UK National Insurance and the State Pension - here's what expats need to do (step-by-step)
Are you a British expat with gaps in your National Insurance contributions between 2006 and 2016?
You can breathe a sigh of relief...
The government has extended the deadline for securing a complete UK State Pension, until the 31st July, 2023. The government's decision gives expats more time to organise their paperwork, following numerous reports that vital government helplines have been uncontactable in the lead-up to the original deadline of 5th April.
This new deadline will help those with gaps in their National Insurance records between 2006 and 2016, who don't currently meet the requirements for a full state pension.
Why bother filling in the gaps?
Eligible Britons with incomplete years in their National Insurance record could, in theory, be financially better off in their retirement if they make voluntary payments to top up any incomplete or missing years.
This can prove to be a highly advantageous move, as some individuals can spend as little as £800 to bridge any gaps in their records and receive returns of £5,500 or more.
After July, you’ll still be able to make backdated contributions, but it will be limited to the last six years.
The 'transitional arrangements', which were implemented during the introduction of the new State Pension system in 2016, are also soon to be discontinued. These arrangements aimed to provide those under 70 with additional time to gather 'qualifying' National Insurance years, enabling them to meet the eligibility criteria for receiving the full new State Pension.
Simply put, anyone with gaps in their National Insurance record from April 2006 onwards now has more time to decide whether to fill the gaps to boost their new State Pension, and any payments made will be at the lower 2022/2023 tax year rates.
If you were to buy a guaranteed secure income on the annuity market, equivalent to the full UK State Pension, it would cost around £185,000. So for the minimal contributions that expats pay, it’s definitely worthwhile.
What's the new State Pension?
You'll be able to claim the new State Pension if you're a man born on or after 6 April 1951 or a woman born on or after 6 April 1953. The earliest you can get the new State Pension is when you reach State Pension age.
If you reached State Pension age before 6 April 2016, these rules do not apply. Instead, you’ll get the basic State Pension.
You can see the latest calculations from HMRC here.
To secure the maximum benefit, 35 years of contributions are required, with a minimum of 10 years of contributions to secure any benefits.
What does it mean for British expats?
Expats typically have larger National Insurance gaps on their records, but British expats living overseas do not need to be resident in the UK to receive the new State Pension. And, for certain countries, the cost of living rises will be applied even when living outside the UK.
Applying for Class 2 contributions could save you thousands - but be quick
There are different classes of National Insurance contributions:
- Class 1 contributions are paid by employers and their employees in the UK.
- Class 2 contributions are paid by self-employed people in the UK OR people employed or self-employed abroad.
- Class 3 contributions are voluntary NICs paid by people wanting to fill gaps in their contributions record.
Individuals living and working overseas may – under the right conditions* – qualify to pay Class 2 (currently £179.40 per year) rather than Class 3 contributions (currently £907.40 per year). Clearly, if you're filling gaps of many years, this could save you thousands of pounds.
*before going abroad, you paid 3 years of National Insurance since April 1975.
Unfortunately, applying for Class 2 adds an additional step to the process, as you'll need to receive approval/confirmation from HMRC to prove you qualify, before you can begin the payment process.
Step 1: Complete the CF83 form following our guide below, so HMRC can update their records with the correct rates.
Step 2: Where you are looking to repay any past years, attach a cover letter to the form, explaining which years you wish to pay, your residence history and that the rates for those years should be Class 2. HMRC will the send you a confirmation of the rates for any historic payments, and a reminder each year to pay future contributions.
This will add time to the process, so you need to move quickly to meet the July deadline.
You can check how many years of contributions you've already made here.
Who should fill in these gaps?
This will be worthwhile doing if:
- you're unlikely to return to work in the UK for some time;
- you're intending to retire before the UK State Pension age (currently 67); or
- you want to maximise your UK State Pension.
It may not be worth making voluntary contributions if:
- you've already contributed for 35 years (or will be working in the UK at any point where NICs are paid anyway);
- you have a short life expectancy;
- you intend to retire in another country which is not the UK; or
- you've already reached State Pension age.
How to make contributions
We've compiled a complete, step-by-step guide on the steps you need to take to plug any gaps in your National Insurance contributions. Because of time pressures, this guide relates to Class 3 contributions (the more expensive, but quicker option).
While some short-term pressure has been relieved by the extended deadline, it’s important to continue the process as quickly as possible.
By making these voluntary contributions, British expats can secure a reliable income that protects them against the ever-increasing costs of living. This is a valuable opportunity that should not be missed.