Making up shortfalls in the UK State Pension
In order to qualify for the full UK State Pension 35 years of National Insurance Contributions (NICs) are now required for both men and women (previously 30 years). The qualifying period changed with the introduction of the new State Pension on 6 April 2016. So, whether you live abroad or live in the UK you may wish to consider making up any shortfall.
What can you do if you have a gap in your National Insurance record? It is possible to have some gaps in your National Insurance record and still get the full new State Pension. However, too many gaps can affect the amount of Pension you receive and you may wish to pay voluntary National Insurance contributions to fill these gaps. Many people who are close to the State Pension age have been caught out by the increase in the number of qualifying years required and have found that whereas previously they were entitled to a full State Pension as they had 30 qualifying years, they are now falling short. Deciding whether to pay voluntary NICs while living abroad Depending on your particular situation, you can generally choose to pay either Class 2 or Class 3 NICs while abroad if you wish to protect your entitlement to some social security benefits and make up any gaps in your National Insurance Contributions record. There are some points to bear in mind when deciding which Class of NICs you wish to pay. Also, you must pay 52 voluntary NICs for every tax year for which you choose to pay, paying less will not give you a qualifying year.
Class 2 National Insurance Contributions You can pay Class 2 NICs if you’re employed or self-employed abroad and if you satisfy the following conditions*: 1. You’ve lived in the UK for a continuous 3-year period at any time before the period for which NICs are to be paid, or 2. Before going abroad you paid a set amount in NICs for 3 years or more (this will be checked when you ask to pay Class 2 NICs), and 3. In addition to conditions 1 and 2, you must also, immediately before going abroad, have been ordinarily an employed or self-employed earner in the UK. Note: Voluntary payment of Class 2 NICs does not give cover for health care abroad in any circumstances.
Class 3 National Insurance Contributions You can pay Class 3 NICs whether you’re working abroad or not*. Class 3 NICs are particularly suitable for those who have retired abroad.
You can pay Class 3 NICs if: ⦁ you’ve paid Class 1 NICs for the first 52 weeks of your employment abroad, or you satisfy either of the following conditions ⦁ you’ve lived in the UK for a continuous 3-year period at any time before the period for which NICs are to be paid ⦁ before you went abroad, you paid a set amount in NICs for 3 years or more (this will be checked when you ask to pay Class 3 NICs) Note: Voluntary payment of Class 3 NICs does not give cover for health care abroad in any circumstances.
Special Rules if you’re living abroad but are employed by a UK company *Special rules apply where you may need to pay Class 1 NICs for your first year abroad if you were employed in the UK and continue to be employed by a UK company after you’ve moved. Class 1 NICs are payable by you and your employer for the first year just as if you were employed in the UK. The rates are the same and your employer will deduct your contribution from your salary and pay it to HMRC on your behalf. After the first 52 weeks you may wish to pay either Class 2 or Class 3 NICs on a voluntary basis to protect your entitlement to benefits.
What benefits does each Class of National Insurance provide? The class of NICs you pay affects the benefits you can get. The following table shows which NICs count for which benefit.
Other benefits are non-contributory (you do not have to pay NICs to get them) but you must meet the conditions that apply, eg; Attendance Allowance. The rates for UK NICs are the same whether you live in the UK or abroad. For the 2019-20 tax year the level of National Insurance contributions are £3 per week Class 2, and £15 per week Class 3, so those who are still working abroad are likely to opt to pay Class 2 rather than Class 3 as clearly this is the cheaper option. If you would like to pay voluntary NICs you should apply using Form CF83 and send it to HMRC using the address on the form. If you are entitled to pay both Class 2 and Class 3 NICs, you can change from one to the other as you choose by filling in form CF83. But you cannot change from Class 3 to Class 2 NICs if you’re not working or self-employed.
Paying National Insurance for previous years that you’ve missed To fill gaps, Class 2 and Class 3 NICs must normally be paid before the end of the sixth tax year after the tax year in which they were due. However, due to the change in the requirement from 30 qualifying years to 35 qualifying years when the New UK State Pension was introduced on 6 April 2016, special provision has been made to enable people to fill earlier gaps.
Special Provisions and the New UK State Pension Special provisions apply to make sure that the new State Pension does not disadvantage those who reach State Pension age after 6 April 2016. The government extended the time limits for paying voluntary NICs for the tax years between 2006 to 2015. You have until 5 April 2023 to pay them. Special provisions also apply if you reached UK State Pension age between 6 April 2008 and 5 April 2015 and do not receive a full UK basic State Pension. If these circumstances apply to you, and if you meet certain other conditions, you may be able to improve your basic State Pension by paying up to six extra years of Class 3 NICs for years going back to 1975. You only have 6 years from the date you reach State Pension age to pay these for any of these years. For more information, go to: www.gov.uk/voluntary-nationalinsurance-contributions (These special provisions do not apply to voluntary Class 2 NICs.)
Using your spouse’s National Insurance Record to boost your State Pension Entitlement If you’re married or in a civil partnership and you reached State Pension age before 6 April 2016, you may have been able to use your spouse’s or civil partner’s National Insurance record to increase your basic State Pension. If you reach State Pension age after 6 April 2016 you are not be able to increase your State Pension using your spouse’s or civil partner’s National Insurance record. For more information, go to www.gov.uk/state-pension- through-partner
Statement of your National Insurance account You can ask HMRC for a statement of your National Insurance account. It will tell you how much, if anything, your shortfall is, whether you are able to make up that shortfall, and how you can pay if you wish to do so. You can request your statement by calling + 44 191 203 7010 or writing to: National Insurance contributions and Employers Office HM Revenue and Customs BX9 1AN If you would like assistance from us contact email@example.com
Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your investment planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings. Our Principal, Andrea Speed, is a Qualified Pension Specialist and a Fellow of the Personal Finance Society (PFS) which is the professional body for the financial planning community. The PFS is part of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels. Along with a Fellowship, Andrea is a CII Chartered Financial Planner specialising in Pensions, Investment, Taxation and Trusts. Please take a look at our website – www.speedfinancialsolutions.com For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates. The contents published are not recommendations or decision aids for your investment decisions and they do not constitute any type of advice. We are not tax advisers and independent tax advice should always be sought. Andrea J Speed FPFS (DM), M.A. Principal, Fellow and Chartered Financial Planner Speed Financial Solutions 29 September 2019