Life insurance direct. HOXTON CAPITAL, National Insurance, is it worth it?

I can still recite my UK National Insurance (NI) number off by heart. It was the first piece of fiscal ID that I’d been issued with as a teenager, and I needed it so often working back in the UK & EU. I still have the physical card, even though I’ve lived in the UAE for 5 years now! An odd piece of nostalgia, to be sure. (Don’t like reading? Skip to the Stats) National insurance.

I recently read an article about how gaps in my NI contributions could affect my UK State Pension, which made me think about that old red, white and blue card once again. Entitlement to certain State benefits and the amount I can get depends on my National Insurance Contribution (NICs) record, including:

Contribution-based jobseeker’s allowance

Contribution-based employment and support allowance

Gaps can be explained by being unemployed and not claiming benefits, or by earning below the contributions threshold for both employed or self-employed. Or simply by ceasing contributions when you move abroad, as is my case. Gaps can mean you will not have enough years of NICs to get the full State Pension (sometimes called ‘qualifying years’).

It would be a shame to lose out on your full pension because of missed contributions, especially if you’re only abroad for a short period of time. Thankfully, there are options for plugging those gaps! This relates to those of us living in a non-EU/EEC country or a country without a bilateral social security agreement, such as the UAE.

Firstly, you need to check your NI record to find out:

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(a) if you have any gaps – if yes, proceed to scenario (b)

(b) if you’re eligible to claim credits – if yes, proceed to scenario (d), if no, proceed to scenario (c)

(c) if you’re eligible to pay voluntary contributions – if yes, proceed to scenario (d), if no, look at your other options regarding pensions!

(d) how much it will cost versus the benefits

If the above seems as simple as a “choose your own path story book”, like many things with HMRC, it isn’t!

Scenario (b) You may be eligible for credits if you claim benefits because you cannot work, are unemployed or caring for someone full time. In some cases it depends on a spouse’s or civil partner’s contributions.

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Scenario (c) Up to 6 years’ voluntary contributions can be back paid. Generally, eligible expats can pay Class 2 NICs which count towards your State Pension when you retire and entitle you to Employment and Support Allowance and bereavement benefits if and when you return to the UK. There are also deadlines and time limits for paying voluntary NICs. However, HMRC has extended the time limit if the person reaches State Pension age on or after 6 April 2016 and makes payment by 5 April 2023. The rates payable will depend on the timeframe in which contributions are made.

Confused? I was. HMRC recommends taking independent financial advice regarding NICs, and our consultants can assist with checking your record, determining the path forward and completing the various forms.

But is it worth it? In our opinion yes, it is absolutely worth it and here is why.

Full state pension is currently £164.35 per week or £8,546.20 per year. To receive this amount you require 35 full qualifying years.

Class 2 voluntary contributions are £2.65 per week or £137.80 per year.

Class 3 voluntary contributions are £13.25 per week or £689 per year.

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The average life expectancy in the UK is currently 86, so someone receiving full state pension benefits will receive £179,466 over the course of their retirement.

On average the expats we come across are missing 10 years of contributions. Assuming they also live to 86 they would receive £128,184 over the course of their retirement. That’s £51,282 less.

If the expat missing ten years paid those voluntarily on Class 2, it would cost them £1,378. So assuming they live to 86, that’s a return of 3,721.48% on what they paid in.

If you know you need to look into this or are unsure about your options please get in touch with us and we will be happy to help.

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