Nick Bruining: Clock is ticking (kind of) to get yourself a $470-a-week UK state pension

Anyone who has ever worked in the UK has less than a month to take advantage of a special payment that provides an effective life-time return on investment of a staggering 52 per cent — guaranteed by the British government.

The ability to make a special one-off payment to the National Insurance scheme — the UK equivalent of Centrelink — closes on April 5. But there is still time to start the ball rolling.

Unlike in Australia, the UK age pension is not means-tested, meaning multimillionaires can qualify for a payment. Anyone who worked in the UK for at least three years can potentially access the scheme, regardless of their citizenship.

How much can you get?

The UK state pension increases on April 6 each year, and for the rest of 2025 will be £230.25 a week, or approximately $469.

Once you qualify and claim — whenever that is — the pension rate in that year is fixed for life. This is a bone of contention for those living in Australia because residents of many non-Commonwealth countries receive the annual increases that are linked to UK inflation.

To receive the full rate, you need to have 35 years of NI contributions. Anything less than that, you receive a fraction of 35. Twenty years of contributions, for example, would see you qualify for 20/35ths — or £131.57 a week.

So, are you eligible?

To receive any pension from the UK, you must have at least 10 years’ worth of NI contributions in the scheme, but there are ways of topping up if you fall short or want to enhance your pension.

To be able to make any top-up payment, you must have at least three years of contributions. Someone with just three years would need to add seven years to qualify for a part pension.

While there are four types of payments possible, the ones accessible to Australian residents are Class 2 and Class 3 contributions. Normally, you can make up to six years of back-payments and continue paying up to retirement. Each year gets you an extra 1/35th of the state pension in the year you claim.

The special concession, which ends on April 5, is the ability to add an additional 10 years of back payments in addition to the normal six years — meaning you could top up by 16 years.

A special announcement made last week following enquiries by Your Money to the UK’s His Majesty’s Revenue & Customs means that provided you make contact by April 5, you may still be able to access the concession.

John Ring, operations director with Ireland-based XtraPension, said the hard deadline position of April 5 had softened.

“After the last-minute chaos of the two previous deadlines, it’s good to see some forward planning by the UK government to ensure that people won’t miss out on their UK state pension top-ups,” Mr Ring said.

A mind-blowing return on your investment

The financial mathematics on the deal are truly spectacular.

Class 3 contributions are currently £907.40 a year. So a payment of £907.40 adds 1/35th or, in effect, an additional £342.08 a year for life. This is an effective income return of at least 38 per cent a year for life, assuming you retire next year.

But in great news, the vast majority of people who top up their UK entitlements qualify for Class 2 contributions.

Class 2 contributions are truly rolled-gold. To qualify, you would need to have been working just prior to your departure from the UK and be employed or self-employed here in Australia.

The contributions are currently just £179.40 a year. The effective income return on your investment is the same increase of 1/35th of the full pension. The maths in this case means a staggering 191 per cent return. In other words, you would get all of your invested money back in just six months.

How it works

Someone with just three years in the NI scheme who takes full advantage of 16 years of Class 2 contributions would receive 19/35ths — or at least £6501 a year for life — with just a £2870 outlay. That’s a mind-numbing 226 per cent return.

Like any investment, there are risks.

You might die before you reach eligibility age. There are no refunds and no payments to partners.

Equally, exchange rate risk is very real. While those currently receiving a pension from the UK are rubbing their hands with glee, the effective $2 per £1 exchange rate means the outlay is not insignificant.

For financial advisers who properly understand the UK system, sending money back to the UK is an absolute no-brainer.

If used properly, it could free up much of your superannuation savings so that when you retire you’ll be able to use your super for fun things instead of generating a retirement income.

So, where do you start?

Claiming your UK state pension is easier than you think — and new technology means that many expat Brits with a current passport can do it all via a mobile phone app.

The not-for-profit group British Pensions in Australia has helped thousands of people claim their pension from Blighty.

President Patrick Edwards said most enquiries translate into a successful claim.

“There’s a bit of work involved in dealing with the UK system but once you successfully make contact, the correspondence and instructions are pretty clear,” Mr Edwards said.

Where a claim does fail, it is typically because an applicant hasn’t satisfied the three-year minimum rule. To be able to make top-up payments of any type, you must have worked and contributed to the UK’s National Insurance scheme for at least three complete years.

BPIA’s members have access to an extensive online library of fact sheets at bpia.org.au, which include precise instructions on how the system works and how to claim a UK State Pension.

The UK government also has an online system called Gateway, which is similar to Australia’s myGov portal. Someone with a current UK passport and their NI number can use it to establish their current entitlements or download a special HMRC app on their smartphone.

“HMRC is responsible for collecting the contributions to the scheme. But when you retire, you are effectively transferred to the Department for Work and Pensions, or DWP,” Mr Edwards said.

Once you make contact with HMRC, you will be provided with a quotation showing what back-payments are available under both Class 2 and Class 3 conditions.

“Class 2 is substantially cheaper at about 20 per cent of the Class 3 rate. You need to have been working in the month before you left the UK and continue working here to meet the Class 2 requirements,” Mr Edwards said.

Sometimes, HMRC will request proof of employment for each Class 2 contribution year and this can happen after you claim.

As Mr Edwards points out, not everyone will keep their payslips dating back 16 years. Although not verified, you may be able to use an older Australian Taxation Office notice of assessments or your Australian Business Number history if self-employed.

“We often suggest you just pay the Class 2 rate and deal with any queries if they arise,” Mr Edwards said..

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association