Class 2 Voluntary Contributions, Living Abroad

Cortiz

I've just received my State Pension Statement from HMRC, saying that I've been approved to pay Class 2 contributions. They also listed the years and amounts I need to pay to make up my 5-year shortfall, to get even the basic pension allowed for 10 years of NI contributions.

I spoke to the Pension Service this morning and I thought I understood everything clearly until I read an article here on MSE. Here's my situation:

I'm 55, self-employed, and living abroad. Most of the years I can make up are either partial Class 3, or Class 2.  Only one is the full £800.  The Pension Service explained that paying those shortfall years will increase my weekly pension amount even if I don't get up to the full 35 years. They said the amount I'll have to pay now will pay for itself after 3 years of retirement. 

He also suggested I continue paying Class 2 Voluntary Contributions until I reach retirement age, as they will also improve my weekly pension rate. But here's my confusion: the MSE article says you can pay only a maximum of 16 years to make up a shortfall.  Do the future years count towards that? In other words, am I better off paying only the full Class 2 years since they're only £160 (10 years), and making up the remaining 6 years by continuing to pay each year going forward?  Or is it best to pay all the past 16 years, and continue to pay Class 2s for years going forward? 

Hope that all makes sense!

molerat

It is a maximum of 16 back years as that is all that is currently available.  Under normal circumstances you can only pay 6 years back, so currently to the 16-17 tax year, but under the transitional rules for the new 2016 pension you are allowed to pay back an additional 10, back to 2006-07.  This was done so that at the introduction of the new pension in 2016 everyone would have the chance of obtaining the minimum 10 years required. Those years, 2006-07 to 2016-17, cease to be available from April 2023 and the normal 6 year rule comes into play so back to 2017-18 until April 2024 and so on.

There is no limit on the maximum number of voluntary contribution years you can buy.

So it looks like it is a simple case of doing the sums as to what is best value - fill your boots on cheap earlier years and set up a payment going forward. Next year prices are likely to jump by 10%+ which will include 17-18 to 20-21.

I assume you are in a country where pension increases are applied - there are some where the pension does not increase from the date it first comes into payment.

bostonerimus

How many years do you have right now? is it 5? Between 55 and 67 you'll have another 12 Class 2 Voluntary years. So pay as many back contributions as you need to max out the pension.

So 5+12+16 will be 33 and you'll be very close to full new pension.

Dazed_and_C0nfused

bostonerimus said:

How many years do you have right now? is it 5? Between 55 and 67 you'll have another 12 Class 2 Voluntary years. So pay as many back contributions as you need to max out the pension.

So 5+12+16 will be 33 and you'll be very close to full new pension.

You're probably correct but even in this case wouldn't we need the op's current accrual to know how many years are needed to reach £185.15?

As there are pre 2016 years involved could there have been non contracted out years will have accrued more than a standard post 2016 year would?

bostonerimus

Dazed_and_C0nfused said:

bostonerimus said:

How many years do you have right now? is it 5? Between 55 and 67 you'll have another 12 Class 2 Voluntary years. So pay as many back contributions as you need to max out the pension.

So 5+12+16 will be 33 and you'll be very close to full new pension.

You're probably correct but even in this case wouldn't we need the op's current accrual to know how many years are needed to reach £185.15?

As there are pre 2016 years involved could there have been non contracted out years will have accrued more than a standard post 2016 year would?

Maybe, I'm just going by my experience. The OP says they need 5 years to make up the shortfall on 10 years so I assume they have 5 years of NI already and I also assumed that these were obtained when the OP was in the UK and that they have been out of the UK for a while. I left the UK at 25 with 5 years of NI from sixth form college and some summer work and then paid Class 2 up to 35 years when my state pension statement said I would get full flat rate pension. I wonder if the OP is in a similar situation, but just having to make catch up payments.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/74950909/#Comment_74950909
The OP says 

 I live abroad in the US, permanently most likely.

His post indicates study as a mature student and possibly a patchy earnings history.

bostonerimus

xylophone said:

https://forums.moneysavingexpert.com/discussion/comment/74950909/#Comment_74950909
The OP says 

 I live abroad in the US, permanently most likely.

His post indicates study as a mature student and possibly a patchy earnings history.

If the OP intends to stay in the US then I would advise them to do everything they can to make at least 10 years of US Medicare and FICA payments to ensure they get some US Social Security and post retirement healthcare.

Cortiz

Thanks for all the helpful replies. I wish the Pensions Service people were as clear!

Yes, I've been in the US for around 9 years. I was 20 years in the UK before that, though much of my 'employment' was in the form of grants and fellowships which aren't taxed, a working year in Republic of Ireland, and some years of self-employment for which I apparently didn't pay my contributions (not sure I even understood I was supposed to, to be honest ). I do think there were some errors on the part of HMRC because for quite a few years in the 90s I was in full-time employment and my record says the years are not full. Too late to query those now, though....

bostonerimus I have 5 full years. Some of the years I can pay voluntarily are partial, so for example one is only £79.  Two years show both class 2 and 3.  For example, 2009-2010 says £12.20 and £369.60 - so I guess I need to pay both to make up those years? 9 years are class 2 only, so only around £160 each. The others range from around £300-£800. 

molerat said:

So it looks like it is a simple case of doing the sums as to what is best value - fill your boots on cheap earlier years and set up a payment going forward.

Do you not think it's worthwhile to pay all the years I eligible for? As @bostonerimus suggested, '5+12+16 will be 33 and you'll be very close to full new pension'? 

Also, @bostonerimus I have a pretty solid US work history from age 16 to 25 or so, and have also been paying self-employment tax since I moved back. The Social Security website predicts my retirement as around $900 a month. 

Having said all that, I may be moving back to the UK after all.... I suppose the best thing is to keep both countries topped up as well as possible.

molerat

Do you not think it's worthwhile to pay all the years I eligible for? As @bostonerimus suggested, '5+12+16 will be 33 and you'll be very close to full new pension'?

It most likely is worth buying everything you can.  I just hadn't looked at the total years available.  Even at £800 it is still a good buy. Just do a simple spreadsheet with year cost, benefit from that year and total pension with that year added starting at cheapest to dearestt.  Just remember the clock is ticking on those old years.

hara____

Any practical tips for getting pension estimates / arranging contributions from abroad, from anyone who's done it recently?

I'm asking on behalf of someone else and I assume the first, simple step would be to submit a request for a pension estimate using the postal form, as Government Gateway probably isn't an option, so that rules out the online route.

xylophone

It might be possible to make an enquiry using this?

https://secure.dwp.gov.uk/ipc/personal-details