The Class 2 Conundrum: What the Chancellor’s NIC Changes Could Mean For You

Up to this tax year, the State Pension pays £229.20 per week. It is payable from State Pension Age, which is rising to 67 between April 2026 and April 2028, and it can be claimed from any overseas location. 

The pension is described as inflation-linked, though this does not apply universally; several countries, including Australia and Thailand, do not follow uprating rules. 

Entitlement is determined by an individual’s National Insurance record. A minimum of 10 qualifying years is required to receive any State Pension, while 35 years are needed to secure the full amount. 

Qualifying years can be earned through NI payments, credits, or voluntary contributions. 

The State Pension can be paid into either overseas or UK bank accounts. Annual increases depend on local agreements, and tax treatment varies from country to country. Importantly, moving abroad does not affect the NI years you have already built up. 

Voluntary Class 2 contributions have historically cost £3.45 per week (£182 per year) and have been widely used by long-term expatriates looking to fill gaps and work towards 35 qualifying years. 

Class 2 has provided a very low-cost way of securing around £11,500 per year in State Pension income. This option is now being phased out and will be replaced solely by Class 3. 

Eligible individuals may still make voluntary Class 2 payments this year, but from April onward only Class 3 will be available. Class 3 is considerably more expensive – around five times the cost of Class 2 – so even those currently paying Class 2 will be affected.  

Direct debits for Class 2 are expected to end around July, after which individuals will need to cancel them and wait for updated guidance from HMRC. HMRC is expected to contact affected taxpayers from April 2026. 

Class 3 contributions will cost £17.45 per week (£907 per year), with further increases likely in future. The rise of around £14 per week compared with Class 2 has naturally led many to question whether continuing to pay offers good value. 

For many people it still does, and the following examples show how the numbers can work in practice. 

Eligibility for Class 3 requires either 10 consecutive years of residence in the UK or 10 years of NI contributions paid while living in the UK.  

Contributions made while living overseas do not count towards this threshold. 

Further clarification is expected from HMRC later this year, with transitional rules applying from April 2026. 

You can check your pension forecast at gov.uk by searching “National Insurance record”. This allows you to see your qualifying years, identify any gaps, review your projected pension, and check which years you can still pay voluntarily.  

You will need your passport, National Insurance number and, occasionally, a UK driving licence. The government app makes identity verification simple. 

Gaps occur when a tax year does not contain enough NI contributions. People who left the UK recently may be fully up to date, while others who did not use the past opportunity to backfill up to 16 years may find that several years are missing. 

Timing matters because costs are rising and Class 2 will soon disappear. 

The State Pension should also be viewed within the wider context of retirement planning. For most people, £11,500 per year will not be enough on its own, so it is sensible to consider how the State Pension fits alongside other savings and investments. 

Some people may not aim to reach 35 years, and that is entirely reasonable. The key is understanding what your contributions will give you. 

For example, with 18 qualifying years, the calculation 18 ÷ 35 × £11,502 produces an annual pension of around £5,915. This helps you judge whether adding more years is worthwhile. 

The following case studies show how different individuals may be affected by the end of Class 2. 

Case Study: Mike (45, Abu Dhabi) 

Mike has 25 qualifying years and is deciding whether to continue once Class 2 ends. His current entitlement is £8,200. Completing one more year of Class 2 and nine years of Class 3 would cost about £9,500 but increase his pension by just over £3,000 a year. His breakeven point is under three years, which is a strong outcome. 

Case Study: Sandra (47, Singapore) 

Sandra has 22 years, split between the UK and abroad, and is currently allowed to pay Class 2. Her entitlement is slightly over £7,000. Reaching 35 years would add around £4,200 a year to her pension. One final year of Class 2 plus 13 years of Class 3 gives her a worthwhile return. 

Case Study: Steve (52, Australia) 

Australia does not uprate the UK State Pension, which raises understandable concerns about whether paying more is worthwhile. Steve has 30 years and needs five additional years, costing just over £4,500. Doing so avoids a loss of roughly £1,600 a year. His breakeven point is under three years, which remains appealing. 

Case Study: Alex (61, Thailand) 

Thailand also does not uprate the UK pension. Alex has 10 years and can add only five more. His entitlement is about £3,200. Buying five years of Class 3 would cost around £4,500 and add roughly £1,600 a year. With a breakeven period near 10 years, the benefit is modest. 

Case Study: Nadia (20s/30s, Middle East) 

Nadia has 10 years and can only pay Class 3. Building up to 35 years would cost around £22,000 and increase her pension by more than £8,000 a year. Her breakeven point of about 2.7 years offers a strong case for continuing. 

Across most scenarios the picture is positive. Although Class 3 is more expensive, securing the full State Pension for around £900 per year still represents good long-term value. 

Class 2 has been unusually cheap for many years, and while its removal is disappointing, Class 3 continues to offer a strong return for most individuals. 

• Class 3 contributions still offer good value, particularly for those under 50. 
• Class 2 will end on 6 April 2026. 
• Most breakeven periods are around three years or less. 
• The UK State Pension is not uprated in certain countries, including Canada, Thailand and Australia, although it remains payable anywhere in the world. 
• Your decision should take into account your age, how many years you can still contribute, where you live, and your long-term retirement plans. 

We can help by providing: 

• A clear explanation of your NI forecast. 
• Guidance on filling any contribution gaps. 
• Support in understanding UK and overseas pension rules. 
• Broader long-term planning for your retirement and overall wealth, whether or not you plan to return to the UK. 

Practical next steps include downloading your forecast, reviewing any gaps and working out the value of paying additional years. With Class 2 ending soon and Class 3 becoming the main option, early planning is important.  

You are welcome to book a consultation with us. Clients already working with Hoxton Wealth can speak directly with their adviser about State Pension matters or wider tax and retirement planning.