Have you lived and worked in the UK for 3 or more years?
If you made at least 3 years of National Insurance Contributions while living and working in the UK, read on:
UPDATED: The UK Government has just confirmed an increase of 4.1% to take effect in April 2025
You could secure an entitlement to a full UK state pension, worth £11,973 (from April 2025) so about ~$23,245p.a.* (1GBP = AU$1.94 at Oct 2024) each year, for life from age 67, depending on the year you were born. Over a 20-year retirement that’s over ~$460,000* worth of income in today’s money, assuming a life expectancy of 85.
The UK State Pension
For eligible people, there is a time limited opportunity to cost effectively and significantly increase entitlement to a UK state pension. Under the current rules on filling gaps by making voluntary contributions it is possible to retrospectively make voluntary contributions for the last 6 UK tax years. However, until 5 April 2025 it is possible to purchase up to 18 years of National Insurance Contributions (NICs) gaps for the years 2006 – 2024.
From 6 April 2025 the maximum number of years it will be possible to retrospectively purchase, will revert to 6 years.
Eligibility
- You must have previously worked in the UK for at least 3 years in a row or paid at least 3 years of national insurance contributions (NICs) or National Insurance Credits# (credits can be paid when receiving government benefits – see full list below) to be eligible to top up your record by making voluntary contributions
In order to get a full UK State Pension, you must have 35 years of contribution, however, it is pro-rated from 10 years of contributions, so if you have have under 10 years, this is your chance to make yourself eligible for at least a part pension.
Case Study
Peter is 54, lived and worked for over 6 years in the UK before moving to Australia in 2001. Peter doesn’t have 10 qualifying years to make him eligible for a pro-rated pensions, though having worked and paid national insurance contributions for more than 3 full tax years in the UK, he is entitled to increase his contribution record by making voluntary contributions.
As Peter is currently employed in Australia, he could be entitled to purchase NICs and up to 5 April 2025 he may be entitled to purchase a up to 18 years between 2006 and 2024.
If Peter meets the conditions to purchase class 2 NICs if he is approved to purchase 18 years in 2024/25 he will pay £163.80 per year x 18 years = £2,934 /AU$ 5,695 (1GBP = AU$1.94) as a one off contribution.
If Peter then makes no further contributions, he would be eligible for 24/35th (6 already paid + 18 years of gaps he filled) of a state pension which in 2025/26 would be worth £8,210.74 or $15,939 per year after retirement age of 67. For a once off contribution of £2,934 now, he would get £8,210.74 per year in retirement, in today’s money.
If Peter now contributes every year from here until 67 he would add a further 13 years and be entitled to a ‘full’ pension of £11,974/$23,254 (1GBP = AU$1.94) per year from age 67.
But wait, there’s more!
The UK state income is indexed annually. UK state pension income is indexed using a method known as triple lock for this case study let’s say it’s 2.5% per year. In 13 years (2037), Peter aged 67 that would be £16,103/$31,626 per year (1GBP = AU$1.94).
While benefits are indexed up to reaching SPA, regardless of where you live in the world (including Australia), unfortunately as there is currently no reciprocal social security agreement in place between the UK and Australian, indexation will cease in payment i.e. from State Pension Age (SPA) currently 66 but is set to rise to 67 in 2028 and 68 by 2044, this income will be frozen. However, if Peter ever returned to the UK permanently and updated his address record with HMRC to reflect this, any indexation since he reached state pension age will be applied to any future state pension benefits received.
Note: Any UK Pension income, including the state pension is assessable for income tax in Australia.
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Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
* Exchange rate is based on 1GBP = AU$1.94 (the exchange rate in October 2024) which is subject to change.
This information in this article is general advice and does not take account of investors’ objectives, financial situation or needs. Before acting on this general advice, investors should therefore consider the appropriateness of the advice having regard to their objectives, financial situation or needs.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
Financial solutions for expatriates in Australia | Jason O’Connell is an Authorised Representative (“AR”) 1269423 Shartru Wealth Management. ABN: 46 158 536 871 operating in Australia under AFSL: 422409.
For further information you can also visit ukstatepension.com.au
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