In what has been described as an “extraordinarily generous” move, Irish residents who worked in the UK for at least three years, and who spend about €3,600 to top up their UK state pension entitlements, may benefit to the tune of almost €180,000.
This is due to a decision by the UK government to allow workers who are eligible for the UK state pension to top it up to fill any gaps in their National Insurance (NI) record. Due to end this month, the offer has now been extended until April 5th, 2025, which means that those eligible may be able to buy back up to 19 years – something which will substantially increase their entitlements when it comes to retirement.
“This extension means thousands more people will have time to check their entitlement, and in many cases increase the amount they receive when they retire,” said Laura Trott, UK minister for pensions.
So how does it work, and who may benefit?
[ Fiona Reddan: How much might you get back in tax cuts in this year’s budget? ]
[ Can we compare Irish living standards with those in the UK and EU? ]
Pension top-up
Buying voluntary contributions has long been a way – in Ireland and Britain – of facilitating people who may fall short on eligibility for a state pension and want to top up their entitlements.
If you are an employee or are self-employed, you are probably already making PRSI contributions: if you’re not, this lack of payments can impact on how much you will ultimately get in your State pension when you reach retirement age. To counter this, you can make payments yourself to improve your contributions record, and hopefully earn yourself a higher weekly rate of the State pension.
Typically, in the UK, you could buy back up to six extra years entitlement to the UK state pension. However, a number of years ago the UK government decided to let people go back as far as 2006 and buy back as many as 17 extra years. The deadline was originally April 5th of this year, but that was subsequently extended to July 31st.
However, such was the demand for the top-ups that the authorities weren’t able to cope, so another extension, this time until 2025, has been granted, meaning that those who have worked in the UK may now be able to buy back as many as 19 years.
HM Revenue & Customs says the people who may benefit most from the extension include those who are employed but with low earnings – and those living or working outside of the UK, such as Irish residents.
Tullamore-based Frank Buckley, a chartered accountant with UPS Financial, has been offering advice on the buyback since it emerged, with business “relatively quiet” until January this year, with about 10-15 inquiries a week. Since then, it has snowballed, with inquiries jumping to about 150 a week,
He estimates that hundreds of thousands of Irish residents could be eligible for the top-up.
Who is eligible?
Typically, you need at least 10 years of NI payments to qualify for the UK state pension; however, if you have at least three years consecutively, you can make voluntary contributions to increase your record. If you have between 10 and 35 years (which qualifies you for a full pension), you will get a weekly payment which is proportional to your contribution.
Remember, the Isle of Man and Jersey/Guernsey are not in the UK – they are self-governing British crown dependencies – so if you’ve worked on these islands, you may not be eligible.
Buckley says the first thing you need to do is apply to HM Revenue & Customs by filling out Form CF83. Upon response to this, you will find out if you are eligible to buy voluntary contributions, and what class you are eligible for.
Buckley offers help on this front and charges €350 for a successful CF83 application to HM Revenue & Customs. It is payable upon confirmation that you are eligible – if it turns out that you can’t buy voluntary contributions, Buckley waives his fee.
Class 3 covers most people, and costs £824 for each additional year of state pension benefits. However, Class 2 costs just £163.80 (or £3.15 a week), and many Irish residents may find they are eligible for this.
Buckley says there are two main requirements to get Class 2: you need to show that you worked in the UK in insurable employment right until you left (so if you went to college before leaving the UK, for example, you won’t be eligible); and secondly, you need to show that you’re in insurable employment abroad, in a country such as Ireland.
If you do apply, expect to get your approval anytime soon; Buckley says if you apply now, it’s unlikely that you’ll hear back until after Christmas, such is the backlog.
How much will it cost?
Consider someone with five years national insurance payments in the UK, looking to top it up by a further 19 years. This would bring their total entitlement up to 24 years. Based on an annual rate of £163.80 for a Class 2 payer, this will cost about £3,100 (about €3,600) to top up.
Buckley says, such a person will qualify for a weekly payment of £130.50, or £6,786 (about €7,900) a year on retirement.
“So, if you live one year, you’re already up,” he says.
It’s slightly different for a Class 3 payer, as the cost of topping up for 19 years, based on an annual contribution of £824 will be considerably higher, at about £15,600 (€18,195). This means that for Class 3 applicants, it will take about three years before they “make” their money back.
How much will I get?
To qualify for the full state pension, you will need 35 years of NI contributions; but the closer you get, the higher your payments will be.
As with many things pension-related, how much you will be entitled to is somewhat complicated. Under the old UK state pension rules, which applied for national insurance stamps until April 2016, you needed 30 qualifying years to be eligible for the full standard rate, which was £141.15 per week. Under the newer version, you need 35 years for a payment of £203.85 a week.
“Most people will have a mix, a hybrid of the old and new,” says Buckley.
To consider just how valuable this weekly payment is, you could look at the cost of an annuity. Buckley has done the sums and says to buy an annuity, guaranteeing income of about €8,000 a year, would cost a staggering €180,000.
For your one-off payment of about £3,110, or €3,500, you’re getting a payment which would cost you about €180,000 to buy yourself in the open market.
“It’s a fairly compelling argument,” says Buckley.
Any caveats?
One point to bear in mind is that, when calculating eligibility for the Irish State pension, the authorities here will take into consideration your time spent working in the UK when determining whether you are entitled to the full State pension or not.
This means that while you may end up with 25 years, for example, towards the UK state pension, you may need to assign some of these to your Irish pension to ensure you qualify at the maximum rate (currently €265.30 a week).
This may impact the amount you end up getting from the UK state pension.
“However, it is theoretically possible to get a full Irish and a full UK state pension,” says Buckley. It all just depends on your own personal circumstances.
Someone who does manage to qualify for both would stand to get a payment of about €500 a week, or €25,740 a year, depending on exchange rates etc.
It’s also worth bearing in mind that while a pension from the UK is “as blue chip” as it gets, as Buckley says, this doesn’t mean that it’s a done deal.
“The rules of the UK state pension are decided by parliament, and they could change those rules tomorrow morning,” says Buckley, “so it’s not as guaranteed as it might look”.
Remember, just because you top up your pension now, doesn’t mean you should stop – you can continue paying voluntary contributions right up to the UK retirement date, currently at 66. It is due to increase to 67 between 2026 and 2028.
