By Kinry Glassey, Independent Financial Advisor, MAC Financial
What is the UK State Pension
On 6 April 2016, the Isle of Man State Pension separated from the UK State Pension. This means that the State Pensions are now treated and paid separately.
The current State Pension age (in the Isle of Man and UK) is 66 but it will rise to 67 after 6 May 2026. The State Pension age could increase in the future as rules and legislation change over time.
To qualify to receive a UK State Pension, you need to have paid National Insurance (NI) for a minimum of 10 years to receive anything and 35 years to receive the maximum State Pension amount.
As of April 2023, the maximum State Pension in the Isle of Man is £222.67 per week or £11,578.84 per year. In the UK it is £201.05 per week or £10,454.60 per year.
Buying National Insurance Years as an Isle of Man resident/work
If you have lived or worked in the UK for three or more years, then you could be eligible to receive a UK State Pension, as well as your Isle of Man State Pension.
It is possible to purchase additional ‘credits’ to boost your UK NI contribution accumulation and fill gaps in your NI record. This could significantly enhance your UK NI record and increase your UK State Pension. If you are eligible to top up your UK state pension; then you can pay for additional voluntary NI contributions through ‘Class 2’ or ‘Class 3’ (the Class you are eligible for will be confirmed by HMRC). The weekly rate for Class 2 is currently £3.45 per week and £17.45 for Class 3.
Why is this relevant to people living in the Isle of Man?
The 2020 Isle of Man Cabinet report ‘The Isle of Man in Numbers’* shows that approximately 40% of the population living in the Isle of Man were born in the UK. This means that a significant number of the population may be eligible to increase their NI contributions.
It is not uncommon to boost state pensions, Quilter report that over 123,000 people per year have boosted their Class 3 NI contributions.**
Why is this relevant to people living in the Isle of Man?
The below scenario shows how buying additional NI contributions works:
John worked in the UK for five years before moving to the Isle of Man where he has worked for 20 years. John intends to continue working in the Isle of Man for another 20 years.
Currently John could potentially get 5/35 of the UK state pension which is £1,493.51 per year and 20/35 of the IOM State Pension which is £6,616.48.
John could potentially buy back 12 years in the UK. If he qualifies for class two, this will cost approximately £2,152.80. As he wishes to continue working, he can pay for future years on an annual basis. The total cost to purchase 30 years (including the 12 years above) would be £5,382. By doing this it would increase his UK entitlement from £1,493.51 to £10,454.60 per year (based on 23/24 figures). This is on top of his Isle of Man state pension.
Crucially, as John’s example shows, it might not be as expensive as you think.
Why act now?
Currently, if you have a gap in your UK record, it is possible to buy up to 16 years of NI contributions (depending on your circumstances, sometimes you can buy more). After 1 August 2023, the maximum NI contributions that you can buy will decrease to six years.
For Isle of Man residents that are considering purchasing additional NI contributions, they will need to speak to both the UK and Isle of Man pensions departments. This could take some time, so it would be beneficial to act sooner rather than later.
Why act now?
The good news is that you don’t need to involve your IFA to buy the additional NI contributions – it is something that you can do by yourself. This is what you need to do:
- Download and complete CF83 form, this allows your enquiry to enter the system and be logged with HMRC ahead of 31 July deadline. It is important that you state on the CF form which rate you are applying for. The form will also enable you to set up a direct debit to purchase future years.
- You will need to request a pension statement from the Isle of Man, which is done by completing the IOM BR19 form. This can take a number of weeks to come back. When in receipt of this it will confirm your current entitlement to the Isle of Man state Pension. You must wait to receive this before going onto the next step.
- Upon receipt of the Isle of Man forecast, you can log onto the HMRC Gateway https://www.gov.uk/log-in-register-hmrc-online-services to view your current record, alternatively you can complete and send off the UK BR19 form, these will both confirm your current entitlement and gaps in your record. The costs to buy gaps will be based on class 3 rates.
- Class 2 contributions are available for people who were employed in the UK and moved straight into employment in the Isle of Man. Class 3 is for people who were unemployed. If you are eligible to pay class 2 contributions (the lower rate), the HMRC gateway will update the figures to the class 2 rate once your CF83 form has been processed. You are not required to buy all the gaps and can select the years you would like to purchase.
- To buy gaps in your UK state pension, you can either do this through the HMRC Gateway or by contacting HMRC over the phone where they will provide you with details to make a bank transfer.
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