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Former UK taxpayers who may have only lived in the country for three years are learning that they can qualify for a state pension, under an arrangement that is set to end in the first week of April.
A flurry of social media posts and news stories across the world has alerted people to the chance to get a UK state pension.
“A $480,000 opportunity for Australians who did a stint in London”, declares a headline from the Australian Financial Review. A post on Instagram by theaussiecorporate, announces: “wild loophole for expats”. The Irish Times claims there are “hundreds of thousands of Irish people . . . eligible for the top-up”.
Anyone who has worked in the UK for three or more years may be able to claim a state pension of up to £12,000 a year if they have 35 qualifying years of national insurance contributions. Since 2016, employees have, under a temporary scheme, been able to fill in gaps in their NI record by paying voluntary contributions, going back as far as 2006 — but that arrangement will end on April 5 this year.
The news has in the past few days caught the attention of expats and foreigners who worked in the UK for at least three years and could top up their NI contributions — which can cost up to £907 per year — to qualify for the state pension. People need at least 10 qualifying years of NI contributions to receive any pension, with more years equating to a higher payout.
After April 5, people will only be allowed to fill in NI gaps over the past six years, reducing the scope for them to qualify for a pension or increase their payout.
“The intention [behind the voluntary contribution scheme] is that you have people who work in the UK, move abroad and come back — you want them to be able to fill in gaps in their record,” said Sir Steve Webb, a former pensions minister and partner at LCP, a pensions consultancy. “What’s odd is this business of going back so long.”
The new state pension, introduced in 2016, required people to have about 35 qualifying years of NI payments to receive the maximum payment. The government therefore introduced a transitional arrangement to allow those who didn’t meet the requirements to plug any shortfalls by paying voluntary NI contributions, going back as far as 2006.
The arrangement was originally set to end in 2023, but was extended twice after surges in interest near the deadline.
Those thinking of making voluntary NI payments ahead of the deadline should consider where they intend to live in retirement, and their current age.
Tom McPhail, a pensions specialist at consultancy Lang Cat, says “most working adults in the UK today are likely to hit the maximum number of qualifying years throughout their working lives anyway, so you question the value of making additional payments”.
Younger people in their 20s and 30s will also be subject to the whims of future governments, who may make changes to the state pension. “The longer there is until your retirement, the more risk you’re exposed to around political changes,” says McPhail.
He adds that while the pension is inflation linked today, it may not be in future. “It is by its nature like buying a deferred annuity — you’re losing control of your capital. You should check that the investment profile is attractive to you in terms of the capital commitment now and the loss of capital in exchange for a future income stream.”
Retirees receiving their pensions in the UK receive an increase in the state pension every year under the “triple lock” scheme, under which the government has committed to raise payouts every year by the highest of inflation, earnings growth or 2.5 per cent.
However, outside the UK, only those living in the European Economic Area, Switzerland or a country that has “reciprocal agreements” with the UK will benefit from the triple lock. Retirees sunning themselves in Barbados or Jamaica, for example, would be entitled to annual increases to the payout, but the same is not true for those in St Lucia.
For all the excitement in the Australian press, people living in the country — a popular destination for disgruntled UK junior doctors — would not see any UK pension payouts rise in line with inflation. Neither would those living in Canada or New Zealand.
