Edition 1 - Preprints WED 07 JUL 2004, Page T08

Target old dart for pensions

By Gillian Bullock

RETIREMENT NEWS
Working in the UK entitles you to a British pension, writes Gillian Bullock

IF you've worked for a few years in the United Kingdom and paid their compulsory National Insurance, you might be able to claim a British State aged pension -- even if there's not a drop of British blood running through your veins.

To qualify for a part aged pension, you just need to have made National Insurance contributions in the UK for 10 years if you are a woman -- or 11 years if you are a man. And even if you have not racked that many years when you worked in the UK, you might still qualify by paying voluntary contributions retrospectively for six years. If you have not retired, then depending on your age, you may be able to contribute in future to make up the difference.

Retrospective contributions paid voluntarily are approximately pound stg. 350 ($850) a year if you're already retired.

Say you worked for seven years in the UK in the 1970s. By paying four years retrospectively (a total of about pound stg. 1400), you can receive a 25 per cent part aged pension. At current pension rates, this works out at pound stg. 1035 a year. Most life expectancy tables say that, on average, men live a further 16 years in retirement if they leave work at 65 -- so even with the extra voluntary contributions, you will be far ahead of the game.

Indeed, single men will be ahead within four years, and married men in less than three if they have a dependent wife.

Those still in the workforce -- and under the usual UK retirement age of 60 for women and 65 for men -- can continue to contribute voluntarily to National Insurance. Not only can you make up any shortfall to the 10 or 11 years, but you can contribute for more years than the minimum. And if you are still working, the voluntary contributions are now only about pound stg. 105 a year rather than pound stg. 350.

The more years you accumulate, the higher the percentage of the pension you can draw. Jim Tilley, chairman of the Australian-based activist group British Pensions in Australia (BPiA), says that as a rule of thumb, every extra year you contribute over the 10 or 11 year minimum translates into about 2 per cent more annual pension each year. That's pound stg. 83 for a single person and pound stg. 132 if you have a dependent wife. Clearly dependent wives are very handy! Regardless of her nationality and age, men can get a further 60 per cent of their aged pension thanks to their wives. The British Government classifies a dependent wife as one who is not receiving wages -- investment income is not counted as earnings. Unfortunately this largesse does not apply if you are a wife with a dependent husband.

The British pension is not means-tested, so you can receive it regardless of your income or assets. Of course, it can affect your Centrelink benefits, but Clearview's chief financial adviser Eric Hiam points out you will only lose 40c in the dollar off your Australian pension. That means you would still be getting 60c for every dollar received from the UK over and above the $60 a week you are allowed to earn. The downside is that once you receive a British pension, the pound sterling amount is set in concrete and not indexed. Tilley's BPiA, together with British expats in New Zealand, Canada and South Africa, have been fighting a legal battle to index the UK pensions of recipients living in these countries. Tilley points out that if you had migrated to the US or Europe, you would receive indexation. The legal case to be heard in the House of Lords shortly.

Indexation makes a big difference. Say you had migrated to Australia and started receiving a pension back in 1974 at the going rate of pound stg. 10 a week -- that is all you would be receiving from the UK today. If you had stayed in the UK or migrated to a country where the pension is indexed, you would be receiving significantly more. The gap can be enormous, and grows the older you get. To access a pension from the British Government, you should first contact BPiA via its website at www.bpia.org.au, or call (02) 9521 7964. The group will advise you on dealing with the Department of Work and Pensions (DWP) in the UK. The DWP will determine your National Insurance number and contribution history and whether or not you have a shortfall.

Clearview's Eric Hiam says you are entitled to receive a pension commensurate with your contributions history if you have worked in the UK and paid National Insurance. ``It's just like your superannuation payments that you make here,'' says Hiam. ``You have paid the money out of your salary and you are entitled to receive it on your retirement. The only difference between this and superannuation is that you have to take the money as a pension and you don't have the option of a lump sum. ``But the current minimum pound stg. 1035 ($2575) a year is certainly nothing to sneeze at.''

Column: Wealth

Section: FINANCE