UK: National Insurance and the State Pension

With the cost of living crisis at the moment it is even more important to check that our clients are on course to get their full State Pension entitlement.  However, a lot of UK residents/expatriates don’t realise that to be entitled to the full State Pension when they reach State retirement age they need a minimum of 35 qualifying years.  The minimum number of qualifying years to receive a proportion (35/10) of the State Pension is 10.  To be entitled to a qualifying year, earnings from employment must reach the ‘Lower Earnings Limit’ (LEL).  This figure varies year on year and in 2022/23 is £6,396. Earnings at this level will not incur Class 1 National Insurance charges by either employee or employer but will entitle them to a qualifying year.  It is imperative that these earnings are reported via payroll to be recorded by the Revenue and added to National Insurance records.  National Insurance records can be accessed by creating an online PTA (personal tax account) via the Government Gateway or by completing the following form https://www.tax.service.gov.uk/shortforms/form/NIStatement. 

UK residents/expatriates may be able to pay voluntary contributions to fill any gaps if they are eligible.  They can usually only pay for gaps in their National Insurance record from the past 6 years, but may be able to pay for gaps of more than 6 years depending on their age.  If they’re a man born after 5 April 1951 or a woman born after 5 April 1953 they have until 5 April (change to 31 July) 2023 to pay voluntary contributions to make up for gaps between the tax years April 2006 and April 2016.  After 5 April (change to 31 July) 2023 this will revert to the past 6 years only. Voluntary National Insurance contributions are currently £15.85 per week.  Any payment for gaps in prior years are chargeable at the rate applicable to the year in question.

It should also be noted that the State Pension for expatriates will only increase each year if they live in:

-          The EEA

-          Gibraltar

-          Switzerland or,

-          Countries that have a social security agreement with the UK (but not Canada or New Zealand)

For those not entitled to the yearly increase due to their country of residence this would increase to the current rate if they returned to the UK to live.

The rules for the self-employed are slightly different as it is the payment of Class 2 National Insurance that qualifies them for the State Pension and other benefits (maternity pay, sickness benefits and more).  A major change in the treatment of the self-employed and National Insurance contributions is that from April 2022 Class 2 National Insurance will not be payable on profits between the Small Profits Threshold (SPT) (£6,725 in 2022/23) and the Lower Profits Limit (LPL), currently £11,909, but will entitle them to a National Insurance credit.

Another thing that a lot of people are not aware of is that there are occasions when National Insurance credits are given automatically such as if you are, or have been, claiming benefits due to ill health or unemployment. are, or have been, on maternity, paternity or adoption pay. are, or have been, looking after a child under 12.

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Reference/ Citation

HM Revenue and Customs website

https://www.gov.uk/voluntary-national-insurance-contributions/rates

https://www.gov.uk/voluntary-national-insurance-contributions/deadlines#:~:text=You're%20a%20man%20born,for%20the%20past%206%20years

https://www.gov.uk/state-pension-if-you-retire-abroad/rates-of-state-pension

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