If you’re a British expat, you will already have been bombarded by offshore advisers selling you international pension options…

If not, don’t worry, someone will call you soon ;)

It’s true that the mobile expat lifestyle can disrupt traditional retirement planning, but despite stressing the importance of plugging this gap, your adviser is probably choosing not to tell you the best way to actually do this.

Because as great as this pension hack is, there ain’t nothing in it for him!

Now this won’t solve the whole problem, but it’s by far the most cost effective way to secure a tranche of retirement income for many expats, and

the return on this investment will astound you!

The UK government has recently reformed the basic state pension, now a flat rate of £159.55 a week, or £8296 a year. Currently this is being increased each year by the higher of inflation,  average earnings growth or 2.5%, under a generous “triple-lock” system.

If you are 30 years from retirement and we assume indexation of 2.5%, then your state pension could be worth £17,400 a year when you retire.

So we’re not talking small change here.

When in the UK, your rights to this pension are secured by paying mandatory national insurance contributions each year while working. You can also be credited with NIC’s in many other circumstances, for example if you are a stay-at-home parent looking after young children or in certain types of training.

IMPORTANT: You now need 35 years of full contributions to secure the full state pension, this was recently increased from 30.

Most expats simply accept that periods abroad will result in gaps in their contribution record and often write-off the state pension.

But you can choose to pay voluntary national insurance contributions while you’re abroad and keep on track for the full state pension   AND IF YOU ARE EMPLOYED OR SELF-EMPLOYED YOU WILL NORMALLY BE ENTITLED TO PAY VOLUNTARY CLASS 2 CONTRIBUTIONS AT JUST £2.85 A WEEK!!

That’s cheaper than a cup of coffee. (Starbucks fan here.)

So let’s look at some numbers and understand why this is the best pension investment you can ever make!

For this, we’ll conjure up Joe, a Brit living abroad. Joe used to work in the UK and has built up 25 years of NICs. But he left about five years ago and has no intention of going back .

Exactly what Joe will get from our pension short-cut will depend on various factors: inflation, where he will retire and how long he will live. So let’s make some assumptions and develop our scenario…

We’ll assume inflation at 2.5%, that Joe will live until aged 86 and that he retires back in the UK or in one of the 46 countries where his state pension would currently continue to be increased in payment.

Joe has paid full NI contributions up until now (more about this in a moment), so his state pension accrued is worth £5926 today. He is 56 now, so has another 10 years until he reaches his state pension age.

IF HE TAKES OUR ADVICE and bolsters his UK state pension rights by paying voluntary contributions (class 2), then he would pay £148.20 this year, and increased with inflation, a total investment of £1660.38 over the next ten years.

But in return he would receive an additional £77,509 of pension if he lives until age 86!!!

Let those numbers sink in for a moment…he gives £1660 and he gets back £77,509.

Now let’s put this in another context by looking at the market equivalent to the  state pension – buying an annuity.

We’ve seen that Joe’s missing 10 years of contributions are worth a fair chunk of state pension when he retires – £3033 in the first year alone, assuming 2.5% inflation.

Now instead of paying our voluntary NI contributions, what if Joe put his £2.85 a week towards saving for an indexed annuity? He would need to build up a lump-sum of over £85,000 to purchase that level of income at aged 66 (using today’s annuity rates). So his £2.85 weekly contributions will need to grow by around 65% each year, compounded for ten years!!

(OK, does anyone have Warren Buffett’s number?)

Realistically, Joe would have to invest around £550 each month for 10 years with 5% annual growth to match what he could get by paying these £2.85 a week voluntary contributions.

BOTTOM LINE: Voluntary NICs could offer the best return on an investment you will ever get!! 

Here are some important caveats !

In some cases, for example if you are not working, then you will have to pay class 3 contributions which at £13.80 per week are much more expensive. This is still a great deal though, and should be considered for all those spouses out there who are stay-at-home parents or not working for other reasons.

Voluntary contributions cannot be refunded so don’t pay more years than you need to. This can be difficult if your plans aren’t certain. If you’re abroad and are currently missing NIC years, but might go back to the UK and would then reach the necessary 35 years anyway, don’t plug that gap just yet.

You can normally pay up to 6 years in arrears, so if you later decided to stay overseas you can still build up your contribution record retrospectively.

You may not get the full new state pension even with 35 years contributions. The rules are complicated, but if you were a member of an occupational pension scheme that was “contracted out” (a final salary scheme for example) then you paid less in NICs so will have accrued less state pension rights. Additional contributions can still improve this though.


Find out exactly what your existing entitlement to the state pension will be by requesting a pension forecast. This can be done by sending in form BR19  to the Department for Work and Pensions, or you can do this online from a UK IP address here 

(if you’re abroad but use a VPN so that you can watch Bargain Hunt on BBC 1 (don’t worry, our little secret…) then it might also work).

Once you get your forecast you will know more about your pension entitlement and if you have any missing contribution years. Partial years of contributions don’t count, you need a full year’s contributions to be credited.

The DWP can also tell you whether you would be entitled to pay class 2 or class 3 voluntary contributions while abroad based on your particular circumstances. (If you work for a UK company overseas you should have paid 52 weeks of class 1 contributions when you first left the UK, so you may have to pay these first if they are missing).

If necessary, speak to a properly qualified fee-based adviser who specialises in UK expats. But find out if your circumstances fit in with this ultimate pension hack – and if they do, well then

get those voluntary national insurance contributions flowing back to Blighty!!

Further information on paying contributions while abroad can be found here and the application form and payment form can be found here.

If you found this information useful, please share it with other Brits abroad. For more great financial planning tips for British expats visit

None of the above information should be construed as financial advice.

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