This piece first appeared in The Daily Telegraph on 14 October 2000
The text here may not be identical to the published text

Australia clamps pensions

It's no longer 'no worries' if you spend time down under

British athletes may have brought back eleven gold medals from Sydney, but many people returning to the UK after living in Australia will find they barely get bronze when they claim their UK retirement pension. Tens of thousands of people who have worked in Australia will get far less each week than they were expecting if they reach pension age after 28 February next year. That is the date fixed by Australia for ending its social security agreement with the UK. Once it goes, some pensions could be slashed in half if the Government does not take action.

Under the agreement, made in 1958, time spent living in Australia counts towards a UK National Insurance record when it comes to claiming a UK pension. Every year spent in Australia counts as if the migrant had paid full National Insurance contributions in Britain. So people who emigrated to Australia but have since returned to the UK usually find they do not have a gap in their contribution record and can claim a full UK retirement pension at 60 (for a woman) or 65 (for a man).

But last year the Australian Social Security Minister Jocelyn Newman warned that she would end the agreement if the UK Government continued to restrict the UK retirement pensions paid to its citizens who retire to Australia. (Money Go Round 17 July 1999) She claimed it cost her department nearly £40 million a year to top up these so-called ‘frozen’ UK pensions. But the British Government refused to change its policy and, eight months later, she gave one year’s formal notice to end the agreement. That notice expires on February 28 2001.

it is outrageous that a benefit I was entitled to one day is taken away the next 

The effects will be dramatic. A Your Money reader from Essex, who wants to remain anonymous, says the Department of Social Security has told him his pension will be £21 less than it would have been when he reaches 65 in October next year. Instead of the full £67.50 he will get barely £46.50 a week, a loss of more than £1000 a year which will carry on, index-linked, for the rest of his life. Needless to say he is not pleased.

"I went to Australia in 1974 and intended to stay permanently. But family illness brought me back in 1990. I specifically went to the Department of Social Security to enquire what the National Insurance arrangement was and I was told there was an agreement whereby years spent in Australia were credited to your UK National Insurance record. If they hadn’t told me that then of course I would have asked about paying extra National Insurance contributions to buy back those years. Now they tell me that the agreement is ending just seven months before I retire and so I will qualify for only 69 per cent of a full pension. But if the credited contributions had been continued I would have got a full pension. I think it is outrageous that a benefit I was entitled to one day is taken away the next – especially when it is too late to do anything about it."

The Department of Social Security has told Your Money that each year more than 1000 people retire with part of their National Insurance record coming from time in Australia. But – unless the government changes the law – anyone retiring after February 28 will no longer be able to count time working down under towards their National Insurance record and will usually get a smaller pension as a result. Over the next 40 years it could affect more than 40,000 people saving the Government millions of pounds.

The Australian High Commission in London is getting many calls from worried people in the UK who have spent some time in Australia. Public affairs spokeswoman Jane Byford told Your Money.

"A lot of people haven’t grasped the implications of this change."

The effect of missing contributions is complicated. Under the rules, a man has a working life of 49 years and a woman has one of 44. In that total time, five years contributions can be missed with no loss of pension. But after that, each missing year knocks either 2 or 3 per cent off the basic state pension – currently £67.50 a week. So people who reach pension age after February 28 2001 could lose up to £2 a week of their pension for each year they spent in Australia. Anyone who ends up with 10 years contributions or less, may get no UK state retirement pension at all.

A spokesman for the Department of Social Security told Your Money

"The issues you have raised are being considered by Ministers and a statement will be made as soon as possible."

Anyone who has already claimed a retirement pension before March 1 2001, using time in Australia, will not be affected when the agreement ends. Pensions already in payment will continue to be paid at the same rate.

Further information

Australian High Commission in London

Australian DSS on the agreement UK Department of Social Security

020 7887 5477 – the Australian High Commission social security enquiry line.

14 October 2000

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