NICK BRUINING: UK Government’s shock move to end cheap National Insurance state pension loophole for Aussies
In a dramatic shift of the goal posts, the UK Government is set to change the rules on access to the highly lucrative National Insurance scheme state pension.
The changes — announced by Chancellor of the Exchequer Rachel Reeves last Wednesday as part of the Labour Government’s 2026 Budget — are set to take effect on April 6 next year.
The state pension is the UK equivalent of Australia’s age pension, but unlike our payment there is no means testing. Multi-millionaires qualify, with the weekly amount received dependent on contributions made by employers and employees over their working lives.
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By continuing you agree to our Terms and Privacy Policy.Many Australians who worked in the UK for at least three years can qualify to receive part or all of the state pension.
The existing rules allow eligible people to make payments back to the UK to firstly qualify for a part pension, and then increase their entitlements with cut-price “top up” payments that effectively “buy” them extra years of NI contributions.
The mathematics reveal an extraordinary return on the extra contributions of an effective 50 per cent a year for life, once the person reaches the UK age pension eligibility age of 66.
Financial planners familiar with the operation of the UK state pension classify the strategy as “a no brainer”.
The flagged changes by Ms Reeves include a fivefold increase in the amount that needs to be contributed each year from £182 to £923. Each year buys an additional 1/35 of the full pension at retirement.
Similarly, the minimum period required to even access the scheme is set to increase from the current three years to a minimum of 10 years after April next year. That means Aussies with less than 10 years have only a few months to make the required catch-up payments to meet the new minimum.
Your Money will be conducting a deep-dive into the changes next week and we’ll reveal what the changes will mean to you.
We’ll also explain what you need to do now to ensure you take advantage of the system before the rules change.
Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association.
