The details of paying Class 2 contributions from abroad

Suhusa

Hello everyone,

I'm thinking of paying voluntary Class 2 contributions from abroad. I'm reasonably sure that I qualify for them, I know how to apply to pay them  and I also know how money years I'd have to make up to get the full amount of state pension, but what I can't find is how things work once I've started paying. I'd probably go for yearly payments, so I assume that I'd get a letter telling how much to pay each year. But my big question is how I could opt out of paying later if I needed to - it might be that I need the money for something else or that paying in foreign currency gets massively more expensive so paying the contributions effectively stops being a good investment. In the leaflet financial penalties are mentioned for late payments, so I don't think you can't just not pay once you've agreed to pay. Is there a way to opt out of paying Class 2 contributions from abroad (for example on the assumption that I'll get a yearly letter, would there be a box saying that you'd like to stop paying that you can tick) or are you locked into paying Class 2 contributions until you reach state pension age? I can't find anything in the official guidance on how to stop paying Class 2 contributions from abroad, but I'd like to know this before I start applying to pay them. I know there are a few forum members who do pay Class 2 contributions while abroad, so I'd be very grateful if you could clear this up a bit.

nigelbb

How can there be penalties for late payment? These are voluntary contributions.

Suhusa

I fully agree with you that it's ridiculous to have late payment penalties on voluntary payments, but it says so in the section titled 'Deciding whether to pay voluntary NICs' of leaflet NI38.

nigelbb

Suhusa said:

I fully agree with you that it's ridiculous to have late payment penalties on voluntary payments, but it says so in the section titled 'Deciding whether to pay voluntary NICs' of leaflet NI38.

It's an unfortunate choice of words. It's not really a penalty although you can regard it as being penalised for paying late by having to pay the current rate for Class 2 rather than what was the rate for that year.

Suhusa

Ah. In that case I'll apply to pay Class 2 contributions. (Frankly the UK must be mad to offer this so cheap, not that I'm complaining).

bostonerimus

I've been paying Class 2 voluntary NI since 1990. Here's what happens:

I get a letter from HMRC every year with a bill for my annual payment. They have neglected to tell me that I now have 35 years of contributions and more payments won't increase my pension under current legislation, although that information is on my pension forecast. Last year Class 2 NI was 158 GBP, so if you can't afford that you are in trouble. I used to send a GBP cheque in the mail to pay this bill, but now just do a direct transfer from my US bank into the HMRC account. Then I check for the NIC credit on the HMRC Government Gateway.

If you don't pay for two years HMRC will stop sending you a bill, there is no penalty for not paying this Class 2 NI, because it's voluntary, but you'd be a fool not to pay as it's so ridiculously inexpensive for what you get. I estimate over my lifetime I've paid between 5k and 6k GBP into the UK NI system and I now qualify for a full SP at age 67. By then a single year's SP will probably be more than twice my lifetime payments.

Suhusa

Thank you, that is the sort of detailed explanation I had hoped for. I plan to go for the yearly lump sum (via Wise, which is massively cheaper than a transfer from my bank).

I'm aware that Class 2 contributions are ridiculously cheap - which is why I intend to pay them because there's literally no other way to save for your pension that gives you that much value for money (£1.67 out for every pound paid in just in your first year of receiving the pension, to be precise - so if you assume average life expectancy, the return is positively insane). But I'd like to know what I'm getting myself into in case of unforeseen events. Right now £164 are very little money for me, but due to health problems I've been in the situation where I wouldn't have been able to afford this payment.

bostonerimus

Suhusa said:

Thank you, that is the sort of detailed explanation I had hoped for. I plan to go for the yearly lump sum (via Wise, which is massively cheaper than a transfer from my bank).

I'm aware that Class 2 contributions are ridiculously cheap - which is why I intend to pay them because there's literally no other way to save for your pension that gives you that much value for money (£1.67 out for every pound paid in just in your first year of receiving the pension, to be precise - so if you assume average life expectancy, the return is positively insane). But I'd like to know what I'm getting myself into in case of unforeseen events. Right now £164 are very little money for me, but due to health problems I've been in the situation where I wouldn't have been able to afford this payment.

You're not committing to anything, you can stop any time you want. The only small worry might be that if you return to the UK you will end up paying enough mandatory NI payments to get full pension and the voluntary NI will have been worthless, but at 164 GBP a year it hardly matters so it's a no brainer to pay Class 2 if you can as the down side is trivial and the upside is enormous.

Dazed_and_C0nfused

They have neglected to tell me that I now have 35 years of contributions and more payments won't increase my pension under current legislation, although that information is on my pension forecast.

But at the moment 35 years doesn't guarantee most people the standard new State Pension.

If you have only paid NI or got qualifying years after April 2016 it would but the vast majority of people 35 years isn't relevant.

bostonerimus

But I do qualify for full new SP with 35 years. When I was approaching 30 years HMRC wrote to me to say that paying more voluntary NI past 30 years of contributions would not get me more pension. They then wrote to say that the rules had changed with the introduction of the new SP and I needed 35 years. My pension forecast does now say that I cannot get more SP with more NI contributions "under current legislation", but no one at HMRC thought to notify me of that like they did under the previous rules. I continue to pay Class 2 because the rate is so low, to help Rishi out and as a bit of cheap insurance against further rule changes.

Terron

bostonerimus said:

 They have neglected to tell me that I now have 35 years of contributions and more payments won't increase my pension under current legislation, although that information is on my pension forecast. Last year Class 2 NI was 158 GBP, so if you can't afford that you are in trouble. 

Why should they inform you? NI does not just cover pensions. It also gives you entitlement to some benefits, so it is not like you are paying for nothing (though maybe nothing you want).