fancyfella

Hi Folks,

Bit of advice please I am currently opted out of the state pension but as i am going to Oz will it be better for me to opt back in.

Thanks Fancyfella and the Tribe.

P.S.YOULL NEVER WALK ALONE

GinaUK

Hi Fancy,

you are confusing the Basic State Pension with the State Second Pension (S2P) (predecessor was called SERPS).

When you are contracted out, it means you are contracted out of S2P/SERPS. You can't contract back into it if you are leaving the country. You have to be an employee in the UK to be contracted out or contracted in.

The Basic State Pension is something else entirely. You contribute to that through your National Insurance contributions. When you leave the UK, you can elect to make voluntary NI contributions to increase your entitlement to the Basic State Pension (The full Basic State Pension is currently around £80 a week for a single person.)

Before you decide whether to make voluntary NI contributions from Oz, here are some points to consider:

1. In order to get the full Basic State Penion, you need to have paid appropriate National Insurance (NI) contributions for a certain number of tax years. For a man, this means 44 tax years worth of appropriate NI to get the full Basic State Penion. For a woman, it depends on when she was born: those reaching age 60 before 2010 need 39 years of NI contributions (or NI credits). From 2020, when the state pension age will be 65 years of age for both men and women, women will also need 44 years of appropriate NI.

2. If you have less than 25% of the tax years needed for a full state pension, i.e. you are a bloke and you have clocked up less than 11 years of appropriate NI contributions, you will get no state pension at all.

3. If you have between 25% and 100% of the required years' worth of NI you will get a partial state pension. (At the moment, the minimum basic state pension is around £20 per week and the full basic state pension for a single person is around £80 a week.)

4. HOWEVER, if by the time you are due to retire the government of the day has abolished the basic state pension, or has changed the rules (perhaps made it means-tested, or introduced a rule that only those living in the UK can claim it), you may get nothing for your NI contributions.

A lot of people forget that just because they pay NI does not mean they will get the basic state pension for sure. It depends entirely on the (whim of the) government at the time when you retire.

Looking back over the past 20 years, successive governments have tinkered substantially with the pension system. Personally, I think if we have a few Conservative governments, then the state pension will disappear altogether. Under Labour, it'll probably be means-tested and only available to UK residents by the time I retire. The reason: as we all get older and there are fewer young people around, keeping the basic state pension going will be prohibitively expensive for the government.

5. Some people are thinking of paying voluntary NI when in Oz in case they come back to the UK (and they believe the basic state pension will still be around when they retire). If you are thinking along those lines, consider this:

These voluntary NI contributions must be paid within six years of the tax year in which they fall due. Example: If you leave the UK on 6 December 2006, your voluntary contributions for the period 6/12/2006 to 5/04/2007 must be paid by 05/04/2013. Your voluntary NI contributions due for the year 06/04/2007 to 05/04/2008 must be paid by 05/04/2014. And so on.

Therefore, you could put the money for those voluntary NI contributions into a savings account in OZ each month. In six years' time (when you get near the due date (05/04/2012) for those contributions for the first tax year when you left the UK), you can re-evaluate your situation: Do you still think you'll be going back to the UK? If you think the answer to that question is "yes" or "maybe", then pay over that year's worth of voluntary NI contributions.

If by then you're sure you'll be staying in Oz, then don't "waste" the money on a UK state pension that may not materialise. You'll be better off keeping it invested in Oz. That way, it'll be a pot of money with your name on it when you are due to retire.

6. Last but not least, don't forget that once you've been in Oz 10 years (having arrived with a PR visa), you qualify for the Oz state pension on retirement (Oz state pension is means-tested).

I hope this has helped. (Personally, I won't be paying voluntary NI contributions once I'm on Oz.)

Gina

busterboy

[QUOTE=GinaUK]Hi Fancy,

you are confusing the Basic State Pension with the State Second Pension (S2P) (predecessor was called SERPS).

When you are contracted out, it means you are contracted out of S2P/SERPS. You can't contract back into it if you are leaving the country. You have to be an employee in the UK to be contracted out or contracted in.



Should I even ask what you do for a living?

Ian & Sharon

Brill post Gina,

You've answered all the questions I had in my head about pensions, thank you.

In fact have some Karma for that

Ian

esperanza

I was a teacher for a few years and opted out of that pension. When I started I needed to clear my overdrafts and credit cards (which I did!) and then I knew that I would not teach for much longer so thought it wasn't worth paying in for just one year.
As a result, although I have savings, I have no pension yet. (I'm not old so it's not a crisis yet, but I know I do need to sort it out)
It makes me quite cross that for years I have been paying NI which I am never going to get! Is there no way to claim back NI payments if you sign something saying you will never claim a UK pension?! Why should they force me to pay for something that there is NO guarantee I will ever get (personally I don't expect a penny from the govt once retired - if that ever happens) !!!
It's almost enough to make me sign on, which I have refused to do so far out of principle, just to claw some pennies back from the theiving *****s!

busterboy

Ian and Sharon, you Karma-ed me by mistake. I know nothing about pensions. I will Karma GinaUk for you (as you both so obviously need some help)!

rich8509

I hope this has helped. (Personally, I won't be paying voluntary NI contributions once I'm on Oz.)

Gina[/QUOTE]

Excellent post Gina, you've cleared that one up for me as well.
regards
Rich

bobbyftm

Fantastic post Gina this can only help people like myself who are toying with the idea of what to do many thanks
regards bobby

fionad

Hi

Interesting post. Just a few ideas to argue the other way. Suffice to say no one knows what will happen so there is no 'right' answer and everyone has to decide for themselves what is their best strategy. But I've decided to continue to pay NI contributions. Here are my reasons.

1. Gina is presently correct re the number of years required for a full state pension -- 39 for a woman, 44 for a man. But in the legislation proposed for the coming parliament is a motion that only 30 years will be required for a full pension for all -- the effect is that each year of credit will be that much more 'valuable'.

2. Voluntary NI contributions from abroad are CHEAP (I think that is assuming you are employed). If you pay NI as an employed person in the UK, the cost is something like 10% salary -- so on 30,000 pounds a year one is talking about 3,000 for one years contribution. Here, for Class 2 voluntary contributions, the cost to me is 2.10 a week (ie. about 109 quid a year). OK, I'm not entitled to job seekers allowance or other things like that (but I'd hardly expect to be) but I get credited with a year for pension purposes just as anyone else.

3. Will the basic state pension still be around when I retire? Who knows? I think it will be. With the impending pensions crises future governments would love to abolish it or means-test it; but that would be political suicide surely. Any party that announced it was going to do that, unless it has given plenty of warning, could look forward to many years in opposition.

4. Obviously the best move for any individual depends on circumstances. I've got 23 years through work in the UK and am now working my way up to 30 years (the likely required maximum) at the princely sum of 109 pounds a year as fast as I can. The cost of voluntary years is ridiculously cheap -- I think one effect of the reduction of years to 30 will be that someone somewhere twigs that 109 is stupidly low and that gets bumped up considerably. My motto is to get credits when its advantangeous.

5. It is not commonly realised how expensive pensions are. 80 pounds a week may not sound much, but if one wanted to buy a policy that would provide that amount, index linked and for the remainder of life beyond 65, at current rates it would cost somewhere in the region of 100,000 pounds. For 30 years worth of stamps, crudely that equates to about 3000 a year. I'm getting that for 109 -- bargain.

6. I imagine in the future increasingly few people are going to qualify for the means-tested Oz state pension. The thresholds are very low -- and what with employers forced to contribute to employees pension funds now, anyone with a decent work record over a reasonable period wont get a sniff of an Oz pension as their super fund will be too big.

So, for what its worth, thats my take on it all. In summary, never mind how mean the UK govt gets, I'm banking on the fact that they would never be mad enough to abolish or means-test pensions as they presumably want to remain in power. They might well change the rules and means-test on NI contributions beyond a certain future date -- but any NI monies paid in before that date would be 'protected'. Current payments are unbelievably good value and might not last very much longer. I need another 7 years to qualify for a full pension -- if everything else remains as is that is going to cost me about 1000 quid -- roughly what someone on average earnings would pay in 4 months if based in the UK. If it all goes wrong, thats life. But in the incredibly expensive pensions game, I reckon you'd be hard pushed to find better value than the current Class 2 voluntary NI (unless you have a non-contributory employer-paid pension.... but thats another story).

Sorry this has rambled on -- but I'm paying my contributions and think its not a bad gamble!

fiona

lesleys

Please don't forget that when you claim our pension in Oz it will NOT be index-linked. It is frozen at the amount it is when you first claim it.

Wol

And since the thread is about contracted out pensions, be aware that the minimum guarantee part of your COMPANY pension will also not be indexed in Australia!

(As Michael Caine didn't say, "Not many people know that!")

GinaUK

The statement below is *not* true!!!
Where a final salay scheme was contracted out of SERPS, the "guaranteed minimum pension" (GMP) relates to the earnings component of the SERPS that you would have earned while in the employer's scheme, had you not contracted-out. GMPs ceased to accrue after 5 April 1997.

(SERPS has absolutely nothing to do with the Basic State Pension, which we were discussing above.)

GMPs only accrued in a final salary scheme (strictly speaking they are called defined benefit schemes, but I am trying to keep things simple ). Everything said below is therefore in relation to a final salary scheme.

When you leave an employer you become a deferred member of your ex-employer's pension scheme (unless you decide to take a transfer value or die). As a deferred member of a final salary scheme until you take a transfer value or retire, the pre-1997 GMP element of your pension and the non-GMP element of your pension are re-valued (increased) according to rates set out in legislation (rates are changed every year). It makes absolutely no difference where you live during this period: In or out of the UK, your pension will be revalued every year as per the rates set out in the legislation.

When you take a transfer value, all obligations of your ex-employer's scheme to revalue your accrued pension (and the obligation of your ex-employer to fund these annual revaluations) cease. The transfer value calculations have to be done as per legislation and are meant to have the revaluations that you are now missing out on factored into the calculation.

You don't have to take a transfer value. You can leave your pension benefits where they are until you retire. When you retire, you can choose to have your pension paid from the pension scheme or use the lot to by an annuity from an insurance company (this is a little simplified, but those two are the "favourites"). If you choose to get your pension paid by the pension fund, you will get annual increases in your pension as laid down in the pension scheme rules - makes no odds where you live. If you choose to buy an annuity you decide up front how much annual pension increase you want to be paid. Until the day you die this is what you will get - again makes no odds where you live during retirement.

We have rather digressed from the question of the original poster but I couldn't let Wol's incorrect comment stand.

Going back to the original poster: You can't elect to pay additional NI to contract in when you leave the country. Contracting in or out can only be done if you are a tax paying employee in the UK. Contracting-in or out is linked to the State Second Pension (previously SERPS, i.e. State Earnings Related Pension). Contracting-in or out has no effect on the Basic State Pension. Basic State Pension entitlement is dependend on the number of years you have been paying Class 1 and/or Class 2 (and in some cases Class 3) National Insurance contributions.

Gina

pippin lara

fiona[/QUOTE]

great stuff Fiona

I have 2 further questions on this subject.

1. I understand I can 'hold back' payments for up to 6 years - can you do the opposite and 'pre-pay' your 7 years worth of contributions?
2. when we finally retire and start to claim the UK pension (at whatever age it finally ends up at) will this income be taxed on Oz?

cheers David

sme

Interesting but way above my head thread at times (lol).

I've been reading ads in Perth press stating that you will get taxed at 45% if you you elect to leave your pension in the UK and draw on it when you reach pensionable age (from UK to Oz). Is this the case ? I have a final salery scheme one through the NHS and husband has a company one, we don't know whether to transfer or to leave it where it is ?
Any thoughts any one ?
Gillian

Wol

>> The statement below is *not* true!!! << [Gina]

(Quote:
Originally Posted by Wol
And since the thread is about contracted out pensions, be aware that the minimum guarantee part of your COMPANY pension will also not be indexed in Australia!)


Thanks for yur contribution, Gina: you are evidently a pensions professional, a trustee or very knowledgeable on the subject.

Alas, I think you are wrong in what you say: it may be that we are talking about different aspects of GMP in respect of "company" pensions.

I was not talking about the situation where someone makes a transfer of money from a private pension to, say, an Australian scheme. Your analysis then makes perfect sense.

If you are, as I am, in receipt of a company final salary and indexed pension, I repeat that some of the GMP payments will not be indexed if the recipient is in certain countries - the same countries that don't have the state pension indexed. Specifically, any element of GMP earned 1978 - 1988 and any part post-1988 where the RPI exceeds 3% is not indexed.

Having spent some 35 years paying 8% into a final salary scheme on the understanding that it would provide an indexed pension on retirement I was rather taken aback when this came to my notice!

As I said - "not many people know this"!