Still not sold on the UK state pension

[IloveJapan]

Thank you Kuma for your interesting account and comments!

Years ago, I came across the old 16, 17 and 18 years rule you commented on, and I had noticed that I too had about 4 years of contributions even though I greatly lacked full time work experience in the UK. I DID go on to further education and university. However, at the same time during those years I had a huge variety of things like part time jobs, weekend jobs, and internships. So I thought, well, those NI contributions could easily come from those activities too. Though frankly, god knows which of those involved contributions…so I don’t really know if my contribution years stem from work or are education related.

I too actually found out about the “frozen” feature recently, during the Brexit disputes in which the UK and EU were having heated discussions and social security issues came up. I accept though that people living abroad are more likely to know about it (though to be honest the people I have met don’t).

No-one knows what the future holds for inflation, but inflation has been present through most of history so I expect it to be there in my retirement years too. It has re-emerged in Japan as well, so I believe the Japanese pension payments will rise more in future. Regarding the UK, I read somewhere that inflation there has averaged around 4% since the war. So if we extrapolated that 4% into the future, then using the rule of 72, a UK-based person with a frozen pension (no, don’t laugh, I know it’s impossible!) would likely see their pension decline by half in purchasing power terms over around 18 years if that pension did not increase.

Thank you for the ideco compliment too!

[Deep Blue]

But if you are in Japan, surely Japanese inflation is what you need to be concerned about? UK figures are utterly irrelevant.

I wouldn’t bank on the Japanese pension increasing much either. It’s only 10% funded and the demographic profile of Japan is disastrous so future taxpayers are going to struggle to pay even the current meagre level.

[beanhead]

No-one knows what the future holds for inflation, but inflation has been present through most of history so I expect it to be there in my retirement years too. It has re-emerged in Japan as well, so I believe the Japanese pension payments will rise more in future. Regarding the UK, I read somewhere that inflation there has averaged around 4% since the war. So if we extrapolated that 4% into the future, then using the rule of 72, a UK-based person with a frozen pension (no, don’t laugh, I know it’s impossible!) would likely see their pension decline by half in purchasing power terms over around 18 years if that pension did not increase.

Thank you for the ideco compliment too!

What's the break-even on making payments for Class 2? Class 3?
Have you done the calculations?

The info is freely available and many of us have done this homework in order to make what we think is the best decision for ourselves.

https://www.gov.uk/voluntary-national-i ... ions/rates
Here are the costs of voluntary payments, as of Jan 2025.

[Roger Van Zant]

But if you are in Japan, surely Japanese inflation is what you need to be concerned about? UK figures are utterly irrelevant.

I wouldn’t bank on the Japanese pension increasing much either. It’s only 10% funded and the demographic profile of Japan is disastrous so future taxpayers are going to struggle to pay even the current meagre level.

One reason it makes so much sense to pay into the UK pension is that inflation in the UK will always outstrip inflation in Japan. So your UK pension will be worth a decent amount once you start claiming it (I realize it is then frozen thereafter). The Japanese pension, even a full one, will still be paltry even in forty years' time, as Japanese inflation is so low.

[kuma]

Thank you Kuma for your interesting account and comments!

You're welcome!

Years ago, I came across the old 16, 17 and 18 years rule you commented on, and I had noticed that I too had about 4 years of contributions even though I greatly lacked full time work experience in the UK. I DID go on to further education and university. However, at the same time during those years I had a huge variety of things like part time jobs, weekend jobs, and internships. So I thought, well, those NI contributions could easily come from those activities too. Though frankly, god knows which of those involved contributions…so I don’t really know if my contribution years stem from work or are education related.

So, at least 1 qualifying year is from contributions made while working, given that the starting credits would cover a maximum of 3 years (unless credits have been applied for other reasons; but your post indicates multiple jobs during this period). Such a history might be in with a shot of Class 2 qualification.

The first of the possible years for starting credits is the tax year in which you turned 16, so for some this would fall wholly within a year of compulsory schooling (Sept-March birthday; turn 16 during Y11 of school and this falls within a tax year prior to leaving compulsory schooling) and for others it would fall partially within a year of compulsory schooling (Apr-Aug birthday, turn 16 towards the end of Y11, within a tax year which spans compulsory schooling and some post-compulsory school time), so many of the cohort would have qualified for the first year of starting credits, even if marching off to work as soon as school finished. So I suspect there is a component of a potential 'government gift' in your case, even though you undertook lots of different jobs.

I too actually found out about the “frozen” feature recently, during the Brexit disputes in which the UK and EU were having heated discussions and social security issues came up. I accept though that people living abroad are more likely to know about it (though to be honest the people I have met don’t).

Other than cases like the Rees-Mogg children, I imagine most of us are at an information deficit, or were at some point. The founder of this site was, too, back in the day. I certainly was, and in some respects still am. By reading and posting on this forum, we've taken steps to better our knowledge and financial future. Yes, the frozen pension policy may not be universally or even widely known. I'm trying to make the distinction between those who spent their working lives in the UK then migrated and those who moved abroad after a limited amount of work in the UK. The latter group is prevalent on the forum, and are in many cases able to decide whether or not to contribute to a second state pension in addition to one from their country of residence, and their qualification for this second pension would in many cases be through voluntary rather than mandatory contributions; a markedly different set of circumstances to the former group. We're doubly fortunate; armed with both knowledge and time to make provisions for our future.

No-one knows what the future holds for inflation, but inflation has been present through most of history so I expect it to be there in my retirement years too. It has re-emerged in Japan as well, so I believe the Japanese pension payments will rise more in future. Regarding the UK, I read somewhere that inflation there has averaged around 4% since the war. So if we extrapolated that 4% into the future, then using the rule of 72, a UK-based person with a frozen pension (no, don’t laugh, I know it’s impossible!) would likely see their pension decline by half in purchasing power terms over around 18 years if that pension did not increase.

Yes, a frozen pension will erode in value in the case where the cost of living rises in the place of residence/expenditure but the 'cost of living adjustment' (ie uprating) has not been applied.

And very true that we don't know what the future holds for inflation; also true that we can make educated guesses re trends etc, but they remain just that.

But another angle is to say that we do know the past. I think I read on one of your post that you've been in Japan for about 30 years (apologies if wrong); if so, the 1995 pension situation (give or take) makes for an interesting comparison.

Back then, the UK state pension paid out 58.85pw*. In 2023, 156.20pw.

* Adjusted to 2023 UK prices (latest available in the main gov.uk dataset: https://www.gov.uk/government/statistic ... stics-2023) this equates to about 150pw.

So, in raw terms, the UK state pension has multiplied from 58.85pw (1995) to 156.20pw (2023). But in real terms it has remained pretty static for those residing in the UK, where the UK cost of living is relevant (150pw ish to 156pw ish).

However, we in Japan have been living in a much different inflationary landscape.

At the macroeconomic level, inflation in Japan is measured here (first search engine source; not selected as especially authoratative): https://www.rateinflation.com/inflation ... tion-rate/
Some years have been 0%; some years have been negative; some years have been positive; reports (sorry, no sources cited) hint that inflation is becoming 'a thing' here in recent times.

At the day to day level, I think it is fair to say that 100 yen (plus tax) gets you high quality goods at Daiso today, just as it did 30 years ago. (Though this is apparantly changing; again apologies no sources cited.)

Given that UK inflation exceeded Japanese inflation over the period 1995-present, and that UK uprating during this period is applicable to former UK residents currently resident in Japan, it could be argued that such people have 'locked in' 30 years of cost of living increases without having been subject to those UK levels of cost of living increases, ie in 'real terms', their pension has gained significant value. This might mitigate erosion of the value of the pension when drawing it. (Winners and losers of this; some former UK residents live in countries which have experienced hyperinflation; ouch!)

For a point of reference, in 1995, the basic component of the Japan state pension paid out 786,000, which is pretty much parity in raw terms compared to the current level. If one considers macroecomomic inflation, one could say the Japan pension payout has eroded over this 30yr period.

Also, irrespective of the annual upratings, the (base? original?) UK pension rate is/was calibrated according to UK cost of living. Someone drawing it in Monaco* (high average cost of living) will probably have a different experience of how far it goes compared to someone drawing it in Laos (low average cost of living).

* Possibly that Monaco-resident pensioner would engage in a weekly cross-border stroll to France on the day of the week their pension is due, so as to be eligible to 'temporarily' uprate their pension on a permanent basis; one of the easier frozen->unfrozen temporary uprating opportunities in the world (Palestine->Israel less so...); but presumably if wealthy enough to retire in Monaco, said pensioner may not elect not to engage in the hassle of applying for temporary uprating of the UK state pension on a repeated cycle.
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[JimmyK]

For Brits, I notice the UK pension discussion comes up often on the forum. I’m sure those of you/us who are contributing voluntarily from overseas will be aware that the extended, ‘extended’ deadline for making back payments as far back as 2006 (I think that’s it) is April 2025. Missing that deadline (assuming it’s not extended again) means you’ll only be able to back pay 6yrs (again, I think that’s right). So, don’t miss out!

I was originally declined for either class 2, or class 3, before reapplying a few years ago and being approved for class 3. I’ve been back paying at this higher rate ever since. Class 3 is still a good deal, but class 2 is an absolute steal and I’m still not entirely sure why I wasn’t approved for this when most of my friends here with similar circumstances to mine are on class 2. Having first be declined for 2, or 3, I think I was just so relieved to get class 3 that I never thought to question or challenge it. I might now though, but I’m worried I might stir things up and risk losing class 3, though I guess that’s unlikely. The main point that lacks sufficient clarity is what ‘immediately’ means, with regard to stopping work in the uk, leaving uk and moving overseas. Very ambiguous and no longer any definitive info on the HMRC site. I worked in the uk for 4 wks in the summer of 1992 then did no work before leaving the uk in Dec of ‘92 and starting work in Japan in Jan ‘93. I actually left Japan and returned to the uk in Apr ‘95, basically buggering about doing nothing before growing up and realizing a return to Japan wad my best option. So, I returned in Jan ‘96 and have been here consistently since then. I don’t know how HMRC views such a pattern, but it seems they’ve based my class 3 decision on my second stint in Japan. In other words, Jan ‘96 and in the preceding tax year I did know work. My first stint was in Jan ‘93 though and since I’d worked in the uk in the preceding tax year (summer of ‘92), albeit for just 4wks, I wonder if that might make a difference and put me in line for class 2? Again, not knowing what ‘immediately’ means when leaving the uk after stopping work is the issue. In my case, it was about 5mths. No change to the number of years contributions (some of which were from credits) I’ve made, which will be why I at least got class 3. The question is, does the fact I worked in the uk in the same tax year as the year I moved to Japan mean I have a shot at class 2 (and is there a risk to my losing class 3 by challenging it?)

[IloveJapan]

Kuma, thank you again for your detailed response, which I’ve been poring over with my tea this Saturday morning…a lot of pertinent and interesting facts and I’m going to have to read it again later!

JimmyK, your situation reminds me a lot about myself. I too came to Japan twice, although I was always fully committed to living in Japan throughout. I fact I was committed from university onwards.

The first time, I came to Japan in early 1994. Immediately before that, I was working at a full-time job in the UK for four months. That didn’t work out, and after leaving that job I did a month’s study course before leaving the UK.

The second time, I came to Japan in the first half of 1996, after being back in the UK for fourth months due to illness. In the latter part of those four months in the UK, I worked at a language school (I’d say they were full-time like hours).

Since then, I have never revisited the UK.

So I too, don’t know how I would be viewed in class 2 or class 3 terms…

I often wonder whether it’s all down to the official that reviews your case, and how well-trained they are, or whether they put butter on the wrong side of their toast that morning???!!!

[kuma]

The main point that lacks sufficient clarity is what ‘immediately’ means, with regard to stopping work in the uk, leaving uk and moving overseas. Very ambiguous and no longer any definitive info on the HMRC site.

I agree that the criterion presented below is the least well defined and is the main make-or-break criterion for many on this forum (who already have the other Class 2 eligibility criteria covered):

Immediately before going abroad, you were ordinarily an employed or self-employed earner in the UK.

(This is the simplified form of the criteria as in NI38: Guidance on Social Security abroad; the legalese version can be found in Regulation 147 of The Social Security (Contributions) Regulations 2001.)

Some discussion of this criterion is on the wiki:

Neither Form CF83 (PDF), Pamphlet NI38: Guidance on Social Security abroad nor indeed the underlying legislation (Regulation 147 of The Social Security (Contributions) Regulations 2001) provides further definition to the Class 2 criterion of 'immediately before going abroad, you were ordinarily an employed or self-employed earner in the UK'. Applicants for whom this is not clear cut may wish to present their case on this point in a covering letter. HMRC's thinking may be akin to the 'ordinarily resident' guidance in NI38 (consisting of written guidance and a table of indicators of likelihood of classification as 'ordinarily resident'). A long work history in the UK with a short gap to prepare for an international move should reasonably satisfy the criterion (although not actually employed immediately prior to leaving the UK, you ordinarily were). Even a more extended earning gap such as a university course might satisfy the criterion (the course is time-limited, and if your prior history supports your case, you might be considered to be ordinarily employed or self-employed despite being on a study break), but this is dependent on HMRC's interpretation.

Ordinarily seems to be an intrinsically more difficult word to define than immediately, but in any case it is the criterion as a whole which needs considering.

no longer any definitive info on the HMRC site.

Maybe someone tech-savvy on the forum can hunt down the thread from the HMRC Community Forum in which an HMRC Admin replied regarding 'immediately'. However, I think many posters on the HMRC forum would consider the answers to be hit and miss, and I don't think answers there can be considered as authoritative as HMRC publications or government legislation. Having said that, were an answer to be favourable to anyone's case, quoting HMRC back at themselves might be a strategy if presenting a case!

I worked in the uk for 4 wks in the summer of 1992 then did no work before leaving the uk in Dec of ‘92 and starting work in Japan in Jan ‘93. I actually left Japan and returned to the uk in Apr ‘95, basically buggering about doing nothing before growing up and realizing a return to Japan wad my best option. So, I returned in Jan ‘96 and have been here consistently since then.

The question is, does the fact I worked in the uk in the same tax year as the year I moved to Japan mean I have a shot at class 2?

From your summary, it appears that Class 2 qualification would be highly unlikely, because on neither occasion immediately before leaving the UK is it likely that you would have been considered to have been ordinarily an employed or self-employed earner in the UK. In one instance there was a short period of employment followed by a long period without employment prior to a move to Japan, and in the second instance I think you'd agree that your wording of your circumstances isn't indicative of ordinarily being an employed or self-employed earner in the UK at that time.

(However, regarding the period before the first move to Japan, if there were circumstacnces either side of the 4-week work period stated in your account, such as inability to work due to ill health prior to your summer job and (lengthy) jury duty after your 4 weeks of employment taking you all the way up to your departure from the UK, then the door might be ajar for the ordinarily and immediately determination, though this seems highly unlikely, and in any case, the period prior to the second departure from the UK might render that irrelevant.)

is there a risk to my losing class 3 by challenging it?

Your case for Class 3 sounds watertight, so I don't imagine HMRC would rescind that.

However, it might be worth mentioning that in January 2024 the application form (PDF) changed. Previously, applicants selected whether they were applying for Class 2 or Class 3 contributions. Since January 2024, applicant make a general application and HMRC determines the class, if the applicant is eligible:

Application to pay voluntary contributions
We will use the information that you’ve supplied in this application form to determine the class of voluntary National Insurance if you’re eligible to pay. We will write to you to let you know.

Whilst a re-application shouldn't trigger the cessation of your current arrangement to make Class 3 contributions, HMRC don't have the best track record (you report you were initially rejected for Class 3 despite fulfilling the eligibility criteria...), so some would say sticking with the status quo might limit the chances of things going awry, especially as the Class 2 criteria do not appear to be met in your case (in my reading thereof).

[kuma]

So I too, don’t know how I would be viewed in class 2 or class 3 terms…

Your chances of Class 2 look more hopeful, but not a given, in my opinion. Explaining why will make this post somewhat lengthy...

Immediately before that, I was working at a full-time job in the UK for four months. That didn’t work out, and after leaving that job I did a month’s study course before leaving the UK.

Regarding 'immediately', it seems like it would be more correct to state:

Immediately before leaving the UK, I undertook a short course of study. Immediately prior to that, I was a full-time employed worker for a period of four months. 

That in itself may not lead to a definitive conclusion from HMRC. From a previous post it seems likely that you had a qualifying year of NI records from work in your final year in the UK, which may count in your favour; a qualifying year based on NI contributions from employment seems indicative of someone ordinarily employed. And this would be a robust first point if you wish to present a brief case to HMRC.

However, other points HMRC may consider (remembering this is just speculation from someone on the internet) include:

• Prior to that employment, what were your circumstances?

• Was the employment on a permanent contract?

• Etc

The second time, I came to Japan in the first half of 1996, after being back in the UK for fourth months due to illness. In the latter part of those four months in the UK, I worked at a language school (I’d say they were full-time like hours).

This may or may not complicate things!

The legislation governing Class 2 eligibility refers to the 'most recent' departure from the UK:

Immediately before he last left Great Britain or Northern Ireland (as the case may be)...

However, provisions (in the same legislation) are made (for those who are gainfully employed outside the UK) for temporary stays in the UK to be permitted whilst contributing to the state pension voluntarily, ie temporary stays in the UK are excluded from the 'last left the UK' clause:

A person who is gainfully employed outside Great Britain and falls within the provisions of paragraph (1)(a) shall for the purposes of that paragraph be treated as being outside the United Kingdom for any period during which he is temporarily in the United Kingdom.

That doesn't cover your case (since it is for those already making voluntary contributions from abroad), but does perhaps hint at how temporary stays in the UK might be treated for NI purposes.

Would HMRC consider your four-month stay to be a temporary stay? Factors HMRC might consider could include:

• Did you retain employment in Japan during this period? (I imagine not, otherwise your account would have probably stated this.)

• Did you retain Japanese status of residence?

• Did you retain access to accommodation in Japan?

• Did you retain accommodation in the UK while you were in Japan?

• Etc etc.

Or would this UK stay in any case fulfil the immediately and ordinarily criterion? Immediately before departing to Japan, you were an employed earner in the UK. This was the ordinary state of affairs whilst in the UK except for the extraordinary period when you were not earning as you were recovering from illness. (However, HMRC might consider you to have been ordinarily resident in Japan, and this UK stint to have been extraordinary... which wouldn't be a bad thing, and would render this second UK stint irrelevant to the case for Class 2.)

In summary, Class 2 sounds possible, depending on HMRC determinations. And many on this forum would recommend an application in such circumstances, as the 'prize' of Class 2 is deemed by many to be excellent.

If applying, I would recommend presenting your case in a covering letter, along the lines of:

I left the UK for Japan on XX/YY/ZZ.

I consider that I satisfy the Class 2 criterion of "Immediately before going abroad, you were ordinarily an employed or self-employed earner in the UK".

This is because:

1. I gained a qualifying year through NI contributions from employment immediately prior to departure from the UK
2. I was a full-time employee in the UK after completion of higher education, and had multiple jobs during higher education too, and so by my understanding I was ordinarily an employed earner in the UK
3. I undertook a brief period of study (approx 1 month) before my departure from the UK, but do not believe that such a short period of study affects my status of having ordinarily been an employed earner in the UK prior to my departure

I should also state that in 1996, I temporarily stayed in the UK after experiencing illness abroad. I spent a period of approximately 4 months in the UK to recover my health, and during the latter part of this temporary stay, I conducted some work at a language school (as my NI record will attest) whilst preparing for my return to Japan, which was then and remains now my 'centre of interest' and is the country in which I have resided for over 30 years. (Even during this brief UK stay, immediately prior to departure I was a UK earner, and this was ordinarily the case whilst in the UK except when I had an extraordinary period of non-employment due to ill health.)

I'd be very happy to answer further questions / look over your case in more detail either on the forum or via PM if you'd prefer.

[IloveJapan]

Kuma, thank you again. I’ve sent you a PM