If you have spent three years or more living and working in the UK then you may qualify for an entitlement to the UK State Pension. The UK State Pension may be received even if you are living in Ireland and can be paid in addition to the Irish State Pension if certain conditions are met.
To be eligible to receive any amount of UK State Pension, you need to have paid at least 10 years of National Insurance Contributions in the UK. The years do not have to have been consecutive. You will receive the full UK State Pension if you have paid at least 35 years of National Insurance contributions. See below section on Voluntary National Insurance Contributions for details on bridging any gaps.
What age is the UK State Pension payable from?
Payments can start from age 66 for people born before 5 April 1960. For those born after 5 April 1960 there will be a phased increase to age 67 and eventually to age 68.
What amount can I be paid?
The full new State Pension amount is £185.15 per week or £9,627.80 per year as at January 2023. The payment increases every year in line with CPI or a minimum of 2.5%. In April 2023 it will increase by 10.1% based on CPI in 2022. If you have under 35 years of National Insurance contributions then the amount you receive will be reduced. For example, if you have 20 years contributions then your weekly pension amount would be £105.80 (£185.15/35 *20) per week at current rates. This calculation is based on the new State Pension. Please note the calculation of your own benefit may differ depending on your circumstances.
Voluntary National Insurance Contributions
You may be able to make voluntary National Insurance Contributions to boost your eligibility. People residing outside of the UK are able to make voluntary contributions as long as they previously lived in the UK for at least 3 consecutive years and have made at least 3 years National Insurance Contributions. The cost of making these contributions is £3.15 per week (£163.80 p.a.) for Class 2 and £15.85 (£824.20 p.a.) for Class 3. You may qualify for Class 2 if you worked in the UK immediately before leaving and are working in another country now.
Bob is 50 and is currently living and working in Dublin. He worked in London for 7 years from 1998 to 2005 before moving back to Ireland. As he has under 10 years of National Insurance Contributions he would not qualify for any UK State Pension when he reaches State Pension age. However, as Bob meets the criteria for making Class 2 voluntary contributions, he can pay a one-off amount of £491.40 to get an extra 3 years. This will bring him to 10 years contributions and qualify him for the minimum pension of £2,750.80 per year payable from State Pension age for the rest of his life. Bob could also purchase more years to increase his entitlement even more as per example 2 below.
Voluntary contributions can be made for up to 6 previous years on 5 April each year. You have until 5 April 2023 to make up for gaps for the tax year 2016 to 2017.
Important: Limited opportunity to make voluntary contributions back to 2006
As above, normally you can only make up gaps in contributions going back 6 years. Currently there is an opportunity to be able to make up contributions going back to 2006 if you meet the following criteria:
From 31 July 2023 this opportunity will be removed and the normal 6 year rule will apply. This is therefore a very valuable opportunity for people to make extra contributions to boost their eligibility. In some cases, there is the potential to secure hundreds of thousands of pounds worth of value, and a guaranteed income, for a relatively small payment.
Bob from Example 1 worked in the UK until 2005. He is currently eligible to make voluntary contributions going back to 2006. He can therefore make 16 years of voluntary contributions up to the 2022 tax year which will give him 23 years in total. As he is only 50, he can continue to make voluntary contributions for another 12 years to bring him up the maximum 35 years and could qualify for the full pension. If he does not do this prior to 31 July 2023 then he will only be entitled to make 6 years of voluntary contributions instead of 16.
Prior to making voluntary contributions, Bob was entitled to no State Pension as he had under 10 years National Insurance Contributions. By taking advantage of the voluntary contributions and extended look-back period, Bob has qualified for the full state pension of £9,627.80 per year from age 68, guaranteed for life and increasing every year. The total cost of the voluntary contributions for Bob was £4,586.40.
Based on the exchange rate at 16 January 2023, £9,627.80 is worth €10,856.33. If he was to buy a guaranteed, increasing income of €10,856.33 from age 68 with an Irish Life company today it would cost him €287,204. This demonstrates how valuable the voluntary contributions can be.
This is a very attractive opportunity to qualify for a guaranteed, increasing pension for life. The voluntary contributions are extremely good value when looking at what it can buy you.
If you qualify to make backdated contributions to 2006, you should start to consider your options now to ensure you can finalise everything by the deadline on 31 July 2023.
If you qualify or are not sure on your eligibility, please contact us at Team@Distinctwealth.ie or by phone at 01 539 2601 to discuss your options.
Mark is a Qualified Financial Adviser (QFA) and Certified Financial Planner (CFP). He has 14 years’ experience in Wealth Management, specialising in operations and advising clients.
The figures and examples used in this article are for illustration purposes only and are subject to change. Your own entitlements will depend on your own unique circumstances and will require confirmation with the UK Pensions authority. Distinct Wealth Management Limited takes no responsibility for the accuracy of the details contained in this document and the details should not be taken as a recommendation in any way.