I am 82 years old. I was working in gainful employment in the UK from 1975-1988 and have 12 years′ pensionable income from there.
I am retired in Ireland receiving a private and State pension.
Could you indicate what it might cost me to purchase 17 years giving me 29 years? If you could just give me an estimate of cost, that would be appreciated.
Mr B.O’S.
There has been a lot of interest in the opportunity to buy back years of British national insurance to either secure or improve the UK state pension you receive.
That’s hardly surprising, given the huge number of Irish people who spent part of their working lives in the UK and also the generous terms on offer.
In general, you are only allowed to go back six years to fill in any gaps in your UK national insurance record. However, the UK government changed the rules of their state pension for anyone retiring after April 5th, 2016. As part of transitional arrangements to smooth that process, the authorities are allowing people to buy back as many as 17 years.
It’s a very attractive offer for many people and the deadline has been extended several times over a number of years as the system struggled to cope with the sheer weight of numbers of people looking to take up the offer. But a hard deadline now looms next month – April 5th.
Unfortunately, I don’t think it is going to be of any advantage to you.
The “transitional” arrangements, as they are called, apply only to men who were born after April 5th, 1951 and women born after April 5th, 1953. Given your age, you would have been born almost a decade earlier, so I don’t think you will be in a position to benefit from this offer.
However, for others reading this who might be somewhat younger – and possibly already retired – I can give some insight on how to work out what the bill might be, and the benefit.
Essentially, there are two rates of contribution. Which one you qualify for depends on your work record in the UK before you left that country and your work record subsequently.
First up, another qualifying criteria is that you lived in the UK for three continuous years, or have three years of paid and/or credited Class 2 contributions before leaving.
If you were working in the UK up to the time you left and continued to work in whatever country you relocated to, you qualify for Class 2 contributions. Once you stop working, you move to Class 3.
If you were not working immediately before you left the UK, or you were not working subsequently, you will be working off Class 3 contributions.
The difference in cost is considerable. Class 2 voluntary contributions are paid at £3.45 a week, or €179.40 a year. Class 3 will cost you £17.45 a week, or £907.40 a year.
Not that it is of any use to you but let’s look at the experience of someone born 10 years later, who is now 72. Like you, they worked in the UK up to 1988 and then came home and worked here, having booked 12 years of national insurance contributions.
As they are 72 now, they will have retired in 2018.
As of now, that person can claim back 17 years to April 2006. Of those years, the 12 years from 2006 to 2018 when he was working are payable at £3.45 a week. Once he retires in 2018, he loses eligibility to Class 2 but can continue to pay a further five years at Class 3, or £17.45 a week.
The same would be true if he was out of the workforce and claiming welfare any time before retirement. Essentially, assuming you meet all other criteria, you can avail of Class 2 for as long as you are actively working; otherwise it is Class 3.
So, in our example, this person pays 12 years at £3.45 a week – or £2,152.80 in total – and then five years at £17.45 a week, which comes to £4,537.
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For this person, the total bill to acquire the 17 years of national insurance stamps will be £6,689.80 which, in euro terms, comes out at €7,970.54.
But what will be the impact of that purchase?
As of now, this person has 12 years of stamps. You need 35 years for the maximum rate of state pension which, at the moment, is £221.20 a week. The entitlement is worked out pro rata, so the person in our example currently qualifies for 12/35ths of the full pension, or £75.84.
Assuming they pay the €7,970 to buy back the 17 years available to them, they will have 29 years of stamps. Their weekly pension will now be 29/35ths of the full amount, or £183.28.
That’s a difference of £107.44 a week.
How long will they need to benefit from this to be “ahead” on the deal? That depends. This money is taxable, assuming your income is above the income tax threshold – and it will be with the UK payment if you are on an Irish State pension even before you consider any private pension income.
If you pay tax at 20 per cent, you will need to survive just over 18 months for the transaction to have been worth it. If you are a higher rate taxpayer, that period extends to slightly above two years.
As the person in our example is 72 and average longevity in Ireland is now above 80, barring misfortune, it represents a sound financial investment.
All of which is of no use to you as you retired before 2016 and so have your UK pension entitlement assessed under the old system with no opportunity to avail of the 17-year buyback.
