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UK pensions - how to increase its value with voluntary contributions

February 3, 2024

Maximise your UK pension – act now as certain options cease on 5th April 2025 (recently extended from July 2023)

Did you work in the UK? If so, you may be entitled to a UK pension when you reach the current British retirement age.

Even after Brexit, the years that you worked in the UK form part of the career assessed for your pension entitlements, in both France and the UK.

For France, the “quarters” in which you paid NI in the UK count toward your 43-year total. However, as you did not pay into the French pension system for those quarters, your French pension entitlement will have a “pro-rata” adjustment to reduce your basic “Tranche A” pension to represent only the proportion of the 43 years when payments were made in France.

In the UK, you may be able to claim part of the UK basic pension as long as you paid into the British NI system for 10 years or more. However, thanks to the withdrawal agreement, this minimum of 10 years does not apply when you have made state pension contributions in other European countries: any years contributed over the UK and EU will be aggregated in order to open entitlement to a portion of the UK state pension. So, someone with 3 years of contributions in the UK will be entitled to a portion of the UK pension once they reach UK retirement age as long as they have also paid into an EU social security scheme.

The UK pension entitlement is calculated based on a 35-year notional career, so if you paid UK NI for 10 years, you will receive 10/35ths of the pension allowance at retirement age. In many cases, this will compensate the reduced French pension after application of the “pro-rata” deduction mentioned above.

So far, so good. However, you are able to increase the amount of the UK part of your pension by making Voluntary Additional Contributions ("VACs") to “buy” missing years of NI contributions. This may result in a higher UK pension but a year in which you work in France and contribute to the French state pension and for which you also make voluntary contributions in the UK does not count twice in adding up the number of years (or trimestres in France) you need to retire with a “full pension” as defined by each country.

You can pay VACs even if you are already receiving your UK pension - in that case the VACs will increase your future pension payments, but will not be backdated. Under normal circumstances, you can buy missing years for the last seven years – so from 2016 at the moment. However, for men born after 5th April 1951 and women born after 5th April 1953, there is a “window of opportunity” to buy missing years from 2006 – so another 10 years – as long as you do so before 5th April 2025 (date recently extended from July 2023 - see NI Direct website). 

What does this mean? Basically, you need to pay an up-front lump sum of either £179.40 (for Class 2 contributions available if you are working) or £907.40 for Class 3 contributions available if you are not working) for each year you wish to make up. You should check with HMRC (+44 800 731 0469 or +44 800 731 0464) to find out which Class applied to you, but basically for years that relate to the period when you were still in employment it will probably be Class 2, but if you are unemployed or for years since you retired it will probably be Class 3. This means it is well worth considering making your application before retirement to avoid more complicated exchanges with HRMC to prove which years relate to an emplloyed period benefitting from the lower rate.

This then gives you an additional pension entitlement of about £275 a year for each year purchased. So the arithmetic is quite simple – you get your money back in between two years (if all of your AVCs are Class 2) and three years if all your AVCs are Class 3. But, before you think this is a “must do” opportunity, there are some other factors to take into account:

-         If you paid UK NI for over 30 years, you are probably already close to being entitled to the maximum state pension, currently £204 per week. As this is a ceiling, purchasing additional NI years only increase the amount of your pension slightly, or possibly not at all, as you will already be entitled to a pension close to or at the maximum amount.

-         If you are still in your 40s, you will be paying the additional contributions now, for a pension you will not receive for 20 years. Therefore, the time cost of the immediate capital payment with no pension coming in for 20 years will reduce the gain you get from an increased pension in 20 years time. Also, if you may return to the UK to work in the short or medium term, you may well be able to accumulate 30 years of UK contributions before you reach retirement age, so making the purchase of AVCs unnecessary.

-         You have to pay tax and minimum social security contributions in France on your UK pension and this will be calculated at your marginal tax rate. So if you are in the 30% tax band (if your other income is already over €27,000 a year per “part”) that and about 15% social charges will almost double the period needed to recover your capital contribution.

To give an example of what paying Voluntary Additional Contribution might mean:

-         Mr B paid NI in the UK for 10 years before leaving the UK to come to work in France, where he stayed in employment until taking retirement in France

-         He had a full 43-year working career (10 years UK, 33 years France) and so was entitled to a “full” French basic pension on his Tranche A (he also had additional pensions in France on Tranche B, but that does not impact this study on the basic pension).

-         As 10 of the years were in the UK, his French pension was “pro-rated” down and he receives €1,300 a month gross from 62 (soon to be 64!) in France. This compares to €1,830 that he would have received had all of his 43 years of career been worked in France.

-        He was born in 1956 and so when he reached 66 (soon to be 67) he applied for his UK pension and receives £260 a month. This makes up part of the "shortfall" in the French pension described above.

-        Mr B found out about the option to buy missing NI contribution years and found he could buy back 15 years (as long as he did so before 5th April 2025 (previously 31st July 2023) – after which the limit will be the last 7 years) based on Class 3 contributions (as he is already retired) at a capital cost of £13,611. This meant that, with 25 years contributions, his weekly entitlement increased to 25/35ths of the standard weekly pension of £203.85 – so his pension increased to £631 per month (£204 x 25 / 35 x 52 for a year, divided by 12). He therefore gained an additional pension of €371 a month meaning that, before taking his French tax situation into account, he will recover his capital payment in 37 months - and also now have a total UK + French pension that is slightly higher than the full French "Tranche A" pension. With this additional pension, even after tax, the capital outlay payback period is not likely to exceed 6 years.

If Mr B is able to demonstrate to HMRC that he entitled to pay Class 2 contributions for part of the catch-up period, for example if he was in full time employment from 2006 to 2016, he may be able to obtain authorisation to pay Class 2 contribution on the first 10 years of the AVCs, then the capital cost would be reduced significantly and the payback period would be just over one year.

To get more information on this, Martin Lewis has published an article in his publication “Money Saving Expert” with most of the details.

As explained in his article, Martin suggest that you watch him explain it on his BBC podcast. Please note that his podcast was prepared before the date extension for the additional 10 years' contibutions.

The first step is to check whether you have any missing NI payments since 2006 - although if you have been resident in France for several years with no UK income, this is almost a certainty. To do this go to the site "Check your NI Contributions".

If you have missing years, you can then find out how much your UK pension should be to see if you are already close to the ceiling of £204 per week, or not. Again, go to the site "Check your State Pension forecast". If you are already receiving a UK pension, you do not need to do this as you will already know how much UK pension you have.

You can calculate the increase in pension you can expect from your VACs using the calculator included in Martin Lewis's article.

You should then work out if it is in your interest, given your own personal circumstances, to pay VACs to boost your UK pension entitlement. Martin Lewis's articles gives some guidelines and the factors you need to consider include:

-         How near to the maximum weekly entitlement are you - the nearer you are, the less likely paying VACs will be a significant benefit for you?

-         How old are you? The younger you are, the higher the "financing cost" of paying a capital payment now, but only receiving the higher pension on retirement?

-         Also, if you are younger and may return to the UK to work, perhaps you will fill the gaps by paying NI in the UK in future years?

-         Do you have the money available to pay the VACs or do you have to borrow as that will increase the cost and reduce the benefit to you?

-         Are you in good health and so likely to live long enough (3 to 6 years) to get your capital payment back?

When you have worked out what to do, and if that answer is to make Voluntary Additional Contributions, you should check with the Pensions Office just in case there is a complexity that affect your personal case that cannot be covered by this general description of the VAC process. The telephone number from outside the UK is +44 191 218 3600. You will need your UK NI number.

How to buy missing NI years

If the Future Pension Centre or the Pension Service has said buying additional national insurance (NI) years would result in extra income and you've made the decision to top up, here's how to do it.

In the short term, if you have not made voluntary contributions previously, the only action to take is to submit form CF83 so that it is with HMRC in advance of the deadline of 5th April 2025, assuming you wish to buy more than the last 7 year’s VACs. They currently have a backlog of several months so no further immediate action is needed. Once you hear back from HMRC with their analysis of your situation you can then make additional contributions should this be beneficial in your specific circumstances. If you intend to acquire 7 years or fewer in VACs, and all of those are the most recent years, then the April 2025 deadline does not apply as the ongoing VAC system will allow for the purchase of years from the last 7. It is only the “catch-up” provision relating to years from 2006 to 2016 for which the process must be started before 5th April 2025.

Form CF83:

-         print out form CF83 from the government website

-         on the form tick either the box for Class 2 or for Class 3 as you believe is appropriate (see below) and do not fill in your bank details

-         send the completed form CF83 to the address on the form with a covering letter explaining your situation clearly (when you left the UK, years of contributions made in the UK, periods of employment outside the UK and in which country…).

The form CF83 should be sent to the HMRC in a paper format. You can send it using recorded post however based on experience you will not receive a response from the HMRC for some months as they are dealing with a significant backlog. However, by connecting to your account on the HMRC app you can track the progress of your form.

Which class of National Insurance?

The government website indicates you may be able to make voluntary contributions as follows:

-         “Living and working abroad: Class2 - but only if you worked in the UK immediately before leaving, and you’ve previously lived in the UK for at least 3 years in a row or paid at least 3 years of contributions.”

-         “Living abroad but not working: Class 3 - but only if at some point you’ve lived in the UK for at least 3 years in a row or paid at least 3 years of contributions”

The government website further states

“If you were living or working abroad: You can pay Class 2 or Class 3 voluntary contributions if you had either:

-         previously lived in the UK for 3 years in a row

-         paid at least 3 years of contributions

To pay Class 2 voluntary contributions you must also have worked in the UK immediately before leaving.

Fill in form CF83 at the end of leaflet NI83. Send the form to HMRC using the address on the form.”

The rate for Class 2 is much lower than that for Class 3. For 2022-23, the rate for class 2 was £3.15 per week. For Class 3 it was £15.85 per week. This means that if you qualify for Class 2 (were working in the UK immediately before leaving the country) you should opt for that category.

Access form CF83

The following link provides access to read the brochure ”Guidance on social security abroad NI38” and to the form CF83.