SoCalDon

I have been doing a little digging into my UK State Pension entitlements and have found out that I can apply for a statement by downloading a form br19 and shooting it off to Wolverhampton via snail mail. I am in the process of doing this.

I worked for about 25 years in England and when I mentioned this to a chap at BPiA he suggested that it may make good sense to make pension contributions for another 10 years so that I would qualify for a full pension. He told me that those contributions would earn interest of over 10% for the ten years so it would be a jolly good thing to do.

What do we reckon? Is he full of it or does this seem like a sensible approach?

DeclanSyd

This is a sensible approach, though I'm unsure how the return has been calculated. Essentially the return you receive for paying contributions is dependent on how long you live past State Pension age.

Having said that, if you're eligible for the 'New State Pension' (determined by your DOB), the current cost of contributions is £143 p.a. and each qualifying year (up to a total of 35) increases the state pension entitlements by approximately £220.48 per annum. Therefore the cost of contributions is recouped if the pension is received for a little under 8 months.

See NI38 for further information. The form required to commence paying voluntary contributions is on page 41 & 42.

SoCalDon

Thank you so much for this advice. I shall look into it further and report back.

Bix

Not an easy one to answer as rules on pensions both sides of the world are changing all the time. Here's some thoughts:

If you intend staying in Australia you will presumably qualify for an Australian state pension but it is means tested.

If you will be entirely self funded in retirement then you will get no Australian state pension so the UK pension is an additional bonus.

However by the time you reach retirement age do you think the UK state pension will be free from means testing?

If you do eventually qualify for an Australian state pension (eg when your Superfund is getting low) any UK pension money is deducted first. Provided of course that the Australian state pension continues to be higher than the UK one.

If you make the UK contributions what are the returns compared to what that money would make within a Superfund?

If you pop your clogs any money within a Super goes to your heir. If it's been invested to qualify for UK state pension isn't it totally lost to the UK government?

You can manipulate money within a Superfund or Super Pension fund. You can do nothing with money going into UK state pension.

SoCalDon

Some very good points there, Bix, thank you. I do have some big decisions to make and the British Pension is just one of them. It seems just to be an amount of 143 quid per annum investment for 10 years or so, so that seems like a decent plan, regardless. Once I start drawing the UK pension it ceases to be index-linked as I live in Australia which is a bugger.

I am 55 so won't be working very long in Australia to qualify for a State Pension but I am lucky enough (worked hard enough) to have a pretty decent pension from the UK already so I think an Australian pension will probably be a non-starter anyway.

On March 17th, my bridging visa kicks in so I will be able to work, at last! I can't imagine working for somebody else so I will be starting up my own computer repair business from home.

As well as considering the UK pension, I will look into super funds as that would seem to be a very sensible thing to do.

Thanks to you and Declan for all of your suggestions, I really appreciate it.

Bix

Here's the Australian age pension eligibility:
Age Pension - Department of Human Services
Note there is no mention of actual working years as a requirement.

When you look at Superfunds this site shows how they perform:
SelectingSuper
Look under the Tools menu.

And I've found this site an invaluable reference tool for explaining how it all works:
SuperGuide.com.au - Simple independent superannuation information

carolinephillips

Don't forget they are changing the UK pension rules from 2016. I'm annoyed as I qualify for a full pension as the current rules stand, but because I'm only 54 and in Australia, I won't qualify for a full pension since they are upping the qualifying period from 30 to 35 years. (I'm nearly 55 and have 30 years contributions.)

Bix

My wife is the same

Whatever happened to grandfathering?

SoCalDon

These guys are trying to fight the new laws British Pensions in Australia | Persuade or if needs be force the British Government to rescind its discriminatory State age pensions legislation - I called them the other day to make some enquiries and got some advice which led to my original post.

They're quite keen on having me join for $20 which I may well do.

Bix

The fight has been going on for over 20 years by individuals and organisations such as British Australian Pensioner Association, Pension Parity and International Consortium of British Pensioners.

As you've discovered there are certain countries of the world where the UK state pension is frozen and another bunch where they are not.

I signed 3 petitions in 2007, 2008 and 2011 but they always come to nought.

In 2010 the European Court of Human Rights upheld the UK governments stance but by only 1 vote.

Ultimately successive UK governments know it's wrong but stick their two fingers up and say "tough luck".

Australian Foreign Minister Bob Carr was lobbying the UK government about it in 2012 but I heard no outcome.

Bix

Oops.
I think I've gone off on a tangent.

My last post was referring to the fact if you live in some countries of the world including Australia there is no indexation once you start drawing the pension.

john in oz

If you have other pension funds that you have not drawn down upon in the Uk then another option is to transfer those funds over to OZ into a OZ super fund. However this normally for most people then restricts access to those fund until aged 60. From aged 60 it is tax free and death duty free in OZ.

However you would not do unless you have PR as there are too many complications and you would need a clear understanding on the details of such a transfer at your age etc.

The above was just in case you were not aware that this was an option.

cityboys1911

if you draw an English pension while living in OZ do you have to pay tax on it in OZ or the UK

Grayling

You pay tax wherever you are a tax resident providing where you live has a double taxation agreement with the UK such as Australia.

So if you are an Australia tax resident you pay it in Australia.

DeclanSyd

They are good points. Here are my thoughts, in relation to the points you've raised.

- UK State Pension payments will be deemed as income for the purposes of Australian aged pension entitlements. We are always discouraged from claiming this, therefore the system is tailored in such a way that a reduction of your personal income has a dis-proportionate increase to age pension entitlements (otherwise we would be encouraged to stop working and claim benefits). Therefore the general rule of thumb is that it's best to earn as much income as possible, rather than to aim to decrease it for the purpose of age care benefits.

- The rules relating to the means testing or qualifying years for the UK State Pension could change, but given the cost of voluntary contributions and the current benefit - the risk v reward encourages contributions.

- Benefits will not be received if you do not reach age pension age, however the break even point for making class 2 contributions is approximately age pension age + 8 months. Again, the loss if you don't reach pension age is relatively small, given the potential increase in payments over a long period.

This is correct but it's worthwhile considering your likely income when you start receiving your UK State Pension..

If you moved your superannuation entitlements to Australia and are drawing a tax-free income from these assets following retirement, your taxable income may be nil, in which case your UK pension entitlements would fall under the tax-free threshold, meaning no tax would be payable.

Of course, this is all based on the assumption that you're not receiving any other taxable income.