Is it worth paying UK voluntary National Insurance contributions?

[GaryC 378]

Interesting question.  But I think you are somewhat mis-reading the booklet.  It is not a question of residence in the tax sense or Anmeldung sense but of where you are normally or habitually resident - where you call home.  As the booklet says, you can be non-resident for Income Tax, e.g. working for your UK employer in another country for a year or two but you remain ordinarily resident in the UK because that is where home, family and your house are.  Think of it as being invited or required to do a stint overseas.  In this example I think you and your employer would remain liable for Class 1 NIC as described in NI 38. 

 

On the other hand, and at the other end of the spectrum is a person who has emigrated, visas and all, to the other side of the world, with no intention, ever, of returning to the UK.  That person is neither resident, nor ordinarily resident in the UK.  If at some point in the future their circumstances change and they decide to return to the UK permanently (ill parent or something) then they would become ordinarily resident again once their permanency became a reality.

 

But as far as I am aware the criteria for whether you can pay Class2 or Class3 NIC do not include your ordinary residence status - have a look at pages 9 and 10 which set out those criteria.

 

I think that if you have cut ties with the UK - given up your UK job, moved lock, stock and barrel to Germany, commenced employment/self-employment in Germany and have no reasonably immanent plans to return to the UK (i.e. not planning to return in the foreseeable future) then that would seem to point to you being neither resident, nor ordinarily resident in the UK.

 

Edit:  just took at look at HMRC's NIC manual  NIM33555 - National Insurance Manual - HMRC internal manual - GOV.UK (www.gov.uk) and while not definitive, i.e. you would need to read more than just 1 page of the manual, I do like the two quotes from the House of Lords (now the Supreme Court, of course)

In its judgement, the House of Lords stated:

“…in their ordinary and natural meaning the words [ordinarily resident] mean “that the person must be habitually and normally resident here, apart from temporary or occasional absences of long or short duration.”

“…ordinarily resident” refers to a man’s abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life for the time being, whether of short or long duration.”"

[Gambatte 925]

I read somewhere from HMRC that they consider you resident in the UK if you spend there at least 183 midnights of the year.

 

 

 

 

 

[GaryC 378]

1 hour ago, Gambatte said:

I read somewhere from HMRC that they consider you resident in the UK if you spend there at least 183 midnights of the year.

 

 

 

 

 

That is an Income Tax issue and refers to "residence", not "ordinary residence".  Precisely to point being made about the two in NI38. 

[optimista 5,884]

And what constitutes a temporary absence of long or short duration ?

 

I have been out of the UK for 33 years. If I go back was it only temporary ? or long or short ? Sure a lawyer could argue it both ways. It is nice and grey.

 

Is that very careful or very sloppy drafting by the House of Lords ? I notice that they refer only to a man s residence. Maybe, as a woman, there s another loophole I could exploit. 

 

[GaryC 378]

If you have been away for that long I don't think you have to worry - your habitual or normal residence is not in the UK!  

 

The first quote uses the words "ordinary and natural meaning".  That is because "ordinary residence" is not defined in the relevant Act, so has to take its ordinary meaning.  They are then going on to help one understand what that ordinary meaning means.  It seems pretty clear from that, that a person who is settled in another country or countries for 30+ years has "adopted" that other country "for settled purposes as part of the regular order of [their] life", even though they may still visit the UK on holiday from time to time.  I certainly wouldn't be seeking to argue that such person was ordinarily resident in the UK!

 

Historically the law referred to "him", hence their use of "man", not person, but the Interpretation Act comes to women's aid, as it were, to ensure the law applies to everyone.  Don't forget, until 1990 women didn't really exist in UK tax law.  Basically, the husband was taxed on the income earned by the wife unless a so-called "wife's earned income election" was made and unmarried women were of course taxed in their own right.  All very odd!  It was in that year that "Independent Taxation" was introduced to give us broadly what we see today, so there is a whole body of law that pre-dates that as well as Court decisions.  The case in point was decided in 1983... 

[Fietsrad 412]

I can increase my weekly pension (starts in a couple years) by about 20 pounds by making payments, should I do so? Looks like the pensions are going up anyway (triple lock?).

 

I find it a bit confusing that "weekly" values are still used. Have to convert to monthly in €.

 

One good thing: the application for the German pension is good for the UK pension too, you just have to wait longer for the latter.

[HH_Sailor 3,624]

I personally found the 150 GBP annual payment to the UK pension people would be very quick return on investment.

 

I only need to live three years after start of pension to get it back...

 

And 20 quid a week (100 euros/ month) for life isn't that bad

[hooperski 29,430]

I would buy back the missing years if I was you.

The state pension is linked to the rate of inflation, so is a belt and braces income, unlike a stock market based private pension.

[HEM 11,160]

1 hour ago, HH_Sailor said:

I only need to live three years after start of pension to get it back...

 

At the time I did it (class II payments for an additional 11 years) I reckoned I only had to survive for one year.  Which I did.

 

Best financial decision I made - IIRC the trigger to do so came from the venerable Panda.

[GaryC 378]

23 hours ago, Fietsrad said:

I can increase my weekly pension (starts in a couple years) by about 20 pounds by making payments, should I do so? Looks like the pensions are going up anyway (triple lock?).

 

I find it a bit confusing that "weekly" values are still used. Have to convert to monthly in €.

 

One good thing: the application for the German pension is good for the UK pension too, you just have to wait longer for the latter.

Definitely worth it in my view and not about the triple lock.  The UK new state pension must rise by at least the amount by which average earnings increase each year.  The triple lock is a government commitment to increase it by the higher of that amount, price inflation (CPI) or 2.5%.

 

The payback for topping up those 4 years (4 x £5.29 = £21.16) is about 8 months assuming you can pay Class 2 voluntary NIC (£165 per year at the moment), or about 3 years if you have to pay Class 3 at £825 for each year.  So as long as you expect to live at least 8 months/3 years into claiming your UK state pension it is essentially cheap money. If you have a terminal illness, then spend your money elsewhere as your state pension stops at death. 

 

The application for the German pension only has a bearing on the UK pension if you have less that 10 full NI years in the UK.  On the other hand, paying UK voluntary NIC can increase your German pension - only by a few Cents per month for each year but every little helps...

 

Edit - the UK state pension is a benefit payment, not a pension scheme and the law bases it on a weekly amount.  The norm is that it is paid on a 4-weekly basis (13 times a year) but you can ask for it to be paid weekly or two-weekly (not that I can see any point to that personally...)

[GaryC 378]

2 hours ago, HH_Sailor said:

I personally found the 150 GBP annual payment to the UK pension people would be very quick return on investment.

 

I only need to live three years after start of pension to get it back...

 

And 20 quid a week (100 euros/ month) for life isn't that bad

If you paid Class 2 at £150, then payback is 8 months, not 3 years...

[murphaph 9,814]

Does the UK state pension not continue after death for the spouse in the form of a survivor's pension? Genuine question. The Irish one does. This significantly increases the actuarial value of the pension, especially if the spouse is female and younger than the pension recipient.

[GaryC 378]

Short answer is "no", especially for those not yet claiming it.

 

Longer answer is that for those who claimed the pension before April 2016 and for those whose transfer from the old rules to the new rules gave rise to what is called a "protected payment" then there is a very limited form of inheritance but neither of those circumstance are likely to be relevant to anyone on this forum considering paying voluntary NIC.

[georgeb 44]

Really sorry if this has been covered in the previous pages, I couldn’t see an answer. 
I returned to U.K. 9yrs ago after 13yrs working in Germany. 
I am about to top up 5years of class3 NI payments. During the years I want to top up I was working in Germany and paying into the German system. 

Does anyone know if topping up the additional years will increase the U.K. pension or will the payments be ignored as I also paid into the German system at the same time? 
If I continue to work into 67 I will have 30yrs contributions if I do not too up. 
would be really grateful if anyone knows the answer. 
thanks. 

[GaryC 378]

Quite a lot to unpack in there.

 

First, based on what you say, it looks as though you have been in the UK since tax year 2014/15.  Any years you might want to fill will presumably therefore be pre-2016/17 years.  Whether they will benefit your pension depends on how many years you had already under the old rules at 5 April 2016 (2015/16) and whether you were in a contracted out work-related pension scheme, paying less NIC, or whether you were paying towards the second state pension (SERPS/S2P).  As you appear to have less than 30 years at 5 April 2016, my guess is that paying pre-2016/17 years (you can currently pay back to 2006/07) is likely to be worth it but you will need to confirm that.

 

Second, the oft touted "you need 35 years to get a max new state pension" doesn't apply to anyone who had a NI record at 5 April 2016. You could need fewer than 30 or nearly 50 depending on your personal circumstances and whether you were contracted out.

 

Third, as you want to fill years during which you were in Germany you may be able to pay Class 2 at about £165 for each year, rather than Class 3 at about £825 per year but HMRC would need to confirm that.  Have a read of NI38 linked to below.

 

Fourth, although you may have to pay mandatory NIC up to state pension age if you continue working, you cannot pay NIC after that date, either mandatory or voluntary.  Also, as only full NI years count towards your pension entitlement, if you are paying voluntarily, you should not pay for any period after the end of the tax year before you reach state pension age.  So, if you reach state pension age on 1 July 2027, you should not pay voluntary NIC after the end of 2026/27, i.e. after 5 April 2027.

 

Fifth, the good news is that, so far as buying a year will improve your pension at all, the fact that it relates to a period during which you were paying into the German system is irrelevant.  The UK will count the UK years, whether paid mandatorily, voluntarily or acquired through NI credits and irrespective of whether you were resident or non-resident in that year, and if that totals more than 10, you will get a UK pension based on your UK years.  If that totals less than 10, the UK would add your German years that do not overlap with UK years to see if that gets you past the magic 10.  If it does, you would get a UK pension based on your less than 10 UK years.

 

I think you therefore need a "grown-up conversation" with DWP and HMRC to establish which years you should pay and what they will cost.  Although you are in the UK I think I would complete a form CF83 as if you were non-resident and tick box 25 to indicate that you want to fill back years Social Security abroad: NI38 - GOV.UK (www.gov.uk) .  I would add a covering letter explaining you returned to the UK but think filing years during your time in Germany will increase your UK pension.  Make sure this gets to HMRC before 5 April 2023 and you will protect your position, such that the years will not simply go out of date on 5 April 2023 (all years 20006/7 to 2016/17 go out of date and virtually all other years go up by 10.1%). 

 

HMRC will then send you a schedule of years and cost when they get to your form (they are currently working on forms sent in in September 2022!). You may find that paying more than 5 of those available years is needed but that is f=difficult to say without seeing a copy of your NI record showing where the gap years are, how many pre-2016/17 years your have and how many more years until state pension age.  And a pension forecast showing what you would get based on your record to 5 April 2022, how much you will get if you pay another X years before year Y and what you could get if you fill any historic gaps... Oh, and any COPE shown via the link in the forecast...

 

Note also that your UK NI record (for periods before, during and after your time in Germany) will feed into your German pension calculation too.  Not only will they help you get past the 5, 35 or 45-year requirements for the version the pension you want to claim but they may also help increase the amount you receive too.  The latter will depend on your life history.  For me it made no difference but for my wife it increased her pension significantly. It is what it is but once you have paid the UK years, I would ask the DRV for a Rentenauskunft including your UK NI years.  They will contact DWP for your records and may ask you to do a Kontenklaerung too, to arrive at a complete record of your life from age 16 when you started your UK NI journey to the date of the Kontenklaerung.  You will then have a very good idea of how much you will get from Germany when the time comes and can index that forward for yourself each year until the time comes to claim.

 

When the time comes to claim your pensions, you will claim both via DWP, even if the German one is before you're UK state pension age, e.g. if you have more than 35 aggregated years and want your German pension at 63 (that is what we did) reduced by 0.3% for each month you take it early.  DWP will send you a form CFN 901 and forward that to DRV who will then contact you about the pension.  When you reach UK state pension age you claim as normal when you get your code to claim online.

 

I told you there was a lot to unpack! 

[georgeb 44]

Hi Gary,

Thank you for taking the time to outline the above, that is really helpful.

I’ll take some time to digest it with a coffee this week and decide what I need to do.

Thanks

[GaryC 378]

Hope it helps but you may need more than a coffee to take that lot in, lol.  On a serious note, do come back with whatever is not clear.

 

[GaryC 378]

I thought I would add this item here as it is NI-related.

 

In 2016 a new NI credit was introduced for the partners of armed forces personnel posted overseas.  As I read it, it applies to postings from 1975 onwards, so would presumably override the normal time limits for getting NI years filled.  That is about the extent of my knowledge, so if you think it might apply to you or your partner and that it might help, then you'll have to apply and see where it takes you.

 

DWP announces extra support for armed forces spouses and civil partners to help protect their State Pension - GOV.UK (www.gov.uk)

National Insurance credits for partners of armed forces personnel overseas - GOV.UK (www.gov.uk)  

[emkay 10,193]

A question about how AVCs are calculated.  Any advice would be much appreciated. In November 2016, my state pension forecast stated that I had 29 full years of NI contributions. From August 2017, I started paying AVCs to reach 35 full years of contributions (formerly 30 years maximum). No arrears for April-July 2017 were deducted by DD. So for 2017/2018, only 8 months were paid for that tax year. 

 

Since then, until now, I have paid 5 full tax years in AVC. 2018/19 to 2022/23.  As only full years qualify, do I have to pay the arrears for 2017 (April to July), or do a further 4 months of payments from April 2023 qualify to fill the missing 2017 months? That would take me up to a total of 35 qualifying years.  I just wouldn’t want the 2017 part paid year to not qualify. 

 

In a previous conversation with the pensions department, it was mentioned that I may need to pay more than 35 years. Pension forecasts also refer to maybe needing to pay more in order to quality for other UK state benefits. I doubt I’d even qualify for any other benefits?  
 

If further contributions are made, in my case, more than 6 years, would the state pension increase or is this capped to 35 years? Or, is deferring pension claim from the age of 67, the only way to increase state pension?

 

Many thanks in advance for any advice.

[GaryC 378]

Another post with a lot to unpack.

 

First, I an not sure AVCs is the way to think about things.  It is about paying NI voluntarily to fill NI years towards your entitlement to a state benefit - the state pension.  It is all based on tax/NI years, not simply on payments.

 

Then you need to consider that "35 years for a full pension" is irrelevant for everybody who had a NI record at 5 April 2016 when the new state pension (nSP) was introduced.  35 years applies only to people reaching state pension age (SPA) from 6 April 2051, i.e. 35 years after 5 April 2016.  The rest of us are in transition.   Indeed, legally speaking we don't get a nSP, we get a transitional pension, though none of the literature uses that term.  Anyway, for us, the rules allot a "starting amount" at 6 April 2016 and we might need significantly fewer than 30 years, exactly 35 years, or significantly more than 40 years to get whatever will be our personal maximum, up to the nSP max.  It all depends on your work history. 

 

Anyway your "starting amount" for the new rules is the higher of:

1. what you would have got at 5 April 2016 based on the old rules, so, based on up to 30 full NI years at 5 April 2016.  In today's terms X/30 x £141.85 = £?.  This was the "basic pension".  To this was added any amount of "additional pension" arising under the state second, earnings-related, pension scheme called SERPS and later renamed State second pension of S2P.  If you paid into a work-related pension scheme that guaranteed to pay at least as much as SERPS/S2P, then it could "contract out" of SERPS. You paid less NIC and the calculation of additional pension included a "Contracted Out Deduction" (COD) effectively reducing your SERPS to £0.  At SPA you would have received either a basic plus additional pension, or a basic plus contracted out pension.

 

2. what you would have got at that date had the new rules always applied, so based on up to 35 years. X/35 x £185.15, LESS any COPE (Contracted Out Pension Equivalent) if you were contracted out. COD and COPE are broadly comparable). 

 

If the amount under 1. exceeds the nSP max (currently £185.15), the excess is called a "protected payment" and is paid in addition to your nSP.  If your starting amount in 2022/23 terms is less than £185.15, then for each complete year (6 April to 5 April) on your NI record for 2016/17 onwards you add £5.29 to your starting amount until you reach the max of £185.15, or stop paying voluntary NIC (in your case) on 5 April before you reach SPA (this is because part years do not count).  As you say, part years do not count and a part year is measured April to April, not simply by counting any period of 12 months or, 52 weeks.

 

So, what does this mean for you?

 

If you have a forecast from November 2016 that will show your position at 5 April 2016, which would also be your starting amount for the rules at that date.  With 29 years, that would have been the higher of (in 2016/17 terms):

1. 29/30 x £119.30 = £115.32 plus any additional pension

2. 29/35 x £155.65 = £128.97 less any amount for COPE (shown on the forecast)

 

If you can say what that number is, then as each year you add gives you an additional £4.45 (at 2016/17 rates), you would be able to see how many £4.45s you need to reach £155.65 (the max in 2016/17 terms) from whatever is the amount showing as your pension at 5 April 2016. If you have 5 years for 2018/19 to 2022/23, that is 5 x £4.45 = £22.25 (in 2016/17 terms) and you would be close to, or a few years away from, your max, depending on your starting amount. Filling that part year for 2017/18 would be very sensible as it would cost only £3.15 x "X" weeks to do so -  presumably about 12 weeks but HMRC will confirm that for you.

 

But all that said, I think it would be better/easier to get a new pension forecast now if you have access to GOV UK and can do it online, so that you can put things in context of current rates and where you sit based on your record to 5 April 2022.  

 

Whatever your position is, you should definitely pay the missing weeks for 2018/17.  There is no immediate rush to do that.  I assume you are paying Class 2 NI, which means the cost per week will increase from £3.15 to £3.45 per week from 1 August (the deadlines have been extended this year because of the mad dash of millions of people to resolve issues for 2006/07 to 2016/17), so an extra 30p for each week you have to pay - maybe an extra £4?

 

Next is to look at what you position will be when 2017/18 is added and knowing that 2022/23 will also be added when the forecast is updated to include the current year.  That will tell you how many more years you need to pay to reach the max, or stop paying because you are only pence per week away from the max, so paying a whole year to secure those few pension would not make economic sense.

 

Finally, deferring serves little or purpose.  You forego a full year of pension (£10,000 or so) for an increase going forward of about £600.  It takes about 16 or 17 years to break even, if you live that long.  So, if you can post the 2016 numbers or get a new forecast, we can work out what to do...