The option to buy a UK state pension exists for anyone who has worked in the UK for three years or more, but many people who could qualify are unaware of this right, and how to exercise it.
In this article published in the Irish Pharmacy News, Colm Moore, Managing Director at Moore Wealth Management, provides information on this issue.
There are very few investment recommendations that financial advisers can make to clients that are a gold-plated opportunity to guarantee them income for life in retirement from an A-rated guarantor, for a minimal outlay.
However, the option to buy a UK State Pension currently exists for anyone who worked in the UK for three years or more.
We find this criteria is met by many of our pharmacy clients.
Owing to the overwhelming amount of interest in this matter we have put together the below information to demonstrate how you can avail of this opportunity.
Who is eligible for the UK state pension?
To qualify for the minimum UK state pension entitlement you must have ten years on your national insurance record. This is the UK equivalent of our PRSI contributions.
To qualify for the full UK state pension, you need up to 35 years.
What if I do not have 10 years of contributions?
Even if you haven’t worked the required amount of time to reach the minimum ten years on your UK National Insurance record, you have the option to make voluntary contributions to increase your record, to either bring you up to the minimum requirement, or to increase your record to bring you closer to the 35 years required for the full state pension.
You need to have three years’ contributions to qualify to be allowed to top up your contribution level.
Do you need to be a UK resident?
You do not need to be a resident of the UK to avail of the voluntary contributions scheme. Normally you can pay voluntary contributions for the past six years.
The deadline is 31 July this year, but the current option allows you to buy back to 2006, or an additional 17 years.
Non-residents have the option of paying Class 2 voluntary contributions, which are at a much lower cost than UK residents are required to pay.
It must be noted, that Class 2 stamps only allow for state pension entitlement, and not for other benefits such as fuel allowance.
Can I claim both the Irish and UK state pensions?
Yes, you can be paid both the UK and Irish state pensions if you qualify for both based on your respective social insurance record in each country.
What is the rate of payment in the UK?
The maximum rate of state pension payment in the UK is £185.15 per week. For this, you need 35 qualifying years on your national insurance record.
So someone with ten qualifying years will qualify for: 10/35ths x £185.15 = £52.90 per week
Cost to buy back years?
Buying back years for the 2022 to 2023 tax years:
- £163.80 per year for Class 2 (Non-Resident) — 99% of you will be in this category; and
- £824.20 per year for Class 3 (Resident).
For example: John has five years of National Insurance Contributions and now lives in Ireland. As he is currently under the ten years minimum requirement he can buy back five years to give him the minimum rate pension. This would cost 5 x £163.80 = £819. He now has the minimum requirement and will receive a pension at retirement age of the following:
- 10/35ths x £185.15 = £52.90 per week or £2,750 per annum (for a once-off cost of £819 and this is paid until death*).
He can of course also buy back additional years to increase this.
*The accuracy of this calculation will be slightly impacted by an overlap in calculations for pre and post-2016 as the number of years needed for the full pension changed from 30 to 35 this year. This would have to be factored in depending on when you were in the UK but the impact will be minimal.
Supports
There is a window of opportunity between now and 5 April where you can increase your pension entitlement at retirement age by topping up your contributions. There are several supports available so you can see your current situation:
- Check your current contribution level at www.gov.uk/check-statepension; or
- Information on the Freephone support line and other guides is available at www.gov.uk/ future-pension-centre
Issues clients have encountered in applying to date
- The first to note is the deadline of 31 July;
- Getting a reclassification of your resident or nonresident status;
- You will need a sterling cheque;
- Getting your forecast to see what your shortfall is before you buy the years back;
- Need to have three years of contributions; and
- There is a huge backlog, but any submissions received via recorded post before 31 July will be honoured.
What is this worth?
To buy an income for life equivalent to the minimum UK Pension of £2,750 would cost circa £55,000 on current annuity rates. To buy the full amount would cost closer to £235,000.
Our Advice
If you qualify here this will have an impact on your financial planning. Your adviser will need to update projections and cashflow models to account for this, and this could have an impact on your current investment allocations as you may be able to de-risk some of your portfolio once you know you have this income locked in. As always you should seek advice from a Certified Financial Planning™ professional if you have any questions on this.
Deadline
This temporary arrangement to top up your entitlement ends on 31 July but we recommend you act now to make sure you don’t miss this valuable benefit. Recent reports have indicated that there is a 22-week wait time for applications to be processed, but any received before this date will be honoured.
Colm Moore Grad Dip, SIA, QFA, CFP®, and his business Moore Wealth Management have been advising the pharmacy community for over 20 years. He can be contacted at 086 860 3953 or via colm@mwm.ie.
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