Retirement returns should be anxiety-free and less volatile; you want to enjoy your leisure days on the beach rather than making a roller coaster ride in a bullish or bearish market.
Do you know many UK-based expats are eligible to contribute to Class 2 National Insurance while they are out of their homeland? They need to count a weekly cost of nearly £3.15, less than a Starbucks Frappuccino!
Let’s decode it.
National Insurance for British expats
Many British citizens living abroad are not aware that they are still eligible for the full state pension even after leaving the country. Your annual contribution of £163 or £824 can beef up annual returns to £9,500 and more during retirement, even the income incrementing with the mounting pressure of inflation.
So, you don’t need to struggle for an inflation-hedging investment after retirement.
The latest update so far —
The rate of National Insurance Contributions (Class 1,1a, and 1b) scaled up 1.25% in April 2022. It was the highest jump since NIC was introduced more than a century ago. Additionally, the Class 4 contributions, which impact self-employed people, will be subject to the rise.
But remember, you have the option to make voluntary payments if you aren’t currently a resident of the UK in order to push your eventual income, but you won’t be eligible for any other state-backed benefits like access to the NHS facilities.
The four categories of NICs are as follows (as on Tax year 2022-23):
- Employers and their employees are responsible for paying the Class 1 category, paid by PAYE employees as an auto-deduction process.
- Self-employed individuals pay fixed weekly amounts as class 2 contributions.
- For Class 3 payments, NICs that individuals voluntarily pay to fill in any breaches in their payment records.
- Self-employed individuals contribute to Class 4 on a portion of their earnings.
For class 2 contributors, the investment is £3.15/week, and for class 3, it is £15.85/week.
Who are eligible expats for the NIC benefits?
British nationals who have paid National Insurance Contributions (NICs)in the UK are qualified for a state pension if they have had a record of a minimum of 10 qualifying years. As per the revised norms of 2016, anyone who has made contributions for between 10 to 35 years is qualified to get a fair share. But when you reach state pension age and have accrued 35 qualifying years, you will receive the full sum.
However, the age limitation for NIC beneficiaries is increasing day by day, going beyond 66+ years old.
Are expats in the UK needed to pay National Insurance?
If you are a UK expat or you are considering landing in the UK, you should be aware of the National Insurance designed specifically for people living outside British territory. This means that until you reach retirement age, you must pay a fixed amount to the govt-backed insurance programme from your income to qualify for receiving a pension.
While working abroad, expats without social security agreements may be required to pay for social security contributions in their residing country.
If you meet all of the requirements below, you are still required to pay National Insurance in the UK for the first 52 weeks of your employment abroad —
- You’re doing temporary work abroad, or you have not surrendered citizenship.
- In the UK, your employer should be located.
- In general, you reside in the United Kingdom.
- Before beginning work outside, you were residing in the UK.
Expats should know the facts before making an HMRC application
Although it may not be compulsory to pay National Insurance as an expat after you leave the country, it depends on your job status and recruiter. What expats do with their state pension fully depends on the number of NICs they have made and the amount they need through the UK state pension when the time comes.
Suppose you have a plan to retire in the UK, European Economic Area, or another country with a reciprocal agreement, where the income receivable from the State pension age is indexed in payment. In that case, increasing the basic State Pension is generally thought to be advantageous.
You can still be protected by one of the social security agreements even if the EEA-EFTA Separation Agreement does not cover you.
To work outside of the UK:
- Expats will only contribute to the social security program of one nation at a time, whether it is the EU or Switzerland.
- Expats may have to pay to the social security system of more than one nation at once, whether it be Liechtenstein, Iceland, or Norway.
Final thoughts
The full UK state pension currently exceeds £9,500 yearly and grows with inflation to make a parity. With this amount, you can’t make a lavish retirement after 66, but you have a potential income to boost your basic needs for a moderate lifestyle.
It is good to follow the N138 form and get in touch with Future Pension Centre (FPC) for any updates and try to access a copy of pension forecast data. The Pensions Department uses a “COPE” or contracted-out pension equivalent method in its state pension estimates. This number represents an estimate of the possible earnings that could have been received from contracting out.
If you want to learn more about National Insurance contributions and what you need to do as an expat, request and introduction to an expat tax specialist by clicking the link below.
