Expats retiring over the next five years on less than the full state pension can top up their income at bargain rates.
This is great news for women who have missed out on amassing the 35 years on national insurance contributions (NIC) needed to qualify for the full state pension.
Although millions of workers are expecting the full flat-rate pension of £155.65 a week, hundreds of thousands will not receive this amount.
Besides women, many workers belonging to large workplace schemes or with public sector pensions will miss out on the full payment because they contracted out to maximise their retirement savings and paid less NIC.
Buying back missing years
To top up the state pension, the government is allowing the over 55s to buy back their missing years to qualify for the full state pension by purchasing Class 3 voluntary NIC contributions.
Each missing year costs a retirement saver £733 to buy back – but provides an extra £230 of state pension payments for life.
According to the Department of Work and Pensions, someone retiring at 65 years old should expect to live for an average 20 years in retirement.
This would make an investment of £733 return £4,680 and the maximum buy back investment of £4,000 worth £23,000 over their anticipated retirement.
Former pensions minister Steve Webb said: “This is similar to buying an index linked annuity with an annuity rate of over 30%, which is more than 10 times the rate available in the market.”
“Large numbers of workers could gain a substantial boost to their state pension for the payment of a relatively modest lump sum. It is rare for the government to offer something on such generous financial terms and we want to make sure that everyone knows how to take advantage of this opportunity.”
The top-up increases the first state pension payment for expats, but does not alter indexation rules that may freeze the payment depending on where they live.
The voluntary contributions apply to men born after April 6, 1951 and women born after April 6, 1953 who have yet to draw the state pension – different top up rules apply to anyone born before these dates.