What’s the deal with UK pensions?

As an Australian, I paid into my superannuation fund ever since I first started working.  When I moved to the UK, I was faced with the choice of whether to pay into a UK equivalent.  It is a complex question and the rules keep changing.  But here are some of the main questions I had and some things that might help when considering your own situation.

Note: I am not a pension expert and rules change, so it is definitely worth doing your own research!

How do pensions work in the UK?

It is not compulsory to pay into a UK pension.  But your employer will automatically enrol you into one.  If you choose to opt out, try to do so within a month of being enrolled. That way your contributions will be refunded to you.  You can find some more information here Auto-enrolment pensions: an introduction | MoneyHelper

If you are enrolled there is a minimum percentage that has to be contributed by you (usually 5%) and by your employer (usually 3% but sometimes more). The government will also contribute some extra in the form of tax relief.

Is it worth paying into a UK pension if I’m here on a temporary basis?

This depends on your situation.

Australians may want to consider it is very difficult to transfer your money from your UK pension over to an Australian superannuation fund.

It is only possible after you’ve turned 55, and only if the funds are over £20,000.

Also, you can only transfer it to a Qualifying Recognised Overseas Pension (QROPS) Recognised Overseas Pension Schemes.

Some things to consider when deciding whether to pay into a UK pension 

How long am I in the UK?  

Are you here for a good time and not a long time?  Paying into a pension will reduce your take home pay.  You won’t be able to access it until you reach pension age, and there will be some fees.  

If you are planning to be here longer term, you will need to think about your retirement plans.  If you don’t pay into a UK pension, how will you make sure you have enough money to retire? 

Also consider how much your employer contributes to your pension.  And the possible tax benefits of self-contributing.  If you opt out, you will lose out on your employer’s contribution to your pension, as well as the government’s contribution in the form of tax relief.

What are my options if I don’t pay into a UK pension?

Everyone’s situation is different so there is no single right answer.  For some people it might be better to pay into a savings account, some of which have tax benefits.  Money Saving Expert might be a helpful resource when considering your options (and all things money!). 

An obvious question is, can I pay into my Australian super fund while working in the UK?

You might be able to, if you don’t have a self-managed super fund.  You would need to check whether your fund has restrictions on contributions from Australians who are not resident in Australia.  

There might also be tax implications for paying into an Australian super fund.  And you will not get any tax benefits in the UK. You will also not get any savings on any contributions if you’re not an Australian taxpayer. 

Whatever you choose to do, take some time to learn the basics of how this works, and make an informed decision about what works best for your situation.