UK State Pension Update and a Special Focus on Benefits for New Zealand Residents

• The UK Government has extended the deadline to make larger top ups to your UK State Pension.
• If you are resident in New Zealand and plan to retire there, topping up could offer additional value for money.

You now have longer to top up larger gaps in your UK State Pension

If you lived and worked in the UK for any period of time, you may be entitled to the UK State Pension. This offers a valuable source of guaranteed income in retirement, usually payable from age 67, although it can vary depending on when you were born. You can check when you are likely to receive yours via this calculator. The amount you receive will depend on the number of years of National Insurance (NI) contributions you have made over your working life. Most people have the opportunity to “top up” their State Pension by making up shortfalls in their National Insurance record. For more information, take a look at our recent article

This week, the UK Government announced it has extended the voluntary National Insurance deadline to 31 July 2023, giving savers more time to fill gaps in their National Insurance record. This is welcome news for anyone who is considering topping up their State Pension.

The UK State Pension and the New Zealand Superannuation

Like the UK, New Zealand offers its residents a form of State Pension known as the New Zealand Superannuation (NZ Super). This provides retirees with a guaranteed fortnightly income from age 65. The amount you receive will depend on several factors, such as; whether you are single, or part of a couple; how much tax you are likely to pay in retirement; and whether or not you live with others, including dependent children.

Generally, the amount you receive from an NZ Super is more than you’d get from the UK State Pension. For a single person without dependent children, the annual benefit is $27,988 NZD, roughly £14,400.

To qualify for the NZ Super, you must have lived in New Zealand for at least 10 years since you turned 20. These 10 years must include 5 years since you turned 50. From July 2024, the number of years you must have lived in NZ will gradually increase from 10 years to 20 years and will be based on your date of birth when you apply. You can find more information on this here.

The good news is that, as the UK and New Zealand have a Social Security agreement, any years spent paying UK National Insurance will count towards the total of years needed to qualify for your NZ Super.

The downside of this arrangement is that in retirement, the amount of income you receive from the NZ Super is reduced by the value of your UK State Pension. In effect, this means you won’t benefit from both the full UK State Pension and the NZ Super at the same time. There is however, a slight anomaly in this system when it comes to UK State Pension derived from Voluntary NI Contributions.

Why topping up the UK State Pension could offer additional value to UK expats retiring in New Zealand.

In 2018, the New Zealand Government introduced a New Social Security act which means that from 2020, any part of an overseas pension which has been gained from making voluntary contributions is not deducted from New Zealand Superannuation. This is great news for UK expats with a gap in their National Insurance record.

To give an example of the potential benefit, meet James and Elizabeth Cook:

James paid National Insurance Contributions for 25 years in the UK before emigrating to New Zealand. Elizabeth took time out of work when their children were born and only contributed for 10 years.

This means James has 10 years of missing National Insurance Contributions while Elizabeth has 25. Both decided to make up the entire gap in their National Insurance records. By doing so, they will have added £9,628 ($18,725 NZD) to their retirement income from age 67.

As this additional income comes from making voluntary contributions, it will not be deducted from the value of their NZ Super. So, by topping up your UK State Pension, not only will you have the potential to benefit from exceptional value for money, but the income you get from your NZ Super will also remain unaffected. This might seem too good to be true, but discussions with the relevant department in the New Zealand Government have confirmed this to be the case. There are a few additional steps involved to ensure that this income is treated correctly by the NZ Authorities, but if you’d like further information then don’t hesitate to contact me at [email protected] or by calling us on +61 2 9248 0169.

Remember that although topping up your UK State Pension has the potential for great value for money, it might not be right for everyone. For example, because income received from UK state benefits resulting from voluntary contributions is treated as income, this may reduce your Disability Allowance or Accommodation Supplement if you are in receipt of either.
If you are unsure whether it will benefit you, it is important to seek advice.

If you’d like our help with any aspect of your retirement planning, or you have questions about managing your wealth in the most tax efficient way as an expat, pleaseget in touch with us today.