Voluntary NI contributions while living abroad (split)

[jennabean5810 0]

Has any got any ideas or suggestion of how to maintain their uk state pension, i believe from reading up (i could be wrong) you have to be paying national insurance contributions for around 25 year before you are fully entitled to a full uk goverment pension upon the governments decided retirement age.

obviously being 34 and paying since i was 16 , I've clocked up 18 years already, how do i continue to make national insurance contributions once i move and start working stateside for the remaining 7 years. suggestions and thought ?

[Nich-Nick 3,353]

Has any got any ideas or suggestion of how to maintain their uk state pension, i believe from reading up (i could be wrong) you have to be paying national insurance contributions for around 25 year before you are fully entitled to a full uk goverment pension upon the governments decided retirement age.

obviously being 34 and paying since i was 16 , I've clocked up 18 years already, how do i continue to make national insurance contributions once i move and start working stateside for the remaining 7 years. suggestions and thought ?

They are changing the state pension plan. I believe you can get something with at least 10 years contributions. New people to NI after next April will need 35 years for full pension. You may need only 30 since you started with old plan.

You can make voluntary contributions while abroad to increase your year count. Keep in mind that you won't be able to collect full state pension and full US Social Security. No double dipping. If you have higher earning years ahead of you in the US, you may want your full SS benefits which are based on wages and contributions. UK state pension is mostly a fixed amount and all receive same amount at full eligibility. So if your Social Security benefit was $2000 a month, and you were going to collect $400 UK state pension, your SS would only allow $1600. You will still be paying in to SS at the full rate for every dollar you earn. So you would need to consider the benefit of also paying voluntary NI contributions to get money that would reduce your Social Security. If you aren't going to work full-time or have a high paying US job pushing your SS retirement up, your UK state pension payment could be the better deal.

[rob999 51]

I recently discussed this with a Financial Adviser (FA) as I had the same question. I'm not an expert at all so I could be wrong in places but I'll share my thinking process as that may be more useful since everyone's financial circumstances are different.

You would be paying class 3 contributions of £14.10 per week, as of this year, which can be done through direct debit. Pension age for us is probably going to be around 67 so if we worked out your total, assuming you paid UK state until retirement of 67, you would need to pay at least £24,195. Though it will be a lot more as NI increases each year and rules change. As you have contributed more than ten years you will get the minimum state pension (if they don't change the rules in the next 30-40yrs). I'm similar to you, working since 16 and now 31.

If your record has gaps then it's possible to fill gaps in the last six years, if desired (useful if you come back to the UK). This link gives information on how much to expect from the New State Pension scheme which is highly likely to change again before we get to retirement.

So I would turn your question around and be asking - Am I better contributing this ~24k to a US personal pension (separate SIPP or on top of your voluntary company contribution) that I am in control of or giving it to the UK government scheme where I have no control (and subject to exchange rates too)?

As Nich-Nick points out you also have US/UK rules and tax consideration when you do pull your pension from the UK. It of course depends on whether you see yourself back in the UK in the next ten years (but then you could do a 6yr catch up if you are back in a short time).

The conclusion that I'm coming to is I'm not sure there is a right answer at this time, you'll find that out when you retire! But my thinking is I've met the 10yr min, I don't have intentions of coming back for the foreseeable future, I prefer influencing my investments to work their hardest for every pound/dollar I put in, and I like having a tiny bit of control of where my money goes.

As an aside to NI I would also recommend a FA before you leave the UK (they need 4-6 weeks too if you ask them to change/manage things for you), especially if you have UK personal pensions and (ex) company schemes. It's much easier to start a relationship with an FA sitting in front of him/her so you can feel good about them managing things if that's how things end up.

What they should do first is a free initial consultation and work out where you finances stand and your appreciation of risk. They would then compare each of your pension accounts to what is on the market and calculate your options in whether your pensions stay as is (ex-company schemes can be very cheap), consolidate, or move. It's roughly £250 per pension account to be "analysed". After which you can decide what to do based on the choices the FA gives you, e.g. stay as you are but with knowledge your pension is doing OK (get analysed in another couple of yrs) or get the FA to consolidate and manage it - ~3% commission, worth it if they make you pension increase an exponential proportion more.

I haven't decided yet on what to do but I got an FA so I at least feel more comfortable that I've done everything I can for the money/investments I leave in the UK.

Edited July 15, 2015 by rob999

[Nich-Nick 3,353]

You would be paying class 3 contributions of £14.10 per week, as of this year, which can be done through direct debit. Pension age for us is probably going to be around 67 so if we worked out your total, assuming you paid UK state until retirement of 67, you would need to pay at least £24,195.

Explain the math to me Rob. £14.10/week is £733.20 a year to be contributed. But why contribute until age 67? Wouldn't she quit when she reaches 30 years contributed? Isn't that the point that contributions puts you to the maximum benefit level? In her case 12 more years? £8798.40. Do you have to pay up until age 67? Do you get more in the state scheme by paying in fifty years?

I don't really understand the UK State pension, but I have read the website numerous times. Somewhere going around the circle of links, I always felt a little lost...like I didn't find the definitive answer. Maybe there isn't one right now because some of the talk of the new plan seems yet to be determined. I got my husband to order a statement which left even more questions. Then I forget about it until one of these pension threads rolls around again. I appreciate your input Rob since you have studied and discussed it with a FA.

[Boiler 43,401]

It is à giant guessing game, the further you are out then the bigger the guess

Remember this is not a funded arrangement, you need future taxpayers to pay for you

My recollection is that you can catch up nearer the time, but yet again that may have changed or will change.

I do need to get a projection.

[rob999 51]

Explain the math to me Rob. £14.10/week is £733.20 a year to be contributed. But why contribute until age 67? Wouldn't she quit when she reaches 30 years contributed? Isn't that the point that contributions puts you to the maximum benefit level? In her case 12 more years? £8798.40. Do you have to pay up until age 67? Do you get more in the state scheme by paying in fifty years?

I don't really understand the UK State pension, but I have read the website numerous times. Somewhere going around the circle of links, I always felt a little lost...like I didn't find the definitive answer. Maybe there isn't one right now because some of the talk of the new plan seems yet to be determined. I got my husband to order a statement which left even more questions. Then I forget about it until one of these pension threads rolls around again. I appreciate your input Rob since you have studied and discussed it with a FA.

It's so confusing especially when we have a new pension system coming in and HMRC doesn't explain any of them very well. So I'll go through what I found, again I could be wrong but this is my understanding so far. Also to note is that the rules aren't a 100% set in stone yet, there is still uncertainty needed to sort out before April 2016.

New State Pension rules only applies to men born on or after 6th April 1956 and women born on or after 6th April 1953.

Their calculator is now working on HMRC for the new rules, I had trouble getting it working before but it estimated me at 68 retirement age for 1984 so I need to add another year for myself (it also tell's me that in 2052 I'm estimated I will get a UK buss pass, yay!) > Calculator link

State Pension qualifying years is now 35 years under the new rules to get the full New State Pension. Still 10 years to get minimum. You also calculate after the age of 19 not 16. These years act as "credit" but it's not clear how one implements these credits in the new system, they should offset the years required so only have to pay 32 but not certain.

So yes you could only do 35 years in total, but they can easily change the rules again, this is why I just assume until retirement, especially as I'm "earlier" on in the pension timeline. So in my calculations I expect the worse and hope for the best. I would say it's better to calculate contributions for all your working life first off and then do max 35yrs contribution, so you know what it could be as a minimum and what it could be as a "maximum". "Maximum" plus the yearly increase of inflation of the pension contribution. Then you know what it could be if the UK government made things harder, especially for out of country citizens.

My FA based it on contribution until I retire based on principle above. So for 35 yr contribution being 31 I have 12 years of contributions, 23 to go (16-19 "credits" not included). £14.10 for 23 years is going to be at least £16,863. If they move max contribution years in the future then it's an additional (at the least) £3,666 contribution for every 5 years they move it. If I had to contribute to age of retirement (37 years) then that's £27,128. So the £27k for me acts as a nice max buffer as I know my contribution definitely will not be £16.8k with inflation of the pension contribution.

Based on today's figure the max pension return, assuming 35 yrs payment, to me would be £115.95 of pension per week which is £6,029 per year.

Important to note is that the UK pension is now taxable if you earn over a certain amount with other pensions on top (£10k), so if you have a US pension and a UK pension then you might get taxed more than you bargained for.

So is NI contribution worth it? I agree with Boiler's statement it's just a giant guessing game especially at the moment with the new rules. For now I'll leave my 12 years as is and focus on my private pensions that (although I don't have full control on i.e subject to markets etc), I have more control than on UK state especially if UK state is going to be taxed!

@Boiler - apparently you can only catch up 6 years previous. If you reach 68 and you need 7 years to catch up then you will not get full pension unless you work for another year (or delay pension and contribute through out that year). Though I don't think this is a 100% certain in the new system yet, may have to wait to see what the max catch up is next year. I think the information delay is because of increasing the 30 yrs to 35yrs so what are they going to do for people whom are retiring in 2017 and have 30 years as of that year, apparently this is still being ironed out.

[Nich-Nick 3,353]

Well the calculator is no help. It says call the new pension guys.

This did explain contributing beyond --

"Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.32 a week (which is £151.25 divided by 35) to your new State Pension."

Is that new? I had thought previous research indicated if you reach 30 years, you get the same maximum as contributing 40 years. New plan says it adds on £4.32 week.

Also wanted to say if you live in the US, you must follow IRS tax laws. Even if UK did not tax pensions, the US tax laws would. State pension would be taxed under the same rules as Social Security. Part of Social Security income can be taxable based on income, earnings, and convoluted formulas. http://www.ssa.gov/planners/taxes.html

Private pensions are taxable.

[rob999 51]

Yes I had read that but the information on "over payment" seems to be muddy at best:

We will use the qualifying years on your National Insurance record as at 5 April 2016 to work out your ‘starting amount’.

Both amounts will reflect any periods when you have been contracted out of the additional State Pension. Your ‘starting amount’ can be less than, more than or equal to the full new State Pension.

If your ‘starting amount’ is more than the full new State Pension – You will get this higher amount when you reach State Pension age. It will be possible to have a starting amount higher than the full new State Pension if you have sufficient additional State Pension. The difference between the full new State Pension and your ‘starting amount’ is called your ‘protected payment’.

Section 3c

I can't see much on what the impact of the 'protected payment' would be. This is when I think they want you to phone HMRC as it's too complicated, even though the purpose of this new state pension was to replace the old one because it was too complicated.

OK so if it's all now taxable then what's the point of having a UK state pension if you have private pensions already?

[Nich-Nick 3,353]

OK so if it's all now taxable then what's the point of having a UK state pension if you have private pensions already?

Well....because it's all money coming in. And the theory is when you are not working and down to pensions, your income is less so you are in a lower US tax bracket. You will also have a US Pension or 401k possibly. I am from the days when companies had pension plans for retirees. That is getting to be a rare thing now.

It also all depends on your work. If you have some high salaried career with benefits vs minimum wage at a mall store, then your decisions and plans will be different. I seriously don't know how you decide if you want to continue NI contributions.

[Owen_London 65]

I just checked in and noticed this thread, and thought I ought to comment on a few things. I have read more details elsewhere, but will only comment with things I remember properly.

They are changing the state pension plan. I believe you can get something with at least 10 years contributions. New people to NI after next April will need 35 years for full pension. You may need only 30 since you started with old plan.

You can make voluntary contributions while abroad to increase your year count. Keep in mind that you won't be able to collect full state pension and full US Social Security. No double dipping. If you have higher earning years ahead of you in the US, you may want your full SS benefits which are based on wages and contributions. UK state pension is mostly a fixed amount and all receive same amount at full eligibility. So if your Social Security benefit was $2000 a month, and you were going to collect $400 UK state pension, your SS would only allow $1600. You will still be paying in to SS at the full rate for every dollar you earn. So you would need to consider the benefit of also paying voluntary NI contributions to get money that would reduce your Social Security. If you aren't going to work full-time or have a high paying US job pushing your SS retirement up, your UK state pension payment could be the better deal.

Not sure what you're commenting on here. Is this the US/UK totalization agreement? If so, that only applies if you don't have enough contributions in either place to qualify for any state pension. If this is about the WEP provisions, I don't think that's the way it works.

I recently discussed this with a Financial Adviser (FA) as I had the same question. I'm not an expert at all so I could be wrong in places but I'll share my thinking process as that may be more useful since everyone's financial circumstances are different.

You would be paying class 3 contributions of £14.10 per week, as of this year, which can be done through direct debit. Pension age for us is probably going to be around 67 so if we worked out your total, assuming you paid UK state until retirement of 67, you would need to pay at least £24,195. Though it will be a lot more as NI increases each year and rules change. As you have contributed more than ten years you will get the minimum state pension (if they don't change the rules in the next 30-40yrs). I'm similar to you, working since 16 and now 31.

If your record has gaps then it's possible to fill gaps in the last six years, if desired (useful if you come back to the UK). This link gives information on how much to expect from the New State Pension scheme which is highly likely to change again before we get to retirement.

So I would turn your question around and be asking - Am I better contributing this ~24k to a US personal pension (separate SIPP or on top of your voluntary company contribution) that I am in control of or giving it to the UK government scheme where I have no control (and subject to exchange rates too)?

As Nich-Nick points out you also have US/UK rules and tax consideration when you do pull your pension from the UK. It of course depends on whether you see yourself back in the UK in the next ten years (but then you could do a 6yr catch up if you are back in a short time).

The conclusion that I'm coming to is I'm not sure there is a right answer at this time, you'll find that out when you retire! But my thinking is I've met the 10yr min, I don't have intentions of coming back for the foreseeable future, I prefer influencing my investments to work their hardest for every pound/dollar I put in, and I like having a tiny bit of control of where my money goes.

As an aside to NI I would also recommend a FA before you leave the UK (they need 4-6 weeks too if you ask them to change/manage things for you), especially if you have UK personal pensions and (ex) company schemes. It's much easier to start a relationship with an FA sitting in front of him/her so you can feel good about them managing things if that's how things end up.

What they should do first is a free initial consultation and work out where you finances stand and your appreciation of risk. They would then compare each of your pension accounts to what is on the market and calculate your options in whether your pensions stay as is (ex-company schemes can be very cheap), consolidate, or move. It's roughly £250 per pension account to be "analysed". After which you can decide what to do based on the choices the FA gives you, e.g. stay as you are but with knowledge your pension is doing OK (get analysed in another couple of yrs) or get the FA to consolidate and manage it - ~3% commission, worth it if they make you pension increase an exponential proportion more.

I haven't decided yet on what to do but I got an FA so I at least feel more comfortable that I've done everything I can for the money/investments I leave in the UK.

You may be able to make Class 2 contributions. These are substantially cheaper than Class 3. If you aren't working, you can only make Class 3. In details, the rules are:

Living and working abroad Class 2 - but only if you worked in the UK immediately before leaving, and you’ve previously lived in the UK for 3 years in a row or paid 3 years’ National Insurance

Living abroad but not working Class 3 - but only if at some point you’ve lived in the UK continuously for 3 years or paid 3 years of contributions

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

As I understand it, the general view is that paying voluntary Class 2 NI is a bargain, and voluntary Class 3 may still work out as worthwhile. However, as Boiler points out, you are still very much at the whim of the politicians for many years.

Edited July 20, 2015 by Owen_London

[CJKylie 161]

Calculator link

Wow - that was depressing to look at

Edited July 20, 2015 by CJKylie

[Nich-Nick 3,353]

Not sure what you're commenting on here. Is this the US/UK totalization agreement? If so, that only applies if you don't have enough contributions in either place to qualify for any state pension. If this is about the WEP provisions, I don't think that's the way it works.

I will defer to you Owen because you understand these things better than me. It was a Social Security employee who explained WEP to me in this way, so I believed her when she told my husband his Social Security retirement benefit may be reduced by a percentage if he is eligible for full UK state pension. But we know SSA employees tell K1s all kinds of crazy stories about their eligibility for a Social Security card, so she could be telling a crazy story also.

[Owen_London 65]

I will defer to you Owen because you understand these things better than me. It was a Social Security employee who explained WEP to me in this way, so I believed her when she told my husband his Social Security retirement benefit may be reduced by a percentage if he is eligible for full UK state pension. But we know SSA employees tell K1s all kinds of crazy stories about their eligibility for a Social Security card, so she could be telling a crazy story also.

OK, thanks. I'm a long way from retirement still, so I only really know the basics.

Yes, WEP will reduce US SS by a percentage of the extra non-SS income. However, it sounded like you thought that WEP would reduce SS by the full amount of the non-SS income, but I guess I mis-read that. The impact of WEP is also reduced if you have 20 years or more of SS contributions, with minimum effect from 30 years or more.

[jennabean5810 0]

many thanks for all the answers, so in the general scheme of things it would seem its better not to contribute to the uk pension while I'm away from the uk, with no intent to come back and just leave it as is and concentrate more on my personal pensions plans stateside along with my 401k. that seems like the best option.

Edited July 27, 2015 by jennabean5810