Did you know paying the wrong class of NICs could cost you £728 more each year?!
Most expats I speak to log on to the government gateway, see that it says they should pay Class 3 NICs, and fail to ask the right questions.
You see, unless you’ve sent HMRC the right paperwork, it will default to saying your should pay Class 3 NICs even if you’re eligible to pay at the lower rate.
Class 2 NICs:
- For people living and working overseas.
- Whether you’re employed or self-employed
- Cost £3.45 per week
Class 3 NICs:
- For people living overseas but who aren’t working.
- Cost £17.45 per week
Both Class 2 and Class 3 National Insurance Contributions help you build up your entitlement to the UK State Pension.
Anyone who’s lived in the UK for 3 continuous years, or who’s already paid 3 years of NICs, can apply to make voluntary contributions whilst living overseas.
To ensure you’re paying the correct rate, and to apply whilst living overseas, you need to send a CF83 form to HMRC.
You need 35 years of NICs to get the full UK New State Pension
If you’ve already got 35 years of contributions, there’s no benefit from continuing to make voluntary contributions.
So you might wan’t to consider your future plans before paying in.
Because if you move back to the UK, you’ll have to pay NICs if your employed.
Let’s look at an example:
- Luke is 50 years old, like many he forgot to pay NICs since he moved abroad in 2015.
- He’s already got 26 years of contributions.
- And he can pay 9 years of backdated contributions for the time he’s been overseas.
- But Luke plans to return to the UK next year.
- He also thinks he’ll keep working until he’s 65.
- So if Luke makes backdated contributions now, he’ll have 35 years of NICs, but he’ll be forced to pay NICs when he returns to work in the UK.
- Luke would be better not making any voluntary contributions.
Comparatively:
- Mandy is 42, and has just moved abroad.
- She’s already got 22 years of National Insurance Contributions.
- As a dedicated saver, she’s built up enough investments to retire at age 55.
- Mandy has no plans to return to the UK for work, and expects to be overseas until she retires.
- If Mandy makes an annual voluntary contribution until she’s 55, she’ll have enough NICs to receive the full UK State Pension at her state pension age.
- If Mandy doesn’t make any contributions, her state pension will be 37% lower than if she makes up the missing years.
- It makes a lot of sense for Mandy to pay NICs whilst living abroad.
In reality, you’ll be somewhere in between these two examples.
So you might want to consider, that the cost of paying NICs will only go up over time.
You’ll also soon be restricted to only paying back the last 6 years if you’ve forgotten to pay.
So contributing early, could give you more flexibility later, over whether to keep paying in or not.
Want to understand more about UK National Insurance Contributions for expats? Download our free guide here.
If you found this useful, you might like our free 13 Step Financial Checklist for British expats living overseas.
