hTTi

Posted: **Tue Jun 30, 2026 4:04 pm**

Hope you lovely expat folks are all doing well
Sorry I was absent for long. All good on my side.

Question:
HMRC: is it worth paying voluntary class 3 NI contribution?

short:
Yes.

long:
since i moved UK -> DE I continued paying class 2 voluntary NI contribution. Surprisingly good investment: one week costs ca 180 gbp, and buys you (12548/35) pounds/year of extra UK state pension. Every year of contribution buys you 1/35th of the full 12548 state pension.HMRC now wrote to me saying I can no longer pay class 2, but I can pay class 3. And class 3 costs more: ca 18 pounds/week, or 957/yr.
My back-of-the-envelope maths is: it costs me 957 pounds/year, to buy 12548/35 extra pension a year. For how many years do I need to draw a state pension, to get out more than I put in?957 = N * 12548 / 35.
So if I draw a UK state pension for longer than N = 957*35/12548 = 2.7 yr, I will have taken out more than I put in.
Of course this is bad math, oversimplified. How will rules change between now and then? What would the return of that 957/yr be if I rather invest it differently? bla bla...
Still, I think it is worthed.

What are your thoughts?

Thanks,

Posted: **Tue Jun 30, 2026 4:51 pm**

Class 2 has ended for years 2026/27 and later, and HMRC are writing to people already paying Class 2 (or 3) to tell them what to do if they wish to continue paying at Class 3. https://www.gov.uk/voluntary-national-i ... ork-abroad

A Class 3 year, at 2026/27 rates, costs £956.80 and adds £358 per year to your pension.

Simple payback, pre tax is £957/£358 = 2 years 8 months.

However, the £358 will increase each year with inflation - currently the better of consumer price inflation, wage inflation, or 2.5% but the statutory requirement is "at least wage inflation". So, payback will be less than 2 years 8 months depending on when you reach pension age AND because the pension will also increase at the end of years 1 and 2. Also, you also get a tax deduction in Germany for paying that NI, so that reduces the net cost and thus payback time.

The pension is taxable only in the UK and is likely to result in £0 UK tax unless you have other UK income. There is a risk that it will soon exceed the Personal Tax Allowance but the Chancellor made a rather rash statement that anyone whose only taxable income is the new state pension (without add-ons for deferring or inheriting etc), will not pay tax on it. How on earth my former policy colleagues are supposed to translate that into law that meets Equality and Human Rights Acts is beyond me but the Parliamentary Drafters can work miracles if the policy advisers can figure how to explain what they want to achieve - watch this space!

The UK pension does of course feed into Progressionsvorbehalt in your German tax return, so you will suffer an effective increase in your tax burden because of that.

So, you could create a complex, time value of money model to get an accurate payback but sticking with 2 years 8 months is probably sufficient to realise it's a good investment given that average time in retirement for males is about 18 years.

Posted: **Tue Jun 30, 2026 5:49 pm**

GaryC wrote: ↑Tue Jun 30, 2026 4:51 pm Class 2 has ended for years 2026/27 and later, and HMRC are writing to people already paying Class 2 (or 3) to tell them what to do if they wish to continue paying at Class 3. https://www.gov.uk/voluntary-national-i ... ork-abroad

A Class 3 year, at 2026/27 rates, costs £956.80 and adds £358 per year to your pension.

Simple payback, pre tax is £957/£358 = 2 years 8 months.

However, the £358 will increase each year with inflation - currently the better of consumer price inflation, wage inflation, or 2.5% but the statutory requirement is "at least wage inflation". So, payback will be less than 2 years 8 months depending on when you reach pension age AND because the pension will also increase at the end of years 1 and 2. Also, you also get a tax deduction in Germany for paying that NI, so that reduces the net cost and thus payback time.

The pension is taxable only in the UK and is likely to result in £0 UK tax unless you have other UK income. There is a risk that it will soon exceed the Personal Tax Allowance but the Chancellor made a rather rash statement that anyone whose only taxable income is the new state pension (without add-ons for deferring or inheriting etc), will not pay tax on it. How on earth my former policy colleagues are supposed to translate that into law that meets Equality and Human Rights Acts is beyond me but the Parliamentary Drafters can work miracles if the policy advisers can figure how to explain what they want to achieve - watch this space!

The UK pension does of course feed into Progressionsvorbehalt in your German tax return, so you will suffer an effective increase in your tax burden because of that.

So, you could create a complex, time value of money model to get an accurate payback but sticking with 2 years 8 months is probably sufficient to realise it's a good investment given that average time in retirement for males is about 18 years.

Thanks a lot @GaryC
Paying class 3 is much less good than paying class 2 (in fact, ca 6 times less good!). But all in all, paying class 2 for us expat was always unrealistically generous. I am surprised i lasted this long before they changed it.
I will go ahead and pay class 3, still a VERY good deal.

hTTi

HMRC: is it worth paying voluntary class 3 NI contribution?

HMRC: is it worth paying voluntary class 3 NI contribution?

Re: HMRC: is it worth paying voluntary class 3 NI contribution?

Re: HMRC: is it worth paying voluntary class 3 NI contribution?