How Britain’s state pension can be paid to millions living outside UK

The UK state pension can be paid to many people in Australia, and a deadline looms to be able to buy years of extra payments.

More than a million people living in Australia with ties to Britain risk missing out on tens of thousands of dollars in retirement because of a looming UK state pension change.

On April 5 the British Government will remove the ability for expats and people who have worked at least three years in Britain to boost their pension entitlement by buying back up to 18 years of National Insurance contributions.

For most Australians it costs $350 to buy back one year, which then pays about $700 extra pension annually, and Ireland-based company XtraPension says a UK pension is worth up to $480,000 over a 20-year retirement.

“It’s a bit crazy that no one actually knows about this,” said XtraPension operations director John Ring.

“There’s about two million people we reckon in Australia who are eligible for this – even those 200,000 who are already in receipt of their UK pension,” he said.

“But because they’re so happy to be getting anything, they don’t realise that they are able to boost what they can get.

“There’s about six million people globally who are eligible for this, and the vast majority of them have absolutely no idea what their entitlements are. You are looking at anyone who has worked in the UK going all the way back to the early seventies, which is an enormous amount of people.”

XtraPension operations director John Ring. Picture: Supplied

The Department of Home Affairs says 1.1 million people born in Britain were living in Australia as of July 2022, while the UK Institute for Public Policy Research says there are now 1.3 million British expats living here – making Australia the most popular place in the world for them.

Registered charity British Pensions in Australia says the UK state pension is paid worldwide regardless of the recipient’s nationality, and is not means tested.

It says people living in Australia may make voluntary contributions to the scheme if they have paid a minimum of three years contributions while working in the UK. Contributions to the British National Insurance Scheme are compulsory for workers in the UK and provide a lifetime pension to anyone who has paid the required number of contributions, it says.

British Pensions in Australia president Patrick Edwards said: “I urge anyone who has worked in the UK to investigate if they have an entitlement to British state pension without delay”.

“They may be able to pay voluntary contributions to lock in that entitlement or to increase the rate of pension they will receive,” he said.

XtraPension’s Mr Ring said after April 5 people would still be able to buy back six past years, plus future years, but the 18-year opportunity would disappear.

“The process of maximising the UK State Pension is quite convoluted,” he said.

There also are potential pitfalls, including its impact on the Centrelink income test for Australia’s age pension.

Britain’s state pension is not means tested, and top-ups can be purchased. Picture: Supplied

And, similar to many defined benefit superannuation schemes in Australia, if you die early in retirement the UK state pension payments cease.

“It’s game over,” Mr Ring said. “If you go, it goes, so to speak.”

XtraPension charges a service fee of $1500 to help people through the British pension process.

“Effectively, for a lot of people they can get a 40-to-one return over a 20-year retirement, which is nuts, basically,” Mr Ring said.

“Essentially it’s free money, but if you say that everyone thinks it’s a scam, which is the number one thing that we hear on the phone. But it’s not – it comes about because of a change to the system in 2016 in the UK from the old system to the new one.”

Originally published as How Britain’s state pension can be paid to millions living outside UK