What I want to achieve with this post therefore, is to give you an idea of the basic facts regarding the basic state pension and the necessary steps that you would need to take, should you want to make contributions on a voluntary basis and/or make up missed payments.
Armed with this information, you will then be in a position to make an educated decision on how to proceed.
Basic Facts:
To achieve a full basic state pension you need to have achieved a certain number of qualifying years. A qualifying year is a year where one of the following applies:
• you have sufficient income to pay National Insurance Contributions
• you are treated as having paid National Insurance Contributions
• you are credited with enough National Insurance Contributions
If you are a man born after the 6th of April 1945 or a woman born after the 6th of April 1950, then you need to achieve a total of 30 qualifying years in order to achieve the full basic state pension.
For tax year 2011/2012, the full basic state pension will be GBP102.15 per week. This will increase annually by the highest of prices, earnings or 2.5 per cent.
If you have less than 30 qualifying years, your pension will be reduced on a pro rata basis. E.g. if you only had 15 years, you would get GBP51.08 per week (15/30 = 50% of GBP102.15).
Step 1 - Find out where you are now.
Your first step should be to contact the state pension forecasting team in Newcastle and ask for a pension forecast.
This will tell you the number of qualifying years that you already have as well as the level of state pension that you can currently expect.
Their telephone number is . If you contact them, they will then send you the completed relevant form for you to sign and return to them. (Remember, as with all communications with HMRC, to have your NI number handy when you call.)
Alternatively, if you want to speed the process up, you can download the relevant form from their website and send it directly to them. The address to send it to is:
State Pension Forecasting Team, The Pension Service, Tyneview Park, Whitley Road, Newcastle upon Tyne, NE98 1BA, England.
Allow them a few weeks to get back to you.
Step 2 - Make Voluntary Contributions
The next step, if you don't already do so, is to start making regular voluntary contributions. There are 2 types of contribution that you can make, either Class 2 or Class 3.
To qualify for Class 2 Contributions, you must have been 'ordinarily' employed or self-employed immediately before you went abroad. (If you are in doubt as to whether you qualify, contact National Insurance Contributions - International Caseworker Team on ).
If you don't qualify for Class 2, then you need to make Class 3 contributions.
Class 2 contributions have the following benefits:
• they count towards your State Pension when you retire
• they entitle you to the Employment and Support Allowance (previously known as Incapacity Benefit) and bereavement benefits when you return to the UK
Class 3 contributions have fewer benefits. Namely, they don't entitle you to the Employment and Support Allowance when you return to the UK.
In addition, Class 3 contributions are more expensive. For Class 2 contributions, the payment is equivalent to GBP2.50 per week (2011/2012). Class 3 payments are equivalent to GBP12.60 per week (2011/2012)
As you can see, wherever possible, it makes sense to pay Class 2 Contributions.
To commence contributions (Class 2 or 3) you need to complete the form CF83, which can be found on the last 2 pages of the NI38 document. You can find a copy by Google searching "NI38".
Payments can be made monthly by Direct Debit or with an annual payment.
Step 3 - Make Up Missed Years
If you haven't been making any contributions for some time and still do not have 30 qualifying years, then you can make up missed years going back for the last 6 years. Your State Pension Forecast (mentioned above) will tell you how much you need to pay to make up each of these years.
Instructions on how to make payments for these missed years will be on the forecast letter.
Ross Naylor is an experienced, UK qualified financial adviser. He has been providing common sense financial advice to British expatriates for the past 10 years.
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