Increasing Your UK Pension Income: A Guide for Expats in Australia
One of the considerations as an expat migrating from the UK to Australia that some people have largely considered but pushed to the back of their minds is what they can do with their UK pension pot in the meantime and what options are available to manage it for their future retirement.
The UK State Pension has similarities to the Australian Age Pension and will still be payable for qualifying people who do not reside in the UK. Some immediate advantages that aren’t applicable to the Age Pension is that it is not means-tested and that the pension payments have a ‘triple-locked’ guarantee, meaning that payments are guaranteed to be increased each year based on the higher of earnings, prices or the minimum 2.5% rate.
For some of the reasons above, there has been more considerations for people to make additional voluntary National Insurance contributions to make them eligible to receive the pension or to increase their entitlements in the future.
Qualifying Requirements
To be eligible in receiving the State Pension in the first place, you will need to:
Have at least 10 qualifying contribution years of National Insurance contributions (through work contributions, getting National Insurance credits or making voluntary contributions).
If you do not have 10 qualifying years but have at least 3 years, you are eligible to make additional contributions to meet the 10 qualifying year requirement.
Additional Payment
There are 4 levels of additional contribution that you can make based on your employment arrangements, where the contribution rates increase based on your levels. Voluntary contributions are assessed as a level 3 contributions however for people residing in Australia, you may qualify for a level 2 contribution which is lower if:
You are working/self employed
And you made contributions immediately prior to leaving the UK, which is normally linked to being employed before leaving the UK.
Pension Payment
The current full weekly pension payment is £221.20 per week (£11,502.40 per annum).
5 April 2025 Upcoming Change
Historically, you are only allowed to maximize the remaining cap of your contributions in the last 6 years however the government had put a temporary rule in place until the 5th of April 2025 to allow people to use up their remaining yearly cap from the last 16 years.
This may potentially allow people to increase their qualifying years through making a lower contribution amount as the maximum amount for each year will be bound by a lower limit.
Advantages
Similar to Age Pension in Australia, the UK State Pension provides you with a government funded source of income in retirement age. Unlike investments where the value of income derived from your asset is based on market performance, the State Pension will continue to be funded regardless of market activity.
Things to Consider
The payments will be indexed in Australia as a foreign pension income; however there may be some portion of the payments that will be excluded from tax depending on your level of personal contributions.
Although the pension carries the ‘triple-lock’ indexation, residents outside of the UK will not receive further indexation upon commencing the pension.
There are many factors to consider whether making additional contributions will be appropriate for your situation such as where you plan to retire, your other assets in all different juridisctions and other strategies relevant to your current position. Navigating two separate tax systems while considering your current and future position is a complex exercise that requires tailored advice to ensure that the strategies are appropriate to each of your unique circumstances.