Living abroad and National Insurance Contributions

Doozergirl

My sister-in-law has asked me to post a question on her behalf - hope this is the right board and that someone can advise! Thanks in advance

"I am 40 years old. I am from the UK, was a student for 6 years, and then worked for 3 years. Since 1999 I have worked and lived in the USA and Canada. Unknowingly, during that time I did not pay National Insurance Contributions.

My question is, is it worth me paying back voluntary NICs for those years abroad? And also if it’s worth paying NICs from now on? I have been given the opportunity to back-pay voluntary NICs to 1997 by HM Revenue & Customs with a deadline of Dec 17 2009. I have been categorised for Class 2 payments (which I appealed against and lost), and this averages out to be approx £400 per year. After the Dec 17 2009 deadline I can only pay back from 2003 onwards at a penalty rate of approx £626 per year. I have not been told what my future payments will be but for the 2009-2010 tax year the payment is £626.

I hear lots of different things coming from the UK about the pension age being increased, and maybe even that there may not be any state pension to collect by the time I reach retirement age when I’m 60 years old in 20 years, or even 30 years time if new age limits are implemented!

Please can you help me to decide if I should pay at all knowing the way UK state pensions are going. Am I best taking that same money and investing in a personal private pension instead?

[FONT=&quot]Thank you very much, Michelle"[/FONT]

seven-day-weekend

Right. First of all, her State Pension age will be 65, as women's pension age increases in stages to equal men's from 6th April 2010.

Secondly, she will need 30 years' worth of NI to get full State Pension. She has 25 years to pay it in, and already has three year's worth. So she can build up virtually a full British State Pension, even if she does not buy any previous years.

If she can buy back from 1997, it will be even easier for her to attain the full amount.

Who knows whetehr there will be a State Pension by that time? I personally think there will be, but no-one knows, do they,it's up to her if she wants to pay or not.

I am not a Pensions professional, this is my own personal opinion.

olly300

The pension age has been changed so your sister will be retiring when she is 65 not 60.

I don't know when your sister got her pension forecast but it may be a good idea to get another one as anyone retiring after April 2010 will need 30 years NIC to claim a pension.

EdInvestor

I'd say it's worth her while as under the new rules she only needs 30 years to qualify for the full state pension and she will probably be half way there after paying the back conts. As a working expat she can pay class 2 conts, which after 2000 were reduced in price and now cost around £10 per month, bargain.(Non working expats have to pay class 3 conts, a lot more expensive.) Suggest she checks these costs with the office in Newcastle, as she seems a bit confused.

Of course guessing the future of the state pension is a political judgment but it seems unlikely any political party would ever drop it - indeed the plan is to raise it in future by levelling out the second state pension (which she won't get, so she would benefit from that move.)

Has she paid into social security or equivalent in the US and Canada?If so she should check if this will count towards her UK state pension entitlement when she retires.

seven-day-weekend

olly300 wrote: »

The pension age has been changed so your sister will be retiring when she is 65 not 60.

I don't know when your sister got her pension forecast but it may be a good idea to get another one as anyone retiring after April 2010 will need 30 years NIC to claim a pension.

A FULL Pension, yes, but a partial pension can be drawn if the person doesn't have the full 30 years.

Doozergirl

Thanks for the answers so far, definitely helpful. I have sent her a link to this thread so hopefully she will be able to register herself otherwise I am sure she will email me any more questions/answers.

Out of interest, how much is full state pension these days? Presumably more than £400 a year and therefore a safer bet than using that same sum of money each year to try and raise a similar sum from a private pension?

seven-day-weekend

The basic State Pension is £95 a week as of 06/04/2009. It rises every year in line with RPI. However, expats in some countries don't get the rises but only the basic that they started with, but I'm not sure or not whether USA falls into this.

EdInvestor

Expat pensions are uprated annually in the US for inflation but not in Canada.There is a minimum uprating annually of 2.5% regardless of RPI.Most people also get additional earnings linked state pension under the SERPS/S2P scheme, but this won't apply in this case. As a guaranteed index linked income, the state pension is very cheap especially for those who can pay class 2 conts ,a bargain which shouldn't be missed.

Doozergirl

She's marrying a Canadian so I'm going to presume that they might end up in Canada. So her pension won't increase in line with inflation? Does that mean that she will be given the going rate when she hits 65 and it won't increase each year?

Does that still make it a no brainer? Presumably yes but I'm totally ignorant on stuff like this.

seven-day-weekend

Yes, I think, based on what Edinvestor says, if she moves to Canada, she won't get the increases.

If she ever moves to the UK (or any other part of Europe), or the USA, then she will be able to get them.

I personally still think it is worth doing. It is a guaranteed pension amount, which you can't guarantee (afaik) with a private pension and in many countries it is index-linked. However, I am not an expert.

DoozerCanadagirl

Really appreciate the useful feedback. Am trying to get more savvy about these things.

In answer to some of the questions posed:
I did get my pension forecast recently in June 2009, and yes sorry, I got mixed up earlier with my class2 - class3 thing, but I can definitely confirm that unfortuntaly, I have to pay Class 3 contributions which are 4-5 times more expensive than Class 2 NI (back payments are approx £7-8 per WEEK depending on the year, approx £400 per year). However, my HMRC letter says for tax year 2009-2010 and I'm guessing onwards, payments will be £12 per WEEK (£620per year).

If I do back-pay I will have acquired 18 years in total out of the required 30, so 12 years of payments remaining.

Also as some of you have said, in Canada (where I now live) the UK pension is not index-linked. Apparently, expats are petitioning to have it changed, but who knows if that'll happen!

Also, FYI- I am paying social security in Canada that only build towards a pension in Canada and cannot be applied to the UK NICs.

Ok, even after all this, is it still a no-brainer?
Thanks