Some people living abroad will have to pay more than five times as much as they currently do to keep their full UK pension due to a crackdown on state benefits announced in the budget.
Chancellor Rachel Reeves said those who relocate outside the country will no longer have access to the Class Two voluntary National Insurance contributions system, which allowed people to pay a weekly amount to plug the gaps in their contributions and still qualify for the state pension.
The bill to boost their state pension payouts will change from £182 a year to a £1,000 annual fee from April 6, 2026.
The shift appears to be aimed at clamping down on foreign workers who live in the UK for as little as three years before returning home, but would also affect UK citizens who move abroad.
Last year, more than a quarter of a million British taxpayers relocated abroad, with many choosing the UAE due to its favourable tax-free status.
A poll by The National found those who have opted for life in the UAE cite a better lifestyle, stability and quality of life as defining factors behind their preference over living in the UK.
Many respondents said the rising cost of living, concerns about crime, and a perceived decline in safety were major reasons why they would hesitate to live in the UK.
Among other changes in the budget, which is due to raise £26 billion in tax measures, was the introduction of a “mansion tax” expected to raise £400 million in 2029-2030 through the imposition of a £2,500 a year fee on homes valued above £2 million.
Other personal tax changes include raising £4.7 billion through charging National Insurance on salary-sacrificed pension contributions, and £2.1 billion through increasing tax rates on dividends, property and savings income by two percentage points.
“Taxpayers’ money should not be spent on pensions for people abroad who only lived here for a couple of years and may never have paid a penny in tax,” Ms Reeves told the House of Commons.
“The Conservatives allowed thousands of people living abroad buy their way into the state pension for as little as £3.50 a week, debasing the purpose of our pension system.
“And so I will abolish access to Class Two voluntary National Insurance contributions for people living abroad, increasing the time that someone has to live or work in Britain to 10 years and increasing the contributions they must pay.”
Under the current system, Britons abroad who are categorised as “not working” can make voluntary National Insurance contributions at Class Two level, but they will now move to the more expensive Class Three. They would also have to have lived in Britain continuously or paid National Insurance for 10 years.
Typically, it requires 35 years of National Insurance contributions to obtain the full state pension, which is currently £230.25 a week, or £11,973 a year.
The set-up for people who move abroad was originally due to end in 2023, but was delayed twice after being overwhelmed by requests close to the deadline.
It was described as “too good to be true” and “insanely generous” by international media.
“Many UK citizens move to other countries for a period of time with the full intention to return to the UK for family reasons and to come home for retirement,” David Little, partner at wealth management firm Evelyn Partners, told The National. “For this reason, it has always been generally advisable for British expats to make Class Two contributions.
“This announcement will impact some expats. It’s worth noting that, if you have already paid 10 years’ contributions before leaving the UK, you can still continue to pay the cheaper rate.
“The policy targets people with limited ties to the UK, for example students graduating then immediately leaving the UK for Dubai or elsewhere. They do have the option of paying Class Three contributions, instead of the much cheaper Class Two. So it’s not like they are frozen out of the state pension completely.”
Former pensions minister Steve Webb, who is now a partner at consultancy Lane Clark and Peacock, told The Telegraph: “It has long been an anomaly that people outside the UK have been able to fill gaps in their state pension record at exceptionally low cost.
“There is considerable anecdotal evidence that this loophole has already been used extensively in the last couple of years when it was possible to fill gaps back to 2006-07.
“To some extent, then, the horse may have bolted on this one. But it’s reasonable enough to say that people outside the UK should be treated no more favourably than those living in the UK who want to top up their pensions.”
