As a British national, should you contribute towards a UK state pension while living in Thailand?
If you’d like £9,100 per year when you retire then the answer is most certainly yes!
If you’re living the good life: young, in good health and having loads of fun traveling and working in Thailand, thinking about a UK pension probably isn’t top of your priority list.
At 30, 40, or even 50, no one wants to imagine what life might be like when you reach your mid-sixties. I came to Thailand when I was 28 and 60+ seemed like a lifetime away.
Now I'm 42 and have a family. Time flies; it waits for no man, as they say. And you never know what's around the corner.
Forward planning is key to securing enough to live off when you stop working altogether, and the longer you have to do it, the better. In fact, thinking about this stuff now may allow you to retire earlier and enjoy more time on the beach.
Sadly, lots of people leave their pension planning too late and start panicking in their late forties, having not previously given retirement a second thought.
By then, it becomes an uphill struggle to save enough for a comfortable retirement. For Brits, specifically, it often means missing out on the opportunity to qualify for a full UK state pension.
In this article, I’ll explain why you should take a couple of hours to look at your situation with regard to the UK state pension and consider taking steps to make up missed years with ongoing contributions.
1. Conditions to qualify for a full UK state pension
2. How to assess your current situation
3. How to start contributing to while living in Thailand
4. Cost of contributions to a UK state pension
5. How to make up years of missed contributions
6. When you can claim your UK state pension
7. Will your pension enough to live off?
8. What else you can do to prepare for retirement?
9. Get help with your financial planning
Who Qualifies for a Full UK State Pension?
The full UK state pension of £9,100 is paid to anyone who has 35 qualifying years of National Insurance contributions.
Ten years is the minimum amount of qualifying years needed to receive an income, although the fewer years you have obviously the less you will receive.
If you've previously worked in the UK, then you will have paid national insurance and therefore contributed towards a state pension.
Assessing Your Current Pension Status
It is easy to check your UK National Insurance record online. You can verify the number of qualifying years you have on the UK government website at this link.
You may be way off the full 35 years but that doesn’t mean you should discount a full UK state pension. It's still possible to one.
If you’d like a free assessment of your status, you can complete your details here and my independent financial advisor will help you out.
How to Contribute While Living in Thailand
Even if you are living and working in Thailand, you can continue to contribute towards a UK state pension by paying voluntary class 2 National Insurance contributions.
You have to apply to do this but it is most likely worth your while.
To apply, you need to read this leaflet, which links to the form to fill in and send to HM Revenue & Customs.
Cost of NI Contributions While Living Abroad
The rate for voluntary Class 2 contributions for the current tax year (2020-21) is just £3.05 per week. This is revised on an annual basis.
How to Make up Years of Missed Contributions
You may not have enough years left to make the 35 years of contributions for a full pension, but don’t despair. You can backpay up to six years missed contributions at the rate of £3.05 per week, which works out at £158.60 per year.
If you look at it as buying an income of £9,100 per year in the future for less than £160 per year now, that’s an extremely good deal!
There is a box to tick on the form mentioned above to apply to pay any shortfall in contributions.
When You Can Claim Your UK State Pension?
As in many countries around the world, the UK state pension age is rising, so it all depends on your current age. This table shows when you will start to receive UK state pension benefits, if you are eligible with 35 qualifying years:
Will Your Pension Be Enough for Retirement?
Almost certainly not, although that will, of course, depend on the lifestyle you would like to have and where you will live.
It will be cheaper to live in Thailand than the UK, but the current state pension of £9,100 works out to 30,000 Baht per month, which won't be enough, especially if you have a partner and children.
A recent Which? survey of retirees found that the average UK household spends over £2,000 a month to cover basic expenditure and the odd luxury. That is already more than the state pension, even if there are two of you in the household.
For those wanting more expensive luxuries such as long-haul holidays and a new car every five years, Which? Estimates that £40,000 per year will be required.
Even if we knock a third off these estimated amounts because you are living in Thailand, the UK pension is still not enough to live well. But it is a start, so certainly make sure you top yours up and get the full amount.
How Else Can You Prepare Your Finances for Retirement?
You will need to do some financial planning and start saving and investing off your own back.
You may well have pension pots from previous jobs and other savings and investments which could be consolidated to create a healthy retirement fund.
The first step is to work out what you have and how much income that will give you, then estimate your future needs and how to tackle any shortfall.
Get Help with Your Financial Planning in Thailand
This is important stuff and you certainly don't want to take my word as gospel.
With all financial planning matters you should seek the help of a qualified financial adviser, and preferably one residing in Thailand who knows all the legal stuff around living abroad.
An IFA can carry out an analysis of any frozen UK pensions and a valuation of your global assets, and then suggest what needs to be done going forward to secure you a comfortable retirement.
Your retirement might seem a long way off but, believe me, the years will go by faster than you think. I'll be 60 in 18 years!
Take steps now to ensure that whatever you see yourself doing in retirement – whether you stay in Thailand, continue travelling or return to the UK – you have sufficient funds to do it in comfort and without worry.
And definitely don’t look the gift horse of a full UK state pension in the mouth.
If you would to speak with my IFA about your pension or any area of financial planning, you can leave your details and I will let him know to get back to you.
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I get a lot of questions about UK state pensions and how it works when you're living in Thailand, so I hope this was helpful. If you have related questions, pop them below and I'll do my best to answer.