This explainer is aimed at people resident in Ireland who have spent time working in the UK at some point in the past. Did you know you can cheaply top up your UK State Pension? Here’s a quick Q+A.
Q. Can I have both an Irish and a UK State Pension?
Yes, if you qualify, you can be in receipt of both an Irish State Pension (current max €265 per week) and a UK State Pension (current max £204 per week) in retirement. One does not offset or reduce the other.
Q. What about tax?
Both are paid gross so both count as taxable income in Ireland (but of course all the relevant thresholds and credits can be taken into account). You do not pay any tax to UK Revenue.
Q. How long do I need to have worked in the UK?
To qualify for any UK State Pension at all, you need 10 years of National Insurance (NI) contributions BUT if you have worked in the UK for a minimum of 3 years you have the ability to make voluntary NI contributions to get to that 10 year mark and beyond (all the way up to the 35 year full rate) and thereby secure an inflation linked UK government guaranteed pension for life.
Q. Do you need to be UK resident?
No. You can be resident anywhere and working (or retired) anywhere.
Q. What’s the deal?
So if you have worked the minimum 3 years in the UK and you wish to make voluntary NI contributions to at least get you a basic UK State pension (10 years NI contributions = £58 per week) you need to act now. Normally it is only possible to plug gaps in your national insurance record covering the last six years but now, for a limited period, you can fill gaps for any year from 2006-07 onwards. This ‘special offer’ is open until the end of July 2023.
Q. What does it cost?
If you qualify for Class 2 contributions it costs £164 to plug a one year gap and if you qualify for Class 3 contributions it costs £824 to plug a one year gap. While both are good deals, the good news is that many Irish people will qualify for the cheaper Class 2 rate (living and working abroad) rather than Class 3 (living and not working abroad).
Q. Is it a good thing to do?
Yes absolutely. If you are Class 2, you will be in profit (UK State Pension received > voluntary contributions made) after less than a year of retirement as £164 contributed adds £303 pension per year. If you are Class 3, you will be in profit (UK State Pension received > voluntary contributions made) after around three years of retirement as £824 contributed adds £303 pension per year. Yes that future pension income is taxable but most likely at lowish retirement rates – and that future pension income will rise with inflation. I usually hesitate to use this phrase but it’s a no-brainer.
Q. How do I do it?
You can start by checking your UK State Pension Forecast online or you can skip that step and fill in Form CF83 located online at the end of leaflet NI83 and send it to UK HMRC using the address on the form. They will reply (eventually) with a letter setting out your NI gaps since 2006, the cost of filling them (thus confirming if you are Class 2 or 3 or a mixture of both), and directions on how to pay (in Sterling).
For additional background reading see also The New UK State Pension and Paying Voluntary UK National Insurance.
And if you like this article, try this one: 5 Retirement Myths