Your entitlement to a UK State Pension

MSI - UK State PensionsBy Alec Blacklaw, McKinley Plowman & Associates, Accountants, Perth.

Have you worked in the UK? If you have you are probably eligible to receive the UK State Pension in retirement.

However, recent changes to the rules will mean that expatriates that have paid insufficient National Insurance contributions (NICs) will miss out.

From 6th April 2016 individuals that have paid less than 10 complete UK Tax years of NICs will no longer be eligible to claim the pension. Previously it was 3 years. Also, married women that previously had their National Insurance (NI) record tested in conjunction with their partner will now be tested on their own individual merit. This may affect couples where one parent remained at home to look after children and did not pay sufficient NICs during the period. The UK State Pension is a valuable benefit which can provide additional sources of income in retirement and more importantly is not means tested, unlike the Australian age pension. The current maximum UK basic state pension available is £115.95 per week, however you may be entitled to an additional earnings related pension known as SERPS. The good news is that in April 2016 the maximum pension entitlement available will increase to £151.25 per week. That is an annual increase equivalent to £1,835.60 per annum. However, in order to achieve this new higher rate pension you will have to have paid more NICs.

You can increase your entitlement by paying voluntary Class 2 NICs whilst living abroad. The low cost of the contributions, relative to the increase in annual pension, makes it a compelling investment. For example, you may be able to purchase up to 6 years of backdated NICs in one go, plus an additional contribution each tax year until you reach retirement.

NI contributions purchased Cost of contribution Increase to annual pension
1 year £140 £200 pa
6 years £810 £1,200 pa

If you were to receive the additional pension for 25 years from pension age then you would receive £30,000 in additional income by simply making a one off contribution of £810 to increase your NI record by six years.

IMPORTANT: Recent changes proposed by the newly elected Conservative Government include the abolition of Class 2 NI contributions. This will mean that the cost of making a voluntary NIC will increase by approximately £580 for every year purchased. If you do intend to top up your NI record, then you should consider capitalising on the cheaper Class 2 rate now, whilst it is still available.

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