People from other countries are buying access to the UK state pension and receiving a retirement of guaranteed, inflation-protected income at the expense of the British taxpayer. I can reveal that not only has HMRC facilitated a huge surge in the payments used for this system, but it does not know how many of them are being used to buy the state pension for people overseas.
Here’s how it works. To receive the UK state pension, you need at least ten qualifying years on your National Insurance (NI) record. Those might be years in which you were working, but they could also be years in which you were unemployed and receiving National Insurance credits. Since April 2013, people have been able to “top up” any years that have been missed from their record by paying voluntary National Insurance contributions (NICs) costing as little as £182 per year.
The crucial detail is that a person of any nationality is eligible to make these voluntary contributions if they have lived in the UK for just three years. This might be someone who came here to work for a while, or a family member who joined them and claimed certain benefits. Until 5 April of this year, someone who had briefly lived in the UK – and who might never have worked or paid income tax here – could top up their NI record as far back as 2006.
What we do know is that there was a huge surge in voluntary NICs payments as the 5 April deadline approached. On 4 February, HMRC said that 37,000 people had made payments. When I submitted freedom of information requests for updates on these figures, however, HMRC told me that by the week of 31 March, this number had more than trebled: 138,000 people had topped up more than 303,000 years’ worth of National Insurance records in order to secure or increase their state pension entitlement.
What we don’t know is how many of these payments came from people who are not British, and who are not living in Britain. HMRC said it does hold the information I requested, but that “it is not in a form that can be easily analysed and furthermore it is not linked to nationality and residency information”. Finding out how many foreigners are buying entitlement to the British state pension would, it said, “require a significant amount of work”, which it said would be too expensive to justify.
It is highly likely that a proportion of these payments come from people who are not British, and who do not live in Britain, because voluntary NICs have been marketed to people abroad as a way to buy a British state pension for some time. In Ireland, the National Pension Helpline has put together a handy guide for Irish citizens who want to cheaply purchase a retirement funded by the British taxpayer. Australian media advertises the fact that a state pension worth “thousands of dollars” can be bought cheaply by Australians who live in Australia: “It almost sounds like a scam – too good to be true,” its observes.
It’s also likely that a significant number of people have done this, because the returns from doing so are staggering. HMRC told me that the average top-up payment made up to 31 March was £1,933, but the value of a British state pension is far higher. Pensions providers estimate that to buy an annuity that would provide the same income as the state pension would cost around £250,000. Those who enjoy a UK state pension abroad may also enjoy the benefits provided by the government where they reside.
Claire Aston, director of TaxWatch, told me she was surprised at HMRC’s claim that the data on voluntary NICs could not be related to residency. “How are HMRC’s systems so badly configured that they cannot pull off this information?” she asked. Aston was also surprised when I told her that HMRC had said it could “not see any scope” for refining my request such that an answer could be produced, because HMRC clearly does hold information on people’s tax residency. “I would question whether that is true,” she told me. “The fact that they can’t give this information is worrying.”
The state pension is one of the government’s biggest costs. At £142bn, pensions and old-age benefits make up 14 per cent of current spending, almost as much as we spend on education and defence combined. It is frankly incredible that our government is not only sending a growing portion of state pensions to people in other countries, but that it is not even prepared to collect the information on how much of it is leaving Britain.
Clarification: Since we published this article, HMRC has told us that figures in its press release of 4 February referred only to people making payments covering years in which they lived in the UK. A spokesperson added: “Only a small percentage of those in receipt of the State Pension live overseas.” It remains the case that people can buy years of state pension entitlement from overseas, and that this number is unknown.
[See also: The age of five-party politics]
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