Retirement is an issue that all expatriates in the UAE are concerned about. While earning a tax-free salary has its advantages, unless you have the discipline to arrange your own pension savings it does not guarantee a healthy retirement.
According to National Bonds Corporation’s latest annual savings index, 55 per cent of those surveyed saved less in 2016 than the previous year - although an overwhelming 89 per cent did not think their savings were adequate.
Which is why many expats fall back on their home country’s pension scheme for their future - as long as such a scheme exists. This is something British expats have in their back pocket but claiming that pension is not quite as straightforward as it seems, as simply moving back to the UK is not enough.
To qualify for a full British state pension, you need to have worked in the UK for 35 years - but if you work as an expat in the UAE or elsewhere, you may still be able to top your years up with voluntary contributions.
Working overseas means not paying UK income tax or the National Insurance contributions that fund a UK government-provided income.
The new state pension came into effect in 2016. To qualify, you need to have made at least 10 years of UK National Insurance contributions (NICs); you will only get the full state pension if you have made 35 years’ worth of contributions.
But it is worth checking whether you can pay voluntary NICs to top up the years you have lived overseas.
As any end-of-service gratuity in the UAE is paid only when you leave, you do not benefit from any compounding interest over those years of service, instead receiving a simple lump sum payment at the end. A lump-sum voluntary NIC payment could therefore augment your pension outlook for fairly minimal charges.
The full UK state pension is worth £155.65 (Dh723) per week, or £8,093.80 a year. According to the UK Consumer Association’s Which? magazine, the average expenditure for British retirees is far less than most people anticipate, at around £24,000 (Dh109,944) - in which case the state pension would fund a third of annual retirement spending.
There are six different types of NIC, but only two which are voluntary: Class 2 and Class 3. It is Class 2 NICs that expats who live and work abroad can make. You will have needed to work in the UK immediately before leaving, and to have previously lived in the UK for three years in a row or paid three years of National Insurance.
Parliament sets the cost of voluntary NlCs annually: for the 2016 to 2017 tax year, Class 2 NCs are £2.80 a week (£145.60 for a year). As you can usually only pay for gaps in your National Insurance record going back six years, that would currently mean that you would pay £873.60 to add six years spent overseas as qualifying years to your UK National Insurance record.
“I would always say it is a good thing for expats to maintain UK National Insurance contributions, as at least some safety net is provided in retirement,” says Sam Instone, chief executive officer of wealth management firm AES International. “But if you miss several years, it may not be possible to make all of them up.”
What is the process for topping up your British pension?
Step one: Request a pension statement from the Pension Service’s Future Pension Centre, by phone (+44 (0) 191 218 3600) or by filling in form BR19, to see how many qualifying years you may have. Be sure to check whether you paid enough National Insurance in the year you left the UK for it to be treated as a qualifying year on your pension record.
Step two: Read the leaflet NI38 from HM Revenue and Customs (HMRC) and fill in and post the form CF83 at the back of the leaflet. Remember to tick ‘yes’ in section 7 - you want to know about any shortfall of National Insurance contributions you can pay. Along with CF83, you are supposed to add a separate letter that lists the names and addresses of each employer overseas and the dates employed with each.
Step three: The National Insurance Contributions and Employers Office (NIC & EO) will then calculate what you need to pay to make up any shortfall.
Step four: If you have any queries, call the NIC & EO International Caseworker hotline on +44 (0) 191 203 7010. Both the leaflet and form are long and confusing, although the process itself is relatively straightforward.
When will you get your pension?
The state pension age has traditionally been 65 for men and 60 for women. By 2018, it will be 65 for both men and women, increasing to 66 in October 2020 and to 67 in 2028. The government will then review the state pension age every five years.
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