Job Discussion Forums

[wailing_imam]

UK National Insurance contributions

I have been out of the UK for 10 years.
I am 34.
I am an ESL teacher.
I earn around UK POUND 25K a year.

Do I need to tick class 2 or class 3?

What is the income threshold for class 2?

If I pay this, and continue to live abroad, will I be able to draw my pension overseas when I retire or does one have to be UK resident in order to get the pension at retirement age?

Is it worth it?

[bulgogiboy]

I'm not sure about which 'class' you are, but I know that whether you are abroad or not you need to contribute NI for a minimum number of years before you can draw state pension. I think it's 30 years (?). If you do this, despite living abroad, you should be entitled to your state pension.

Whether it's worth it or not is a matter of debate. Is your 25k GBP tax-free? Are you able to save much? Do you have a TEFLer's taste for the sauce? If so, there might not be much point in shelling out for the golden years...

People are living for longer in (most parts of) the UK, in 30 years time there might be a much smaller working population coupled with a much larger elderly population, meaning the pension pot could have serious problems. What people get now, which isn't exactly a king's ransom, might well be significantly reduced in later years...But still, if you can easily afford the NI payments then some might say why not just pay them?

[wailing_imam]

Tax is minimal, less than one percent. I save around 750 pounds a month. I drink once a month. In summary, it's affordable and seems like a sensible thing to do.

[jonniboy]

[Hod]

Yes, it�s worth it, even for less than thirty year�s payment.

According to
http://www.hmrc.gov.uk/ni/volcontr/abroad.htmhttp://www.hmrc.gov.uk/ni/volcontr/abroad.htm , class 2 is best, but there are links on that site to check further.

You get 100% (currently 97 Pounds a week) at 67 if you pay for thirty years. If you pay longer, you get no more. If you pay twenty years, for example, you get two-thirds of the benefits.

People can scoff at 97 quid a week, but no other savings scheme will give such a payback for so little.

At the moment, you don�t have to be a UK resident to get pension payments.

http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008

gives a State Pension forecast. They�ll say how many years you�ve earned and how to pay back payments. Back payments from previous tax years will be cheaper than future tax years, so it�s worth considering. You can normally do so for up to five previous years. In 2009/10, back payments were 626 Pounds a year.

The above waffle depends on your age, how many years you�ve paid and if you ever intend to work in the UK again, which might not apply to wailing_imam but others reading might be interested.

I�m 40 and have paid 15 years NI. It�s unlikely, but I can�t rule out working in the UK between now and when I�m 67. If I did so, I�d have no choice but to pay NI for those years anyway, so I�m a bit careful now about spending an annual 626 Pounds in voluntary contributions of what could turn out to be dead money. Whilst abroad, I�ve paid some voluntary contributions, but I�m holding off voluntary back payments right now in case I work in the UK again.

To sum up, o yes.

[wailing_imam]

Thanks Hod. Good answer.

[nickpellatt]

There was a recent government plan to scrap that minimum paying in period though.....not sure it has gone through yet, but the plan was suggesting everyone gets a minimum amount and the plan appears to be based on residency at time of retiring.

I believe the idea is to cut down on the many different types of benefits and make one universal benefit which is much cheaper to administer. I dont have links Im afraid, but when I read it in the newspapers in the last 6-8 weeks I thought it looked good news for me as I have also missed a few years NI contributions.

[jonniboy]

[Hod]

I imagine (and hope) a future government denying state pensions to fully- or partly-paid up non-residents, would be forever in court. There will be loads more non-residents, what with the UK being a dump and the EU making it easy to live somewhere nicer.

The trouble is, governments are a bunch of numpties. Search BBC News for National Insurance and see what a mess they make. But the state pension offers such a good return*, it has to be worth thinking about. Go to a Private Pension Calculator website, key in payments of 626 UK Pounds a year for thirty years, see how poor the returns are.

* It�s a good return but not enough to live on.

Doing the maths, you only have to live a handful of years past 67 to start being in profit. The UK life expectancy (78 for men, 82 for women) goes way past the profit zone, so where is the money going to come from?

I believe a future government will have no choice but to reduce the state pension. There�s just not enough money going in. Saying that, based on the sums, it would have to be a massive reduction, e.g. 50%, to make paying into NI no longer worthwhile.

[Perilla]

[nickpellatt]

http://www.myfinances.co.uk/pensions/2010/10/26/a-new-universal-state-pension-could-be-introd

I havent done an extensive search, but this is one link with some (a little) information about the new proposal...only at the discussion stage at the moment, but if they want to implement it, I think it will be an easy sell.

[Perilla]

I think it's referring to residency in terms of entitlement to residency ie. whether you are a British citizen or not - not whether you are abroad or not.

http://www.guardian.co.uk/politics/2010/oct/25/state-pensions-reform-simplified-end-means-testing

Anyway, far too early to push the panic button. I'll carry on paying my voluntary contribitutions and keep my fingers crossed ...

[nickpellatt]

[Hod]