Money for Nothing
UK Pensions - Money for nothing and your Brits for free.

There aren’t many things in life that can be genuinely classified as Money for Jam but for ex-pat Brits or indeed anyone that has worked in the UK for three years or more, the UK State Pension fits the bill. A retired couple who worked in the UK for just ten years would be entitled to receive a life time benefit which is the equivalent of having around $100,000 invested in a term deposit. Those who qualify have just a few weeks to make top-up contributions before the new financial year in the UK starts on April 6.

Most are unaware of the exceptional benefits associated with using the National Insurance scheme until they claim an Australian Aged pension and are compelled to claim on the UK system. By then, it often too late to make important and valuable changes. Basic State Pension is effectively a UK government retirement benefit, not to be confused with private arrangements and is in effect, the equivalent of our Centrelink system – without means tests.

Under current rules, a UK resident needs to have worked and contributed to the UK National Insurance scheme for thirty years to receive the current full benefit of £107.45 per week. This means Australians who worked in the UK earlier in life may qualify. To receive any benefit, you will need to show a three year minimum giving you 3/30ths of the full rate, four years will get you 4/30ths and so on. This applies to males reaching pension age of 65 and 60 for females whose birthdays occur after 2010. Different rules apply if your retirement age was earlier. As in Australia, the eligibility age is changing. If you were born after 1950, it is moving towards 68 for both genders on a sliding scale.

The actual pension rate changes on April 6 each year and once it commences, the rate is not increased; a source of ongoing friction between the Australian and UK Governments. If you are male and have a partner, they’ll be entitled to 60% of whatever you receive when you and they reach UK age pension age. This entitlement exists whether or not they lived or worked in the UK.

Incredible as it seems, your basic entitlement can be enhanced by making additional contributions to the scheme on the basis that one day, you may return to the UK to retire. There are various categories and the cost per year will be determined by a range of tests. At best, each year will cost you around £120 per year and at worst, about £430. In some circumstances, you can make back-payments of up to six years. Using the worst case example, a £430 outlay buys you an additional 1/30 of £107.45 or £3.58 per week. If you’re partnered, that increases to £5.73 or £298 per annum. At an effective return of 69 percent, payable for life, it sure beats the 4.5 percent term deposit.

Of course there are risks. When you die, the benefit stops and the exchange rate will have an impact on the net Australian benefit.

The effect on Australian Centrelink Pensions is the basis of many myths and misunderstandings.

Providing you’ve been in Australia for more than 10 years, this income is treated in a similar way to employment income. It is taxable but there is also a little known deduction available of at least 8 percent on that income.

Let’s say you and your partner receive a combined UK pension which after currency conversion is $250 per fortnight with no other income or investments that might affect your Australian Centrelink pension. Pensioner couples can earn $268 per fortnight before the pension’s affected so you’ll be receiving the full Aussie pension and the $250 from England. The total amount from all sources will be around $36,785 per annum, not including rent assistance if you qualify. Even if you did exceed the $268, you’ll only be losing 50c of Australian pension meaning you are still 50c better off overall.

To find out more, follow the links to the international pension centre from the www.thepensionservice.gov.uk website or write to:

International Pension Centre
Tyneview Park
Newcastle Upon Tyne
NE98 1BA United Kingdom

Delays are commonplace so you may want to commence your enquiries in the near future.

You can also contact the British Pensioners in Australia Organisation at www.bpia.org.au or West Australian residents can contact the local chapter by calling Mike on 6364 0859

If your financial planner doesn't know about this, then perhaps you should find a planner that does. This is "standard advice" for clients of N.C. Bruining & Associates