UK State Pension – Knowing the numbers helps

We believe that comprehensive financial planning is about so much more than the numbers, but… sometimes knowing the numbers helps! 

As a British expat, it’s easy to lose sight of the State Pension and its importance in providing a secure income during retirement. 

In this article, we will look at some of the numbers that make UK State Pensions a worthy contribution.

Many expats simply accept that periods abroad result in gaps in their contribution record and write off their State Pension. However, this could be a missed opportunity. The UK State Pension can be one of the most cost-effective ways for many expats to secure a steady income during retirement.

The new State Pension, introduced on 6th April 2016, is designed to be simpler than the old system. For the tax year 2022/2023, recipients of the new State Pension will receive £185.15 per week, with an annual income of £9,627.80. Pensioners who reached State Pension age before April 2016 will see their weekly payments increase to £141.85, with an annual income of £7,376.20. (at the time of researching)

British expats living in certain countries also benefit from the “triple lock,” which ensures that their pension payments increase annually in line with the highest of price inflation, average wage growth, or 2.5%. However, expats living in countries like Australia, New Zealand, South Africa, and Canada do not – their pensions are frozen at the original payment level, regardless of inflation.

Expats can still claim the State Pension they’re eligible for if they’ve moved abroad, and payments can continue if they move overseas after they’ve started receiving their pension. To maximize your State Pension, you need 35 years of qualifying UK National Insurance Contributions. As an expat, you can continue building your UK State Pension entitlement by making voluntary contributions using form NI38.

One real-life case study demonstrates the benefits of making voluntary National Insurance Contributions. A British expat in Poland, Stephen, had 20 years of qualifying contributions when he left the UK. By paying Class 2 voluntary contributions, he’ll pay £163.80 this year and a total of £3,010.68 over the next 15 years. In return, he’ll receive an additional £105,402.37 of pension if he lives until age 87.

The State Pension in the UK is expensive for the government to maintain, so changes could be made in the future, such as increasing the age for receiving the pension or altering the “triple lock.” Voluntary contributions cannot be refunded, so it’s important not to pay more than necessary.

In many cases, British expats should consider making voluntary National Insurance payments if they don’t already have 35 years’ worth of qualifying contributions. It could be one of the best investments you make, providing you with a steady, secure income during your retirement years – knowing the numbers helps.

If you think this is something that could benefit your financial plan, then get in touch, and we can see how your current strategy is being optimised.

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