NI in UK is not always a one-way street

This is my nth comeback at blogging. I keep retiring and making comebacks all the time..) This time I wanted to talk about a topic of special importance to folks working in the United Kingdom. UK is pretty heavy in its tax structure. Any sort of income one makes, be it salary or bank interest or whatever is duly and immediately taxed. Added to this is the burden of national insurance (around 10%) after one completes a year of work in UK.

Though some of the basic benefits are state sponsored vis-a-vis education and health, one does feel the pinch each time the pay slip is received. After a lot of R&D (read useless browsing) I stumbled upon a couple of companies which help you
out with obtaining partial refunds. This maybe known information for some of you, but for me it was definitely an eye opener and hopefully a purse filler. The NI contributions made by you and your employer constitute your NI pension corpus for the future.

This amount has 2 components, the basic state pension and the second state pension. British law allows provision for you to contract out this second state pension component to private players (eg: AXA, Scottish widows). This is especially useful for people who work for few years in UK and return without obtaining citizenship as non-citizens will definitely not have access to any state funds and thereby to their NI contributions.

From here on in this post, I will just explain my situation as an example.
1) I was sent onsite to UK by an Indian software company on October 2007. My total stint lasted for around 18 months. As always my National Insurance contributions were deducted each month after I completed my 1 year of employment in UK
(i.e October 2008 - April 2008)
2) Around April 5, I filled the online form at www.nirebateonline.com. The cutoff date for each year is April 5 or 6(pl check). If you do not do this, the contributions for that year cannot be contracted out and will remain in the government fund.
3) I also downloaded another form as per the instructions on the site, printed it, filled it and sent to the address mentioned.
4) Few days later I got an acknowledgment email stating that my application was received and that I will get my login details in few days.
5) For a couple of months I did not hear from them. I then chased them up on email and managed to get a response with a URL to fill my details online.
6) Here some basic personal details were again asked. It is compulsory to fill in an UK address here (preferably the one given in the initial form sent to them)
7) The same day I received my username by email and the same week the password was mailed to my UK address
(mentioned in point 6)
8) When I logged in with these details in AXA's website www.axa.co.uk/customers.
I was happy to note that in the month of July my NI refund for financial year April 2008- April 2009 had been credited by the Government to my AXA account.It amounted to around 40% of my contributions (mine + my employer)
9) The important thing to note is only for the first year you need to do this hassle. After that all your NI refunds (if any) will automatically go each year to this fund.
10) AXA will also act as a fund manager for your money.So there could be losses or gains to the base contribution. Only advantage is you can do unlimited number of fund switches a year to change the way your money is invested. Eg: equity, bond, commodities etc

Advantages and disadvantages:
1) The second state pension component can be accessed from 55 instead of the usual 60. The primary state pension continues to be accessible only at 60 and only for British citizens.
2) This second state pension can be received as a lump sum at the age of 55 in your country of residence.
3) There is an annual fund management charge of 1% on the fund value each year in the case of AXA (maybe more for Scottish Widows)

All these details are also available on www.nirebateonline.com