Expat retirees make up a considerable portion of expat populations around the world. For a variety of reasons, many people choose to spend a substantial portion of their retirement in foreign countries – they may have spent years working there, they may have some ancestral connection with the country, they may love the culture, or they may simply be drawn by a lower cost of living that allows them to stretch their pensions further.Australia is one of the most attractive retirement locations for British expats. The similarities of language and culture mean that settling in is fairly easy, the climate is much kinder than that in Britain, the economy is stable, the infrastructure is great, and although the country is known to be expensive, it is possible to live well on a small budget in many of the smaller cities. However, retiring abroad can be complicated and risky, especially in terms of pensions.
The basics of pensions in the UK
As a citizen of the UK, you have the right to claim your state pension even when you live in a foreign country, including Australia, as long as you have paid sufficient UK National Insurance contributions to qualify. Currently, the pensionable age for men is 65 and for women 60. However, this figure is gradually increasing for women, so that the pensionable age becomes equal for both genders. Like most other countries, the UK offers various pension plans to its citizens. These include:
– Category A Basic Retirement Pension
– Category B Retirement Pension
– Additional Pension
– Contracted Out Pension
– Widow’s Pension
The basic plan pays you a pension amount depending upon the number of years you have contributed to the system. The minimum payable amount is 25%, which keeps rising, up until the time it reaches 100%. In order to find out the amount you are eligible for, you need to obtain a State Pension statement or contact the Department of Work & Pensions in the UK. The information that they usually require is:
– Full name
– Date of birth
– National Insurance Number
– Last place of employment in the UK with the number of years worked
It is important to note that if you live for a part of the year in the UK and another part of the year in Australia, you’ll have to choose one country in which you want your pension to be paid. It isn’t possible for you to receive the payouts in two different nations.
How to make a claim for a British pension from Australia
All senior British expats must be within four months and four days of their state pension age in order to make their claim. There are two ways in which you can claim your pension amount from overseas.
You can directly contact the International Pension Center (IPC) by using an online enquiry form, available on their website (www2.dwp.gov.uk/tps-directgov/en/contact-tps/ipc.asp). When applying, you will have to report any changes in your personal details (such as your address or bank information) by mail or by phone; you cannot email the revised information to them. All contact information can be accessed at www.gov.uk/international-pension-centre.
Alternatively, you could choose to send the completed International State Pension Claim form as well as the supporting documents to the address mentioned in the form. The form can be downloaded from www.gov.uk/government/publications/guidance-on-claiming-a-state-pension-if-you-retire-abroad. The link also includes an exhaustive guide describing how the form should be filled in.
You can receive your pension in an Australian bank account or in a bank or building society in the UK. There are three types of accounts that people typically choose from, and you could opt for any one of these:
– An account that is solely in your name
– A joint account
– Someone else’s account (as long as you have their permission and stick to the terms and conditions)
In order to receive payment into an overseas account, you’ll have to provide the International Bank Account Number (IBAN) and Bank Identification Code (BIC) for this account. Do bear in mind that the payment you receive will be in Australian dollars, but may change because of foreign exchange rates.
The frequency of the payment may vary depending on certain criteria. If the pension amount you are eligible for is less than £5 each week, you’ll get paid once a year, in the month of December. If the amount is over £5 per week, you can choose to receive the payments every four weeks or every thirteen weeks.
Paying tax in the UK
You will be required to pay UK tax on your state pension even if you live in Australia, as long as you are classed as a “UK Resident for Tax Purposes”. The amount you pay will vary depending upon your income. For more information, go to www.gov.uk/tax-foreign-income/residence.
If you aren’t a UK resident, it is unlikely that you will be taxed there. However, in all probability, you will have to pay tax on your pension amount in Australia. It is therefore essential that you meet up with a professional tax consultant in Australia, someone who is well-versed with the taxation agreements between both nations. You should also ensure that your receiving scheme meets all HMRC requirements.
Selective freeze on pensions for British Expats in Australia
In the recent past, there have been several reports about the British government’s controversial policy to freeze the pensions that are paid to expats residing in specific popular retirement destinations. State pensions for expats from the UK only increase annually if they live in:
– The EU countries
– Countries in the European Economic Area
– Nations that have a social security agreement with the UK, except New Zealand and Canada
Unfortunately, there is no longer any social security agreement between Australia and the UK. As a result, your British pension will freeze at the value it was at when you ceased to make social security contributions or when you moved to Australia. Fortunately, your pension goes up to the current rate if you return to the UK anytime on a permanent basis.
The impact of the policy has been far-reaching. For example, many retirees are finding that their finances are being squeezed tighter in their old age, when they need money the most, both for an easier lifestyle and for increased medical expenses.
While the actual amount does not decrease, the value of the payments they get will gradually reduce due to inflation. In 2012, the Guardian reported the case of a 100-year old British expat woman who was surviving on a frozen pension of £6 a week. Had she been living in the UK, she would have received at least £100 per week. Another incident that hit the news involved a British citizen who worked in the UK for 40 years before retiring to Australia. This expat retiree struggled to make ends meet as her pension amount came up to only £17 each week. Furthermore, the BBC highlighted that these were far from isolated incidents. Australia in particular has been hit hard, with approximately 250,000 pensioners affected by the freeze.
Pensioners like the ones mentioned are losing out on several thousands of pounds that are rightfully theirs, in spite of having worked hard for a major part of their lives. Of course, they can avoid this problem by returning to live in the UK. However, the freeze is in stark contrast to the state of British expats living in a number of other locations, where payouts are linked to inflation rates. In such cases, the pension amount paid to retired citizens goes higher to keep up with the cost of living over a period of time.
According to the website Independent Australia, the UK is the only OECD (Organization for Economic Cooperation and Development) member nation that has a selective freeze on its citizens’ pensions, depending on which location an expat is retiring in, which seems rather discriminatory to people affected by it. Several more cases have come to light where pensioners are drawing additional funds from their “adopted” nation in order to make up for the shortfall they are experiencing. According to the same website, the frozen pension policy has a negative impact, not only on the pensioners but also the host country. It has calculated that the situation costs Australia more than US$ 1 billion per year.
Private pensions in Australia
Several British retirees living in Australia choose to have a private pension in addition to their regular state pension. This amount is normally paid to them regardless of the location they live in. However, it is best to seek expert advice on whether this is a feasible option for you or not. If it is, the money will be paid into a UK account, and can then be transferred to Australia (or any other country).
If you are working through the Qualifying Recognized Overseas Pension Scheme, you may be able to transfer your private pension. However, this is an expensive (not to mention complicated) alternative, and should be thought through carefully.
Fighting the freeze
An organization known as British Pensioners in Australia (BPiA) has been actively fighting for the rights of several thousand expat pensioners from the UK. This is an incorporated non-profit volunteer association and a founding member of the International Consortium of British Pensioners, ICBP (http://pensionjustice.org).
The main objective of the BPiA is to compel the UK Government to treat all British expat retirees fairly, regardless of their country of residence. This organization also helps people who have worked in the UK to discover which pension plans they may be entitled to.
The BPiA is not the only entity that is fighting for the rights of British seniors affected by the pension freeze. The British Age Pensioner Alliance, which is the successor to the British Australian Pensioner Association (BAPA), also aims at securing the cost of living indexation and pensions paid to British residents of Australia and other “frozen countries”. You can get in touch with them on firstname.lastname@example.org or visit their website www.britishpensions.org.au.
Moving back to the UK
If you decide to move back home, you will be entitled to a full up-rating of your actual pension amount. The increase will be in effect from the first payday after the day of your return to the country.
However, the increment won’t be permanent unless you confirm and establish that you’re planning to settle down in the UK on a permanent basis. At any point in the future, if you go back to Australia or any other country that has a pension freeze, you may not be able to keep your up-rating. Several Brits therefore reside in the UK for a majority of the year and visit Australia for shorter periods of time.
In some instances, it may be possible for you to have your pension payouts at the revised rate, even after returning to Australia. This could be considered depending on several factors:
– Your intention to return, even though there has been a change in plans
– A sudden alteration in your personal circumstances
– The arrangements commenced upon moving to the UK support your original intention to stay on
– The type of property (accommodation) you possess in both countries
– Details about your personal possessions shipped to the UK as well as the ones left behind
– Factors like registering with a doctor and dentist
However, even after meeting all the criteria mentioned above, it is possible for you to lose your revised pension amount when you go back to Australia or any other nation that is affected by the freeze policy.
If you’re seeking advice on how your pension may be affected if you’ve already retired but are thinking of moving to Australia, it is best to contact the International Pension Center. Their contact details are given below:
Telephone#: +44 (0) 191 218 7777 (From Monday to Friday, 8:00GMT to 18:00GMT)
Textphone#: +44 (0) 191 218 7280 (From Monday to Friday, 8:00GMT to 18:00GMT)
Address: The Pension Service 11, Mail Handling Site A, Wolverhampton WV98 1LW, the United Kingdom