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If you work abroad for a foreign employer you do not normally pay National Insurance contributions (NIC) in the UK, but you may have to pay social security contributions in the foreign country. This can leave you with a ‘gap’ in your UK contributions record, which can affect your entitlement to a UK state pension and other contributory welfare benefits.
Individuals who reach state pension age on or after 6 April 2016 will be eligible for the ‘new’ state pension. You can find out more about the new state pension on the GOV.UK website. You will need 35 qualifying years' worth of contributions to get the full amount (you should be able to get a pro-rata amount provided you have at least ten qualifying years).
A ‘qualifying year’ sounds as though you might need to have a perfect 52 weeks of working for it to count. In fact, for ‘Class 1’ NIC (those payable by employees), any tax year where you receive a minimum amount of earnings or credits (which you receive for example, if you cannot work because you are bringing up children who are aged under 12) can be a qualifying year. The 2020/21 tax year could be ‘banked’ as a qualifying year provided you have earned the equivalent of 52 x £120 (this amount is the weekly Lower Earnings Limit) – total £6,240. Please note that any pay periods in which you have earned under the Lower Earnings Limit will not count towards the total.
You could also make up a qualifying year by, say, earning £120 for 40 weeks and then receiving NIC credits for the other 12 weeks.
If you go abroad but you have fewer contributions than you need for the year to count, you can think about making ‘voluntary contributions’ – ‘Class 3’ NICs. They cost £15.30 a week for the 2020/21 tax year and help protect your state pension entitlement. There is more information about NICs in the Tax essentials section.
Someone who has not worked at all during 2020/21 may need to make 52 weeks’ worth of Class 3 National Insurance contributions to make it a ‘qualifying year’ at a cost of £795.60. Someone who has already worked for part of the year, may need to make fewer Class 3 contributions and therefore pay less.
Before committing yourself to expensive voluntary contributions, you should check your NIC record through HMRC’s Personal Tax Account facility to see how many qualifying years you have already accrued and your future potential to make up any gaps. This will help you decide whether it is necessary to make voluntary contributions.
For more information on the state pension, visit the Tax essentials section.
You can find out more about NIC when going abroad in HMRC’s booklet NI38. This also contains some helpful information about health care abroad.
If you do decide to make Class 3 NIC voluntary contributions, you should note that they do not count towards contribution-based Jobseeker’s Allowance – you may need to claim this when you finish studying, if you cannot get a job. Generally, only NIC paid on employment earnings in the previous two tax years (Class 1 NIC) count towards contribution-based Jobseeker’s Allowance (Class 1 credits may help you satisfy a party of the test). However, a non-contribution-based version may be available (which is being replaced by universal credit), which is worked out based upon your overall financial situation.
One final thing to consider is that if you work abroad for a foreign employer, you may have to pay foreign contributions – these are not typically reclaimable. Depending on which country you pay social security contributions in, they may count in terms of deciding your entitlement to some social security benefits in the UK. This is called the ‘aggregation principle’ and essentially allows you to ‘top up' your UK contributions with overseas social security contributions where necessary, in order to meet the UK requirements.
The aggregation rules may apply if you pay social security in a country with a bilateral Social Security agreement with the UK, for example, Canada, New Zealand, and the USA. You should contact the International Pension Centre for more information on the position if you go to such a country.
You can also benefit from the aggregation principle if you pay social security in an EU/EEA country. Notwithstanding the UK’s exit from the EU/EEA, you can still benefit from full social security coordination (including the aggregation principle) until the end of the transition period with respect to the UK’s departure from the EU/EEA (currently due to end on 31 December 2020).
Under the Withdrawal Agreement, you can continue to benefit from the aggregation principle for periods of insurance completed both before and after the end of the transition period, provided you have moved between the UK and EU/EEA before the end of the transition period and been subject to the legislation of the other country (in other words, a UK citizen who has been subject to the legislation of an EU/EEA member state, or vice versa).
If you move between the UK and EU/EEA for the first time after the end of the transition period your position will depend on the outcome of Brexit negotiations between the UK and EU.
You can find more information in the government briefing on Brexit and the UK state pension and in the guidance produced by the EU on the rights of UK and EU citizens as outlined in the Withdrawal Agreement.