A $480,000 opportunity for Australians who did a stint in London

London: An extraordinary, yet largely untapped, resource exists for anybody who has worked three years or more in the UK: the state pension.

Thanks to an unusual provision in UK law, Australians who have worked in the UK for at least three years may be eligible to claim a state pension that can provide them with an extra $24,000 a year from the age of 67 onwards.

That could boost retirement income by as much as $480,000 over a typical 20-year retirement, but the offer will expire next month.

Few people know they can purchase additional years of National Insurance contributions from the UK government to maximise this pension entitlement.

Most assume that if they’ve been living and working outside the UK for decades, they’ve missed out on this benefit. Not true, and for many, buying back National Insurance years is a simple and affordable way to significantly increase retirement income.

National Insurance is a system of contributions paid by UK workers and employers, as well as self-employed people, to fund various social security benefits, including the pension.

To qualify for any UK state pension, you must have at least 10 years of national insurance contributions. These do not have to be years of UK work, and in many cases, time spent working in Australia can count towards this 10-year requirement.

To receive the full state pension, you need 35 years of National Insurance contributions. If you have fewer than 35 years, your pension amount will simply be reduced proportionally.

If you have gaps in your National Insurance contributions, you can make voluntary payments directly to His Majesty’s Revenue & Customs (HMRC), which is similar to the Australian Taxation Office. You can pay for as many years as you choose or can afford, helping you get as close to 35 years as possible.

There’s a time-sensitive aspect to this opportunity. Under current UK legislation, individuals can buy back up to 18 past years of National Insurance contributions for the years 2006 to now. But this offer will soon expire.

Applications must be submitted to HMRC by April 5, 2025, to buy the full 18 years of past National Insurance contributions. After that date, the maximum number of past years you can purchase will drop to just six.

If you’ve been sitting on the sidelines, unsure if this applies to you, now is the time to get moving.

The cost of buying a year’s worth of National Insurance contributions varies depending on your work history. However, for most Australians and UK expats, it’s remarkably affordable. For around $350 per year (depending on exchange rates), you can purchase up to 18 past years’ worth of contributions.

That means a total upfront cost of $6300 to secure an additional 18 years – a small upfront cost for what could be hundreds of thousands of dollars in additional income. You’re also able to buy extra years into the future.

If you’re aiming for the maximum UK state pension with 35 years of contributions, that’s worth about $24,000 per year from age 67 onwards. Over the typical 20-year retirement, that totals $480,000.

To be clear, not everyone will need to buy 18 years. In fact, if you have already worked in the UK for a few years, you may only need to purchase a handful of additional years.

Here’s an example: Susan worked in the UK for three years and then moved back to Australia in 2004. Now 50 years old, she has 18 past years available to purchase from 2006 to the present, plus 14 additional years available to buy going forward to ensure she reaches the full 35 years of National Insurance contributions.

In Susan’s case, her total cost is just $11,200 over the next 14 years, giving her the full UK state pension, worth $24,000 a year from age 67. That’s $480,000 over her retirement.

Only men born after April 5, 1951, and women born after April 5, 1953, are eligible to buy years.

UK pension income is taxed in the normal way in Australia and may reduce your Centrelink age pension income depending on your means and circumstances but for most people, it’s still a no-brainer.