Deciding if paying voluntary UK national insurance contributions is worthwhile as an expat is a nightmare based on where you work and how long for.The quandary is if paying into the British social security system is cost-effective as an expat. To make matters worse, there’s no one-rule-fits-all answer to use as a guide.
Why would expats want to pay UK NIC?
Choosing to pay national insurance contributions (NIC) is a way of filling gaps in your social security record. This can improve entitlement to the state pension and some benefits – providing you can claim the payments from outside of the UK. If you have enough NIC qualifying years on your social security record, you will be entitled to a UK state pension.
Who can pay voluntary NIC from abroad?
The scope is limited for expats who want to pay voluntary NIC. Those who qualify are:
Expats living and working overseas (Class 2)
Providing they have lived and worked in the UK immediately before leaving
AND
They have lived in the UK for three years in a row
OR
Have paid NIC for three years
Expats living overseas but not working (Class 3)
They have lived in the UK for three years in a row
OR
Have paid NIC for three years
Expats over state pension age (Class 3)
Anyone over state pension age who wants to buy NIC years to improve their state pension pay out.
How much do the contributions cost?
The 2020-2021 rates are:
Class 2 – £3.05 a week
Class 3 - £14.25 a week
The rates change each April.
Source: Gov.uk web site
Do voluntary NIC payments cover overseas health care?
No. voluntary NIC payments do not include healthcare for the country where you live. If payment is required, you must make local arrangements to cover the cost.
How much state pension do expats get?
This depends on where they live and how long they have contributed. To qualify for the state pension, expats must have at least 10 qualifying NIC years, while the full state pension is only paid to expats with 35 qualifying years. Anyone with between 10 and 35 qualifying years receives a pro rata payment. For instance, someone with 20 NIC years receives 20/35 of the maximum payment. This is worked out as 20/35 x the maximum state pension payment, which for 2020-21 is 20/35 x £175.20 = £100.11 a week.
Expats living in the European Economic Area (EEA) or a country with a reciprocal social security agreement with the UK have their state pensions uplifted in line with inflation in the UK each year.
Elsewhere the pension is frozen at the rate of the first payment.
Should expats buy extra NIC years?
This depends on running a cost-benefit analysis for each expat. If the voluntary payment gives a state pension return that is greater than the expense or better than the yield from investing elsewhere, then the answer is probably yes. If not, the expat would likely be better off keeping the money.
Other factors also apply, such as health. There’s no point in investing the money for a long-term return if you have a lifestyle or health condition that means you may pass away before collecting the benefit of the payment.