National Insurance for the UK Expat

UK-domiciled expats who have worked previously in the UK and have since left to work/live overseas. Specifically (because I will be focussing on the “new State Pension” in this article):

• Men born on or after 6th April 1951
• Women born on or after 6th April 1953

** domicile: the country that a person treats as their permanent home, or lives in and has a substantial connection with. For most purposes, you can consider domicile to be your country of birth e.g. most British expats living offshore will still be “UK-domiciled” in the eyes of the UK tax authorities, even if they haven’t lived in the UK for decades.

Paying National Insurance results in you accumulating the all-important “years” in your National Insurance record. Accumulating 35 years of NI contributions means that you will qualify for a full state pension (at the time of writing this article [October 2017], currently set at £159 per week). A minimum of 10 years is required to receive a pro-rata portion of that full state pension. For example:

• 10 years of NI contributions: 10/35 x £159 = £45 weekly
• 25 years of NI contributions: 25/35 x £159 = £113 weekly

Proposals currently tabled for approval by Parliament will have the following effects (for the example of a man, for whom retirement age is currently 65):

On or before 5 April 1970 – No change

Between 6 April 1970 and 5 April 1978 – Your State Pension age is currently 67. It would increase to between 67 years and 1 month, and 68 years, depending on your date of birth.

After 6 April 1978 No change – Your State Pension age remains 68.

Recommended actions for the UK Expat
1.Check your current National Insurance record at www.gov.uk/check-national-insurance-record. You’ll need your National Insurance number for this and will need to register for access to the online Gov.uk gateway.

2.Decide whether or not to pay voluntary contributions to fill in missing years (note: you can generally only fill in missing years for the last 6 years; no further back than that, so it’s important to consider this during your first 6 years as an expat). Voluntary contributions cost no more than £740 per missing year, and you can instruct these online and then have the satisfaction of seeing them reflected in your record a few days later. So, how do you decide whether it is worthwhile to make voluntary contributions?

Let’s work through a few examples of how to judge the breakeven point for the investment i.e. how long you need to draw down on your pension to make qualifying contributions worthwhile:

If you have 0 years of NI contributions:

• Cost to get to the qualifying minimum number of years (10)= £740 x 10 = £7400
• Income for that investment, at retirement = 10/35 x £159 = £45.43 weekly
• So, you will break even on the investment if you live and receive your pension for £7400 / £45.43 = 163 weeks (around 38 months) past pension commencement age.

If you have 5 years of NI contributions :

• Cost to get to the qualifying minimum number of years (10)= £740 x 5 = £3700
• Income for that investment, at retirement = 10/35 x £159 = £45.43 weekly
• So, you will break even on the investment if you live and receive your pension for £3700 / £45.43 = 82 weeks (around 19 months) past pension commencement age.

If you already have the minimum threshold (10 years) of NI contributions:

• Cost of each voluntary contribution year is £740
• Each year of voluntary contribution gets you an additional 1/35 x £159 = £4.54 weekly
• Hence, you will break even on the investment if you live and receive your pension for £740 / £4.54 = 163 weeks (around 38 months) past pension commencement age.

So, as you can see, the worst case breakeven point is 163 weeks for you to receive back in pension income what you have made in voluntary contributions i.e. if your pension commencement age is 67, you need to not die before the age of 70. For those under the minimum 10 year threshold, the breakeven point is even earlier (and the more years you have at this point, before considering voluntary payments, the earlier the breakeven is e.g. if you had 9 years, and made only one £740 contribution to get you to the 10 year threshold, the breakeven point is £740 / £45.43 = 17 weeks!).

Regardless of your privately-made pension provisions, if you are a UK expat, you should carefully consider making voluntary NI contributions to help bolster your retirement income with the UK state pension.Be sure to do so early on in your expat career so as to not find yourself near retirement age and only able to voluntarily pay the most recent 6 missing years. As in so many aspects of personal finance, procrastination is the enemy!

Written by Michael Davidson
This article aims to provide information, it does not constitute financial advice, nor should it be relied upon as such. You should speak to a financial advisor regarding your circumstances before making a financial commitment. Global Financial Consultants Pte Ltd is a Licensed Financial Advisor and is regulated by the Monetary Authority of Singapore. MAS License number FA100035-3