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British expats ‘should act fast’ to maximise UK pension

By philip-king-momentummedia-com-au
January 14 2023
2 minute read
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Those past retirement age will miss out on this year’s increase but those still working can take advantage of concessionary contributions, says specialist.

British pensioners living in Australia will miss out on increases worth about £1,000 ($1,760) a year from April but those below retirement age can still take advantage of extended contribution discounts if they act soon, according to a specialist financial adviser.

Jason O’Connell said UK expats could top-up their contributions back to 2006 if they got in before April 6, boosting their eventual pension payments once they passed the qualifying age.


He said topping up contributions made financial sense for expats working in Australia even though once they pass retirement age their UK pension is effectively frozen at that rate.

“You qualify for Class 2 [discounted contributions] for every year that you are working while you’re abroad. Otherwise, you’re Class 3 which is five times the cost,” he said.

“In simple terms, for every £163 that you pay, you’re buying £275 pounds of lifetime income. 

“If you’ve got a brother living in the UK, £824 a year is going towards the state pension and you’re paying £163 living here in Australia.”

He said expats who qualify for Class 2 should take advantage of it and an extended concession, which finishes in April, that allows top-up contributions back to 2006 instead of the usual six years.

That April deadline coincides with an expected increase to UK pensions thanks to the reintroduction of the so-called ‘triple-lock’, which was suspended during the pandemic.

The triple lock raises UK pensions in line with inflation, average earnings or 2.5 per cent a year, whichever is highest. With inflation in the UK at double digits this year’s increase is expected to be around 10 per cent.

British pensioners living overseas in the US and EU will get the rise but those in Australia — and certain other countries, such as Canada — miss out.

Financial advisory company deVere Group estimates that 500,000 retired Brits living abroad will not receive any boost at all.

“Outrageously, they will continue to have their pensions frozen in value at the point of retirement date or date of emigration,” CEO Nigel Green said.

“Having a frozen pension means that your retirement income falls in real terms year on year due to inflation – and never has this been more true than as the cost of living has soared.”

“The majority of affected pensioners live in some of the biggest Commonwealth countries, such as Australia and Canada. Despite paying taxes all their working lives in the UK, and the national insurance in full, these Brits will completely miss out on the rise given to others.”

“It seems completely unjust that someone living in the U.S. will receive an extra £1,000, yet someone just across the border in Canada, in the same situation, will not.”

Mr O’Connell agreed the situation was unfair.

“Let’s say you have two brothers, John and Michael, both contribute the same amount but one goes off to Australia to retire. I’m not sure in what world it’s fair that the one who stays in the UK is going to enjoy the indexation, whereas the one who’s left the UK misses out. I don’t think that’s a very fair situation at all.”

He said British pensioners living in Australia felt the injustice of the system and the best hedge for those working here before the retirement age was the discounted contributions scheme.

“If you can top up as a Class 2, assuming that you’re working in Australia, at least you’re able to offset some of that impact in the future of not getting that indexation.”

He said the system pointed to a vulnerability in the UK system, which is not means-tested but was unfunded and costing the government £105 billion a year — about 14 per cent of UK GDP.

“It’s not affordable because you can have someone who’s a multi-millionaire who is entitled to the same state pension as someone who has no other source of income in retirement.”

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Philip King

Philip King

Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.
Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.
You can email Philip on: [email protected].au