Why you should contribute to your national Insurance

As an expat should you contribute to the UK national insurance? This is a constantly changing area of financial planning. The State Pension is intended to provide an individual with a basic level of income in retirement. The State Pension is intended to provide an individual with a basic level of income in retirement. Anyone who reaches their SPA on or after 6 April 2016 will receive the new single-tier State Pension

The State scheme is funded on a ‘pay as you go’ basis. This means that there is no underlying fund from which to provide retirement benefits later and the NICs of the current working population are used to pay the State Pensions of those who have reached SPA.

Entitlement to the single-tier Pension is accumulated through Class 1 NICs (for employees) or Class 2 NICs (for the self-employed). Class 4 NICs (also paid by the self-employed) do not contribute towards an entitlement to the single-tier Pension.

Entitlement is based on ‘qualifying years’. A ‘qualifying year is 52 weeks of Class 1 and/ or Class 2 NICs paid in a tax year. It is also possible to pay voluntary Class 3 NICs to cover any gaps in a NIC record

This short guide will show you how contributions can be made and what bearing that has on the value of your State Pension at retirement age.

national insurance card expat

Paying from Abroad for Voluntary National Insurance Contributions

When you spend a certain period outside the UK, HMRC can help you know whether you can pay UK Voluntary National Insurance contributions. Plus, it also indicates the amount you need to pay. The purpose of paying Voluntary National Insurance contributions is to secure entitlement to various UK National Insurance benefits like basic State Pension. It has agreements with Reciprocal Agreement Countries and European Economic Area (EEA) regarding special benefits.

Living Abroad and Voluntary National Insurance Contributions

If you live abroad, you can continue paying UK Voluntary National Insurance contributions provided specific conditions are satisfied. These payments contribute towards your State Pension and secure particular state benefits and stipends, in case you move back to the UK.

Benefits of Paying UK National Insurance while Living Abroad

If you continue paying UK National Insurance while living abroad, you may protect your entitlement to the following:

  • A full State Pension.
  • Particular state benefits in EEA (European Economic Area) as well as some reciprocal agreement countries. 
  • Particular state benefits and stipends on your return to the UK.

Make up your National Insurance Contributions

You are likely to create gaps in your payment record of National Insurance contributions while living abroad. These gaps can decrease the number of years that contribute towards your full State Pension. Additionally, They can limit some benefits on your return to the UK.

While living abroad, if you get eligible to make voluntary contributions, then you can easily make up any gaps in your payment record of National Insurance contributions for last six tax years (It is, at the moment possible to go back to 2006). If you have ever been abroad or still are, contact National Insurance Contributions Office – International Caseworker (details below) to find out your possible deficit.

While Living Abroad, Who can Pay National Insurance Contributions?

Any of the following conditions must be fulfilled in case you want to pay Voluntary National Insurance contributions while living abroad.

  • You must have spent a constant three-year period in the UK prior to making your payments.
  • Before going abroad, you paid National Insurance contributions for a period of three or more years.

There are some other important conditions that depend on the class of contribution you intend to pay. For these conditions, see the section “Which class of contribution to pay”.

Which Class of Contribution to Pay?

Class 2

If the conditions specified above are fulfilled and you are either self-employed or employed overseas, then you can pay voluntary class 2 National Insurance contributions. But, you cannot fall in this category if you are already paying class 1 contributions. For this class, you must meet either of the following conditions:

  • “Ordinarily” self-employed or employed right before going abroad.
  • “Ordinarily” self-employed/employed but got unemployed before going abroad (Here, unemployed means that you are registered as an unemployed person at the Department for Work and Pensions who is searching for work).

Following are the benefits of class 2 contributions:

  • These payments make contribution to your State Pension that you enjoy at your retirement.
  • You enjoy entitlement to the Employment and Support Allowance (formerly known as Incapacity Benefit) and bereavement benefits when you return to the UK.

Contact National Insurance Contributions Office to ensure whether you fulfill conditions for paying voluntary class 2 National Insurance contributions.

Class 3

Class 3 contributions work for those who are either not entitled to class 2, have gaps in payment record for a tax year, or are unemployed while living abroad. Furthermore, you can pay class 3 contributions if you have already not paid adequate class 1 or class 2 contributions in a tax year. These payments contribute toward your State Pension and other benefits. As compared to class 2 National Insurance contributions, class 3 contributions offer fewer benefits. For instance, they cover your spouse’s claim to bereavement benefits. However, you are not able to enjoy the Employment and Support Allowance on your return to the UK.

Application Procedure to Make Voluntary Contributions while Living Abroad

You can use a form CF83 “Application to make National Insurance Contributions abroad” for this purpose. Visit the following link to find the form and related guidelines. After filling the form, submit it to National Insurance Contributions Office – International Caseworker (below)

http://www.hmrc.gov.uk/pdfs/nico/ni38.pdf

Means of Paying Voluntary Contributions while Living Abroad

You can use either of the following ways to pay voluntary National Insurance contributions.

  • Nominate an agent to make your payments.
  • Make annual payments.
  • Pay through Direct Debit after every 4-5 weeks.

If you intend to appoint an agent to make your payments, then you will be required to provide his/her detailed information while filling form CF83. Furthermore, if your agent has to discuss your account with HMRC, make sure to fill an additional form 64-8.

Why do you need to make up your National Insurance Contributions?

The gaps in your payment record of National Insurance contributions can possibly affect your claim to the basic State Pension as well as particular bereavement benefits. For this reason, you should consider making up gaps by paying voluntary National Insurance contributions.

For more information and the online statement go to the NI government website.

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/national-insurance-enquiries-for-employees-and-individuals


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