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Pre-migration planning can improve finances downunder

It’s tough for Brits migrating to Australia these days. What with the fall in the value of UK homes and the pound, the financial stresses of the move are far worse for migrants than a couple of years ago. So how about some good news for a change?

Did you know that if you’ve worked in the UK for more than 3 years but less than 30 years, you can continue to contribute towards the UK state pension even after you’ve left the UK?

Why would you want to do this, I hear you ask?

Well for starters, the Australian Age Pension does not provide enough income to survive on so you must contribute to some kind of pension plan if you want a decent quality of life in retirement. Employers in Australia must contribute to your superannuation plan, but unless you earn a fortune, the amounts involved won’t make a huge difference.

The UK state pension is one of the few remaining pensions providing a guaranteed amount of income in retirement. With most pension funds your contributions are invested on the stock market and the value of your fund rises (or falls as we’ve seen lately) depending on the stocks purchased and on the state of the economy in general. With the UK state pension, this doesn’t happen. Instead, your contributions buy you an entitlement to a guaranteed income in retirement. Not only that, but the amount of income you receive when you reach retirement is unknown at the moment, because payment rates will increase annually right until the time you draw your pension to take into account inflation.

Additionally, unlike the Australian government pension, the UK state pension is not means tested. This means that your pension will be paid to you regardless of the amount of other income you receive in retirement or the value of the assets you own. If you pay your contributions, you will receive your pension – full stop.

So how much do you have to pay? Well the normal voluntary contribution rate is currently £12.05 per week. However, if you follow a few simple rules before you leave the UK this rate can be reduced to only £2.40 per week. This ridiculously low contribution rate means that when you start receiving your pension, the amount you paid in contributions over the years will be fully repaid to you in less than one year.

The UK state pension is paid to you in sterling, so there is an element of exchange rate risk. Although the dollar is strong against the pound at the moment, this will not necessarily always be the case. If you keep a UK bank account, you can have your pension paid in the UK and exchange it into dollars when the rate is favourable.

To qualify for the lower contribution rate there are certain things you must do before you leave the UK so it's sensible to spend a bit of time sorting out your finances now to help secure your financial future downunder.

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Comment by Jackie Smith on November 6, 2009 at 2:39
Thanks Paul. If you have a financial adviser who knows about all the issues affecting migrants that is really great news. Hopefully I can help people without access to a financial planner, as the fees they charge can mount up quite quickly.
Comment by Paul Johnson on November 4, 2009 at 16:40
What a really useful article; I just had a chat with my financial adviser about this a couple of weeks ago and you confirmed everything he told me.

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