Welcome to this week’s On The Money newsletter.
Did you know that if you worked in the UK, you could well be entitled to a British state pension – even if you are already claiming a State pension here, or will be entitled to one in the future.
And, if you act quickly, you could enhance that pension considerably.
The British tax authorities are allowing people to purchase up to 17 years of voluntary national insurance contributions – either to take them above the 10-year threshold that you need to secure a minimum state pension or get closer to the 35 year figure required for a full pension.
There are tens, possibly hundreds of thousands of Irish people who have come back here or moved on to other countries who stand to benefit from this offer.
But the clock is ticking. If you have not bought those extra years by April 5th, the purchase of voluntary national insurance stamps returns to its normal six-year limit.
That deadline has already been extended twice – it was originally due to close two years ago – so I would not gamble on it being further extended.
So how much does it cost, how much do you stand to gain and how do you go about it?
Pension
The UK state pension is currently payable at up to £221.20 (€265.36) a week. To get that amount, you will need to have at least 35 years of national insurance contributions – the UK version of our PRSI. They can be contributions you paid while working there, credited contributions that might have been paid when you were unemployed of on maternity, or voluntary contributions that you paid to beef up your record.
If you don’t have 35 years on contributions, you will qualify for a pro rata partial state pension as long as you have a minimum of 10 years contributions on your national insurance record.
To work out what that might be, you multiply the £221.20 figure by the number of years you have on your UK social record, and divide the result by 35.
So, at the bottom end your 10 years of national insurance will get you a weekly payment of £63.20 – (221.20 X 10) / 35. That’s still €75.82 a week in our money, or close to €4,000 a year.
So, assuming you qualify – and you certainly should be able to given they are now allowing you buy up to 17 years worth of cover, assuming you can cover the cost – you will get somewhere between £63.20 and £221.20. Of course, given we will tip into a new UK tax year after April 5th, those figures will be adjusted upwards.
Cost
Of course, the big question for most people will be how much all this is going to cost?
That depends. If you are still working, you are likely to be paying Class 2 contributions. These are charged at £3.45 a week – or £179.40 for the full year. If you are paying for the 2021/22 tax year, the rate is a more modest €3.05 a week, and €3.15 for 2022/23, but all other years will be at the current rate.
Otherwise, you could be paying Class 3 contributions which currently cost £17.45 a week, or £907.40 a year.
As Davy stockbrokers explains it, Class 2 contributions apply to anyone living abroad and working abroad, but only if you worked in the UK immediately before leaving, and you lived in the UK for at least three years in a row or paid at least three years of contributions.
Otherwise, you might be eligible for Class 3 contributions which apply to people living outside the UK and not working. Again, you must have lived in the UK for at least three years in a row or paid at least three years of contributions.
So, for someone who worked in the UK for only three years before coming home or moving elsewhere and who is looking to buy seven years at Class 2 to access the minimum pension, they would be paying between €£1,219.40 and £1,255.80, depending on which years they were buying back.
That would be a no-brainer as it would give them a pension of £63.20 on today’s values, or £3,286.40 a year where otherwise they have no access to any pension.
And if they have only three years work history in the UK, the six years they will be allowed to buy after April 5th will still leave them short.
For those who are already eligible for some UK state pension, each extra year of contributions – at between €158.60 and €179.40 under Class 2 – would give them an additional weekly pension of €6.32, or €328.64 over a year.
On that basis, even allowing that the pension will be taxed, it would pay dividends within a year.
If you are on Class 3 contributions, the payback would be longer, with Davy estimating it at around six years.
The pension payable – and therefore the figure on the weekly benefit for every extra year of pension acquired – is revised every tax year, which in the UK, runs from April 6th in one year to April 5th the following year.
The UK pension is normally payable when you turn 66 – although that figure is due to rise to 67 at some point between 2026 and 2028 – affecting anyone born after March 1961.
Those born later than April 6th, 1978 may find themselves waiting until they are 68 on current plans although there is talk of bringing that date forward.
Given the average Irish woman lives to 84 and men to 81, there will be plenty of time to enjoy the benefit of your investment.
As in Ireland, you can defer your UK state pension. If you do, your weekly pension will rise by 1 per cent for every nine weeks you defer – or 5.8 per cent if you defer a year. But, given it would take close to 20 years to recover the year’s pension payments forgone, it doesn’t really make sense for most people.
Process
To make a voluntary contribution to your national insurance record from abroad, you need to fill out a form CF83. This can be done online (which is the most efficient way of doing it) or you can print out the form, fill it in and return it.
You’ll need your name, address, date of birth and national insurance number. You’ll also need details of when you left the UK, your UK employment before that, details about your current job and whether you are claiming any welfare.
If applying online, you’ll also need your passport and a phone with a working camera for identification purposes.
You’ll also need to have – or set up – Government Gateway access which can be done at www.gov.uk.
The form – certainly the print version – allows you to indicate that you are “requesting information” about gaps in your record or applying to pay voluntary contributions for future years.
Where you request information about your gaps, His Majesty’s Revenue and Customs (HMRC) says they will write to you to confirm which gaps you are eligible to pay and at what rate.
That’s all very well, but what happens if you cannot find your old national insurance number?
If none of that works, you may have to fill in Form CA5403. Once you have filled out the details requested, you need to print out the form, sign it, and post it together with documents proving your identity to: National Insurance contributions and Employers Office, HM Revenue and Customs, BX9 1AN.
It’s not quite as easy as that may sound as the form looks for your old addresses in the UK together with dates of when you lived where. It will also want details of your employment history.
And if, similiar to this writer, it is decades since you lived over there, the likelihood of having those details to hand is remote – and the odds of dragging them from your memory even less likely.
Either way, time is tight so this is not something you want to long finger if you have any intention of taking the UK authorities up on what is, for most people, a very generous offer.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter by Conor Pope on whether you might be entitled to a tax refund, you can read it here.
