Asking for Advice about UK Pension and NI

[kuma]

So as someone who hasn’t set up voluntary payments yet, how much are they? And how to you make those payments?
U.K. citizen, lived for about 25 years and probably had 8 years working in U.K. before moving to Japan.
So what’s the amount you’d expect to pay? Or is it different for everyone based on earnings or something?

https://retirewiki.jp/wiki/United_Kingd ... rom_abroad

Thanks for the reply.

So if I understand correctly I would be paying £3.05 a week.
The part I didn’t understand was how much pension I’d be paid upon retirement. Was it £270? A year or a month?
Thanks.

The full UK state pension currently pays £9,337.20 per year.
To receive the full pension 35 qualifying years are required.
So each qualifying year is effectively worth £9,337.20 / 35 which is approximately £270 at today's rates.
That's where the £270 figure comes from.

You can check your national insurance record (link in the wiki) to see how many qualifying years you already have and whether you have any gaps which are eligible for back-payment. (If, for example, you moved to Japan just before the end of a tax year, you could have been 90% of the way to a qualifying year but have a very small gap that could be filled by a voluntary contribution.)

[kuma]

If you're contributing to kokumin nenkin in Japan (I think you recently received payment slips for this?), you contribute about 200,000 yen per year and each year of contributions increases your pension by about 20,000 yen (~800,000/40).

In yen terms, each qualifying year of the UK state pension is worth about 40,000 yen, so it's twice as valuable as a Japanese qualifying year. With Class 2 contributions, a qualifying year comes at a cost of only 24,000 yen per year. So you could view it as a tad over a 10% overpayment to your (combined) state pensions (you were due to pay 200,000 into the Japanese system, then you add a 24,000 yen voluntary payment into the UK system), and this overpayment which will triple your annual benefit (20,000 yen --> 60,000 yen).

Class 3s end up costing about 120,000 yen per year, and give the same 40,000 yen boost. So that's a 60% 'overpayment' for the same 300% boost in combined state pension benefits. Still an excellent deal, by my reckoning.

Of course, exchange rates and pension rates and rules could change in the future, but the numbers look very, very favourable to myself and many others on this forum.

[KCLenny]

Sorry I’m a bit more confused now.
So if I pay class 2, I’ll pay £3.05 a week for a total of £158~ a year.
But I’ll receive £9300~ a year in pension?
I’m still not sure where this £270 is coming from. Is that what I have to pay to qualify? Or is that an amount I’ll receive?
I’m really sorry this is all new to me and really confusing.

[RetireJapan]

Sorry I’m a bit more confused now.
So if I pay class 2, I’ll pay £3.05 a week for a total of £158~ a year.
But I’ll receive £9300~ a year in pension?
I’m still not sure where this £270 is coming from. Is that what I have to pay to qualify? Or is that an amount I’ll receive?
I’m really sorry this is all new to me and really confusing.

If you are accepted to pay Class 2, you will pay 158 GBP per year. If you pay for 35 years total your pension under current rules would be 9300 GBP per year. If you don't pay the full 35 years the amount will be reduced proportionally.

So each year you pay increases your eventual pension by 270 GBP. There is a 10 year minimum before you can get a pension though.

[adamu]

I’m still not sure where this £270 is coming from.

It's not really relevant if you just want to know a) how much you pay (£3.05/wk for class 2, £15.40/wk for class 3) and b) how much you get (£179.60/wk if you're fully covered for 35 years). Yes, you get back more than you pay - it's a bargain.

"What if I have less than 35 years of coverage?" - that's where the £270 comes in as the others explained. Each year of payments will increase the amount of pension you get by £270 per year.

Unfortunately, the system is complex and depends on individual circumstances, so it's difficult to simplify things in a way that make it applicable to everyone. But a good rule of thumb is:

If voluntary contributions are likely increase the amount of pension you would get, you should pay them.

Examples of where they don't increase the amount: You already have 35 years of coverage, or you are likely to return to the UK and work, which may be sufficient to get full coverage without voluntary payments. However, the voluntary payments are so cheap, it's a good idea just to pay them anyway if there is any uncertainty.

[taneandy]

Sorry to jump on this thread but it already seems to have deviated a bit from the initial topic and it doesn't seem worth starting a new thread.
I'm finally getting around to sorting out my application for voluntary contributions, but I'd just like to check that I'm on the right track.

My situation:
37 years old
Living in Japan since 2008 and in full-time employment for all but around 1 month of that time
Currently have 4 full years of UK pension contributions
Have 16 years where I'm eligible to make back payments (1 year already has partial contributions so would be at a reduced rate)
May return to the UK at some point but more likely to remain in Japan indefinitely

Obviously I would prefer to pay class 2 contributions, but the fact that I was at university during the year straight before coming to Japan probably rules me out. I assume it's still worth applying for class 2 though just in case?

If I only get accepted for class 3, do you think it's a good idea to make back payments even though I could still in theory make 35 years of contributions without them?
The main benefit of making back payments seems to be as insurance in case the contribution rates go up significantly more than inflation/investment returns and in case the rules for voluntary contributions from overseas change.
Am i missing anything?

One option I'm considering is making 6 years of back payments so that I meet the minimum requirement of 10 years.

[adamu]

If I only get accepted for class 3, do you think it's a good idea to make back payments even though I could still in theory make 35 years of contributions without them?
The main benefit of making back payments seems to be as insurance in case the contribution rates go up significantly more than inflation/investment returns and in case the rules for voluntary contributions from overseas change.
Am i missing anything?

Sounds like you've got it figured out.

The only risk is that you move back to the UK and end up paying thousands of pounds of class 1 or 4 payments even though you are already fully covered. But I think it's worth the risk given the uncertainty. And that would be the case if you had been working full time in the UK anyway.

If you're fully covered and live abroad, you can just stop making the payments (and hope they don't increase the number of required years).

[beanhead]

Sorry I’m a bit more confused now.
So if I pay class 2, I’ll pay £3.05 a week for a total of £158~ a year.
But I’ll receive £9300~ a year in pension?
I’m still not sure where this £270 is coming from. Is that what I have to pay to qualify? Or is that an amount I’ll receive?
I’m really sorry this is all new to me and really confusing.

A look around the gov site may help to clarify some of your questions as well. It is a decent resource.
https://www.gov.uk/new-state-pension

[Bushiman]

Have 16 years where I'm eligible to make back payments (1 year already has partial contributions so would be at a reduced rate)

Hmmmm... Did something change in the rules?
I was only allowed to backpay 12 years 2 years ago (from 2018~2006)... I have another 3~4 years before that I'd love to pay off, but was not given the option... Can we now backpay more?

[taneandy]

Hmmmm... Did something change in the rules?
I was only allowed to backpay 12 years 2 years ago (from 2018~2006)... I have another 3~4 years before that I'd love to pay off, but was not given the option... Can we now backpay more?

Sorry that's my mistake, 3 of those years are too late to make contributions so it's actually 13 years (11 years at 800.80/yr, 1 year at 780/yr, and 1 year at 292.60/yr)
If you get accepted for class 2 contributions are backpayments also possible at the same level?
At class 3 rates it doesn't seem worth paying all 13 years.