Voluntary Class 2 NICs When Working Abroad

Finance, Taxes, Banking, Insurance and Retirement
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Those who worked in the UK prior to moving to Switzerland may be eligible to pay voluntary class 2 NICs to maintain and maximize their UK state pension.

It is important to stress what a good deal this: paying a £180 contribution will give you £327 per year for life inflation adjusted. For one-off contributions totalling £6,280, you will get £11,502 per year for life and that amount is better than inflation protected under the triple lock.

To apply, you need to fill out form CF83.

ChatGPT on Voluntary NICs

I’ll try to dig up my old EF posts on this, but until then, here’s ChatGPT’s take on it (as usual for ChatGPT take with a pinch of salt!):

Are you a UK citizen planning to work abroad? If so, you might be wondering how your move could affect your pension benefits back home. Fortunately, there’s a strategic approach you can take to safeguard your retirement income: paying voluntary Class 2 National Insurance contributions (NICs).

Here’s everything you need to know about the requirements, benefits, returns, and process for applying for voluntary Class 2 NICs when you leave the UK and work abroad:

Understanding Class 2 National Insurance Contributions

  • For Self-Employed Individuals: Class 2 NICs are typically associated with self-employed individuals, providing them with access to various state benefits, including the UK state pension.

  • Voluntary Contributions: Class 3 NICs, on the other hand, are voluntary and can be paid by anyone to fill gaps in their National Insurance record, ensuring they meet the minimum qualifying years for a full UK state pension.

Qualifying for a Full UK State Pension

  • Minimum Qualifying Years: As of the latest information available, individuals typically need 35 years of National Insurance contributions to receive a full UK state pension. However, it’s essential to note that the number of qualifying years required may vary depending on individual circumstances and any changes to pension regulations.

  • Increasing Qualifying Years: By paying voluntary Class 2 or Class 3 contributions, you can increase the number of qualifying years, thus enhancing your entitlement to the UK state pension.

Working Abroad and Paying Contributions

  • Coordination with Local Systems: If you’re working abroad and paying into the local social security system, you may still be able to make Class 2 contributions. However, if you’re not contributing to the local system, Class 3 contributions must be made.

  • Understanding Minimum Contributions: It’s crucial to understand the minimum contributions required in the country where you’re working abroad to ensure you continue to build your UK pension entitlement.

Benefits and Returns

  • Dual Pension Entitlement: By paying into both the UK and local pension systems, you can create a safety net in case of future changes to pension rules. Additionally, you may be eligible to receive both UK and foreign pensions separately, depending on your retirement location.

  • Increasing Pension Amount: Voluntary contributions can significantly increase your UK state pension amount, providing you with a higher income during retirement. Each £180 invested in Class 2 contributions can add £327 per year to your income for life (inflation protected under triple-lock), offering a potentially substantial return on investment.

The Application Process

  • Understanding Proposed Changes: Stay informed about any proposed changes to Class 2 NICs, as they may affect your eligibility and contribution rates.

  • Requesting Statements: Regularly request statements concerning your contributions to ensure accuracy and track your progress towards meeting the qualifying years for a full UK state pension.

  • Utilizing Online Tools: Take advantage of online tools provided by HMRC to estimate your pension amounts based on your contributions and to track your National Insurance record.

  • Acting Promptly: Paying Class 2 NICs can be a lengthy process, so it’s essential to act promptly and initiate the application process as soon as possible to avoid any delays in securing your pension entitlement.

Conclusion

In conclusion, paying voluntary Class 2 NICs when leaving the UK and working abroad can be a strategic move to maximize your retirement benefits. By understanding the requirements, benefits, returns, and application process, you can ensure a secure and comfortable retirement while enjoying the flexibility of living and working abroad.

Remember to stay informed, plan ahead, and consult with financial advisors or HMRC for personalized guidance on optimizing your pension contributions and securing your financial future. With careful planning and proactive decision-making, you can enjoy the rewards of your hard work both at home and abroad.

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Yes it’s worth repeating your reply as people who lived & worked in the UK but moved abroad during their working life should be aware that you don’t need to be in the UK to make additional voluntary class 2 NICS to make up any shortfall. You can also pay overseas voluntary class 2 UK NICs every year even while working abroad & paying into another countries Social Security & Pensions scheme. This being particularly important since Britain left the EU as the UK’s DWP will not count any years worked in another EU country ( only upto 31/12/2020 ) towards ticking any ( number of years minimum boxes ) to be eligible for a British Pension in the first place & of course its the same in other EU countries state pensions, where the number of years paid into the British NICs is only counted upto the end of 2020 or the 31/12/2020 to be exact.

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Do the calcs before dismissing it. Given a full UK state pension is £11,500 pa and you need 35 years for a full one, back paying 6 years gets you £1,970 a year. The total one-off cost of which will be about £1,000.

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Not at all! Voluntary class 2 NICs are probably the best risk-weighted investment you can make in the whole world (not an exaggeration)!

You pay £180 for one year and for that you get £327 per year inflation adjusted (and triple lock protected). You make more than your money back in the first year!

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She is already collecting. Can the buy back be retroactive?

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It’s worth asking. They recently extended deadlines for back payments. Normally you can back pay around 6 years.

I would ask and please report back as I suspect few people have ended up in the same situation so there’s not too much practical experience to draw on.

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I don’t believe you can pay class two if you are not employed, she would have to pay class 3 which makes it a less attractive option.

If she is already collecting her pension that ship has sailed anyway.

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Indeed, you have to be employed or self-employed.

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I simply asked to pay Class II NI contributions. I had previously been employed on a part time basis, but wasn’t at the time of applying. I have not been in employment since then either and was allowed to continue making Class II payments. I am all paid up now. On the old Forum there were a few lengthy threads on this subject and one of the suggestions was to just ask to pay in at the lower rate. I took that advice and it worked for me.

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psst. better keep quiet in case hmrc hear you! :wink:

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Yes, I think I will! I am one of the women rather adversely affected by the accelerated change in retirement age for women. I should have received my pension at 60, but now don’t get it until 66. I wonder if that had a bearing on it …

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Is topping up your contributions OK if you were employed at that time?

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All is not (necessarily) lost maybe you were mis-led by HMRC’s previous incorrect guidance (see below) and because of this didn’t apply for voluntary NIC.

Now that I’ve kindly pointed out to you that their guidance was wrong, you could approach them and ask to retroactively pay from 2011 (6 years prior to 2017).

If they accept, then you might be able to pay a one-off contribution of around £2,000 and for this you will get around £4,000 in additional state pension each year.

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)

Between November 2017 and April 2019, HMRC’s guidance was incorrect. It said all these conditions must be true. If you did not apply or your application was refused because of the incorrect guidance, you may be able to pay at the original rates. Explain your situation when you apply.

It looks like they also added some protection for late payment (normally you need to pay NIC within 6 years):

Voluntary Class 2 contributions not paid within permitted period

[F161.—(1) If a person who was entitled, but not liable, to pay a Class 2 contribution (“the contributor”) fails to pay that contribution within the period within which it may be paid, and the condition in paragraph (2) is satisfied, the contribution may be paid within such further period as an officer of the Board may direct.

(2) The condition is that an officer of the Board is satisfied that—

(a)the failure was attributable to the contributor’s ignorance or error; and

(b)that ignorance or error was not the result of the contributor’s failure to exercise due care and diligence.]

So if you told them you wanted to apply but at the time, according to the incorrect advice, you thought you didn’t meet the conditions, but now you checked more closely on retirement and you do, you want to pay the back years.

They specifically extend the time for years 16/17 and 17/18 (the years they gave incorrect advice) until 2025:

65BA.—(1) A person who is entitled, but not liable, to pay a Class 2 or Class 3 contribution in respect of tax year 2016-17 [F3or 2017-18] may pay the contribution on or before [F45th April 2025].

So worst case you pay last 6 years plus these 2 for a total of 8 years. Best case, they accept argument to 2010/2011 and you can pay 12 years.

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Legislation is here: The Social Security (Contributions) Regulations 2001

I’ll have to take a look at it in detail later to confirm.

A quick skim shows that you need to be employed to pay class 2:

in respect of any contribution week throughout which he is gainfully employed outside the United Kingdom in employment which is not employment in respect of earnings from which Class 1 contributions are payable, he may, if immediately before he last left Great Britain or Northern Ireland (as the case may be), he was ordinarily an employed earner or a self-employed earner, pay a contribution as a self-employed earner;

However, later rules were amended such that class 2 is paid annually. So a check should be made to see if that also amended the requirements for employment.

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Looks like Bowlie’s beer allowance stands a good chance of going up!

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Question for those who paid class 2 in the past already.
For future years, do you know will HMRC send you automatically a letter with the amount to pay, or do you have to apply again?

I just received a letter for year 2023-2024, I am just wondering if for next year I should apply again or if they will automatically let me know.

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Every year they send an update with the amount payable, but since I set up a direct debit, I don’t need to change anything.

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Depends what you selected when you signed up.

“Pay for previous years”, “Pay for future years” or “Pay for previous and future years”. If you chose future, I think you had to fill in a direct debit. If you didn’t, you need to apply again. I would wait 4 years before applying, since you can backpay each time for the prev 5 years ; hopefully in 4 years time the website would be more functional with real-time payments and updating etc.