Key Points
- A full UK state pension of £10,600 a year is more than $350,000 over 18 years, at the current exchange rate
- Many individuals who have worked in the UK for long enough are eligible, even if they're now living outside of the UK.
- Temporary tax provisions make the pension accessible to more people, but the deadline is looming.
Imagine paying a few thousand dollars and securing yourself a steady pension of a few hundred dollars a week for your whole retirement.
It almost sounds like — too good to be true — but thanks to current tax provisions, some people who have previously worked in the United Kingdom, but not long enough to be eligible for the country's state pension, can now buy themselves into the scheme.
Some are surprised upon discovering they could be eligible for a pension.
Jim Devonport, who came to Australia as a British backpacker in the 1990s, had always thought once he reached retirement age, he'd give the UK tax office a call and see if he'd be eligible for any payments.
Jim Davenport never gave much thought to the National Insurance contributions that came out of his salary as a young man in the UK. Source: Supplied
By chance, he came across a blog about how back paying contributions could ensure eligibility and, after doing so, is now set to receive a UK pension.
While the number of years a person can back pay their contributions is usually restricted to six, Mr Devonport was able to retrospectively pay 16 years' worth, due to a temporary tax provision that expands the number of years for which people can make up contributions.
He plans on making further voluntary contributions in years to come in order to receive a full pension.
What is the UK state pension?
The UK state pension is different to Australia's aged pension and superannuation programs.
Taxpayers make annual National Insurance contributions, some of which goes towards the National Health System (NHS) and some towards state pensions.
People become eligible to receive the weekly pension in their mid-60s; the exact age differs slightly depending on year of birth, but not everyone is paid at the same rate.
The rate at which individuals receive the pension depends on how many years they worked in the UK, and therefore the number of annual contributions they've made.
Currently, the full rate is £185.15 ($340).
A full pension can be paid to those with at least a 35-year history of National Insurance contributions and a reduced-rate pension for those who've paid contributions for at least 10 years.
Living outside the UK does not disqualify people from receiving a UK pension, as long as they've worked in the country for a sufficient time.
Whether you're a British immigrant to Australia or an Australian who spent time working in the United Kingdom, you may be eligible to receive the British pension. Source: Getty / SOPA Images
Retrospective contributions will give you a large return on investment
Mr Devonport made a one-off payment of £2,608 ($4,807) to cover 16 years of National Insurance contributions.
Based on today's money, the further contributions required to receive the full state pension would total £1,793 ($3,307).
Mr O'Connell said if Mr Devonport did this and lived to 85 years, he would receive a UK state pension for 18 years.
"In today's money. it would equal £10,600 a year, over 18 years, so $351,072 in lifetime income," he said.
Current tax provisions make the pension more accessible
President of not-for-profit British Pensions in Australia, Patrick Edwards, has described the tax concessions as "a once in a lifetime opportunity to fill gaps in your contribution record."
Financial adviser Jason O'Connell said while the UK tax office, Her Majesty's Revenue & Customs, usually allowed people to back pay up to six years of contributions, temporary provisions have allowed people to make further contributions.
As outlined in a statement from , since 2013, individuals have been permitted to retrospectively build their National Insurance contribution record for the years 2006 through to 2016 as part of "transitional arrangements introduced alongside the new State Pension".
This has allowed people to boost the rate at which they will receive the pension and in some cases like Mr O'Connell's client, Mr Davenport's, even gain them access to the pension that they would have otherwise not been eligible for.
Mr O'Connell said he had assisted about 240 people to maximise their UK pension eligibility in the past few years.
He said of those about 10 to 15 per cent had previously not had the 10 years of contribution, so would not have been able to receive any pension when the time came, without taking action.
A surge in the number of people looking to make retrospective contributions recently saw the UK government .
How can you make extra National Insurance contributions?
To be eligible to top up National Insurance contributions, a person must have previously worked in the UK for at least three years in a row and paid at least three years of contributions.
Those who have worked in the UK should be able to and once they have identified gaps in their contributions, see if they are able to .
What to be aware of when topping up contributions
Mr O'Connell said there were a couple of important points to take into account in regard to receiving a UK pension in Australia.
Firstly, if receiving the pension in Australia, after the person receiving it reaches UK state pension age; so if there is high inflation, the payment will not be increased in line with it.
Receiving the UK pension in Australia can also affect eligibility for the Australian aged pension, which is means-tested.
Retirement bucket lists expanded
Mr O'Connell said many of those who had made retrospective contributions to ensure they received the UK state pension said it would mean they would be able to do more in retirement. Source: Getty / Yobro10
"It's just an extra level of comfort that you don't have to worry about," he said.
Mr O'Connell said the people he'd assisted had expressed similar relief.
"The standard of living and bucket list of things that they wanted to do in retirement have been brought to life because they'll have an extra bunch of money coming in," he said.
