Help deciding how best to use pension options (international citizen)

stingingbee42

Hiya,

I am in my early 30s. I have done a PhD, which means that I don't have many full years contributing to NI or a pension fund, and I want to get back on track for pension planning and then some in the coming few years. Some info:

• I have four years fully paid NI; three years no paid NI; four years partially paid.
• Of the partially paid NI years, the cheapest to backfill (for which I have until April 2025 to do) is two years at a cost of ~£550 each.
• My state pension is projected to be the full amount as long as I work until 61.
  
• I have a stocks and shares ISA of ~£5,500 that I contribute £175/month (not a particularly risky profile--I consider this my emergency fund), a savings pot with a high interest rate that I'm currently building up again after a family emergency (will be contributing ~£200/month), but otherwise no savings besides a few bits and bobs in cash pots with a high interest for short term goals (e.g. holiday to see family abroad). 
• I am not a UK citizen and whilst it's likely that I will spend another five years working here and paying into NI (thus reaching the minimum for State Pension), I likely won't be here my full working career.
  
• My medium-term savings goals include further building my ISA out to be 6 months of emergency funds, wedding (£5k budget), maternity leave (in 2 years). I would like to buy a house for the equity building, but don't see this as particularly possible due to the area of the UK we live in and the fact that we don't have access to large lump sums for the deposit. I'm also cautious of investing the equity when again, not sure if we'll stay in the UK for that long.

My current workplace pension is not particularly lucrative. They contribute 3%; myself 5%. There's no additional contributions from my workplace. I want to start contributing 17% (a little bit more than half my age), but I'm wondering if it's better to split the 17% amongst different pensions. For example:

• 5% into my workplace pension, given my workplace won't contribute beyond 3%
• 10% into a SIP
  
• 2% into an aggressive SIP or stocks and shares ISA profile
  

I also have a previous workplace pension that I need to decide what to do with.

I'm interested in growing both my long-term savings and my pension fund, and am just wondering if this is a sensible approach given both the tax structure in the UK but also reflecting on the fact that I'll be going on maternity leave,  as well as likely moving internationally at some point and won't be able to pay into something like a SIP, ISA, or State Pension from abroad. I don't mind doing more investments/stocks and shares but I'm not sure what the best way, tax-wise, to do this would be.

JoeCrystal

Do you know you can keep paying for national insurance voluntarily even after leaving the country? It can be very lucrative for you. There are plenty of people who haven't been in the UK for decades but are still paying to get a full state pension at a bargain price. It is currently £3.45 a week for Class 2 and £17.45 a week for Class 3 depending on your status overseas.

If you live or work abroad (or have previously)

To pay Class 2 or Class 3 voluntary contributions you must have either:

• previously lived in the UK for 3 years in a row
• paid contributions or had Class 2 contributions treated as having been paid for at least 3 years

To pay Class 2 voluntary contributions both of the following must also apply:

• you worked in the UK immediately before leaving
• you’re currently working abroad (or you worked while you were abroad)

stingingbee42

JoeCrystal said:

Do you know you can keep paying for national insurance voluntarily even after leaving the country? It can be very lucrative for you. There are plenty of people who haven't been in the UK for decades but are still paying to get a full state pension at a bargain price.

Yes, I think if we did move abroad now (depending on the pension schemes of the country we move) we would backfill the pay. I'm just not sure if this where my money would be best served now, or whether something like high contributions to a SIP or a S&S ISA would make more sense.

Brie

Check also what reciprocal agreements might be in place between the UK and whatever country(countries?) you eventually end up in.  And see if you want/need to combine them both/all.   

I've got the full UK state pensions having lived and worked here long enough but also have a SP paid by another government where I first lived and worked.  It wasn't in my best interest to try and combine them.  

Also while your pensions should be fine here if you move elsewhere you might want to check on the rules for holding some other investments.  I've just discovered that I'm limited in what investments I can keep that I have inherited elsewhere.  It's a case of change them dramatically or cash them in as I'm not resident over there.

Bostonerimus1

What is your citizenship and where do you think you'll be living in the future and in retirement?

stingingbee42

Thank you both for your comments!

For reference, I'm German and that's likely where I would move to.

Bostonerimus1

There is a tax treaty between the UK and Germany so I would say keep contributing as much as you can into UK pensions, ISAs and NI. When you move you might want to look into cashing in the ISAs as those are often not tax free in other countries and there can be limitations on owning investment funds across boarders outside of a pension wrapper. You can have UK pensions and State Pension paid to you in Germany.

stingingbee42

Bostonerimus1 said:

There is a tax treaty between the UK and Germany so I would say keep contributing as much as you can into UK pensions, ISAs and NI. When you move you might want to look into cashing in the ISAs as those are often not tax free in other countries and there can be limitations on owning investment funds across boarders outside of a pension wrapper. You can have UK pensions and State Pension paid to you in Germany.

This is incredibly helpful, thanks so much!

stingingbee42

Do you have any opinion on the idea of contributing to a SIPP after reaching max contributions with a workplace pension?

Bostonerimus1 said:

There is a tax treaty between the UK and Germany so I would say keep contributing as much as you can into UK pensions, ISAs and NI. When you move you might want to look into cashing in the ISAs as those are often not tax free in other countries and there can be limitations on owning investment funds across boarders outside of a pension wrapper. You can have UK pensions and State Pension paid to you in Germany.

Do you have any additional advice or opinions on the idea of contributing to a SIPP after reaching max contributions on a workplace pension to reach my full desired contributing %age?

stingingbee42

Oops, sorry for the double question on that post, I'm not sure how to edit posts!

Bostonerimus1

stingingbee42 said:

Oops, sorry for the double question on that post, I'm not sure how to edit posts!

Deferring tax in a DC pension when you are young is often a good idea because the more money and the longer it has to grow tax free the better. However, as you might be leaving the UK you also might want to use the ISA as it gives you more flexibility, but it might not be as good from a tax perspective if Germany doesn't recognise the ISA tax wrapper. Also having a cross border pension always requires a bit more effort when you go to draw it down. Definitely look into paying UK NI for as long as you can as you might well eventually get both UK and German state pensions.