the UK, this is easy as they are usually deducted automatically from your wages. Once you move abroad however, it’s up to you to pay them yourself. A six-year deadline usually applies to fill missed contributions, but a change to the state pension in 2016 resulted in a one-off longer concession to top up contributions missing between the financial years 2006-07 and 2015-16.

You might wonder why you should consider keeping your NI record up to date, particularly if you’re planning to retire overseas. The reason is simple – doing so has the potential for exceptional value for money, especially for some expats.

The benefit

Every additional year you purchase will entitle you to an extra £275.08 of guaranteed annual income from State Pension age. The cost of each missing year can be as little as £163.80 for expats who are currently working.

To highlight the potential benefit, using a UK expat in Australia as an example:

  • The current State Pension age is 67.
  • The average life expectancy in Australia is 83.
  • Over the course of a 16 year retirement, this would therefore equate to an additional £4,401.28 (£275.08 x 16) in State Pension income.
  • This would be equivalent to a whopping 2587% return on a deposit of £163.80. Not bad!

For someone with fewer than 10 years of NI contributions, purchasing additional years could allow you to make up enough of the shortfall to start qualifying for a partial State Pension.

How to check your State Pension entitlement

You can check your State Pension entitlement online via this link, alternatively you can check via post by completing this form. When you receive your confirmation, you will also be given details of any “missing years” from your record.

You can make up missing years by making voluntary NI contributions.

If you’re currently working, worked in the UK immediately before leaving and previously lived in the UK for at least 3 consecutive years, you can purchase voluntary “Class 2” contributions. These will cost you £163.80 for every year you want to make up. If you’re not working, you can make voluntary “Class 3” contributions at a cost of £824.20 per year.

You are currently able to make up missing years from 2006/07 onwards. This means you could add up 16 years to your NI record in one go. You can then purchase one additional year every April until you reach State Pension age.

An important deadline

From 6 April 2023 you will only be able to make up a maximum of six missing years in one go. This means it will take you longer to make up any significant gaps in your record. If you are closer to State Pension age, you may not have long enough to make up the whole shortfall.

If you have significant gaps in your NI records and plan to make them up quickly, you will have a better chance of doing so if you act before April.

If you’d like our help with any aspect of your retirement planning, or you have questions about managing your wealth in the most tax efficient way as an expat, pleaseget in touch with us today.

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