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Are you entitled to a UK pension?

As a permanent resident, there are a number of pensions you may be entitled to.

August 2009. Whatever your motive for moving the UK, whether for work purposes, family reasons or seeking asylum, the prospect is that you may be considering staying in the UK on a permanent basis. You may be considering applying for permanent residency, and ultimately British citizenship.

Some people are less prepared than others for life in the UK, and certainly the long haul. There are many benefits to living in the UK, including a world renown health care system, financial, cultural and social opportunities. There is also a range of financial support available, such as family tax credits. In the longer term, as a permanent resident, you should be aware of the possibility that you may be able to build up entitlement to a UK pension whilst you are living and working in the UK, depending on your circumstances and your country of origin, you may have opportunities on two fronts, the converse for example of the double taxation problem for Polish nationals which was a serious issue until but a couple of years ago.

If you are due to retire within a few years and will not have time to build up entitlement to a UK pension, you should ensure that you will be entitled to claim your current pension from your home country when in the UK, or that your pension will not be affected by your time spent in the UK.

Depending on your individual circumstances and your reasons for moving to the UK, you may be advised on your right to claim state benefits when you arrive. If you are unsure of your rights, need advice or financial help, contact your local Citizens Advice Bureau, the Benefits Enquiry Line on 0800 88 22 00, the Immigration Advisory Service on 020 7967 1200 or the Refugee Council Advice Line on 020 7346 6700.

If you are a Bulgarian or Romanian National, you will not usually be able to work in the UK before you apply for an accession worker card and your employer applies for a work permit for you. If you are a National of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia or Slovenia, you will need to register on the Worker Registration Scheme if you wish to work. EU nationals who have been exercising treaty rights in the UK can apply for permanent residence in the UK after 5 years, and then a year later British citizenship. As an asylum seeker you must wait until the UK authorities have decided whether you are entitled to remain in the UK or must return to your home country. Whilst you are waiting for your application to be processed you can receive advice and support from the National Asylum Support Service, or NASS. You may also be entitled to some benefits, including a living allowance to help you cover basic expenses and a maternity grant if you or your partner have recently given birth. You will also be entitled to accommodation but will not be able to choose where you live. Generally however the authorities will attempt to house you in or near a community where there are other people who speak your native language. Children of asylum seekers are entitled to free education and free school meals. Asylum seekers are also entitled to free healthcare from the National Health Service, and may be able to claim Legal Aid to help with processing an asylum claim. Whilst you have asylum seeker status you will not be entitled to work.

Once you have obtained the right to work in the UK, whatever your background, and you are able to find employment, you will begin paying taxes and National Insurance contributions via your paycheck. It is important that you ask your employer whether you will be paying National Insurance contributions; although you will have to contribute money each month you will build up entitlement to certain state benefits, including the State Pension.

The basic State Pension offered by the UK government is the main benefit offered by the State Pension system. In order to qualify for a State Pension you must first have a National Insurance number. UK citizens are sent one automatically before their sixteenth birthday but you will need to apply for a number if you are a foreign national. This National Insurance number is important for the UK government to monitor which benefits you are receiving, if any, and what National Insurance contributions you have made, if any.

If you need a National Insurance number but do not have one, you must contact National Employment services via telephone on 0845 600 0643. You will need to arrange a suitable time for an interview, where you will be asked to prove your identity using documents such as your birth certificate and driver’s licence. You will also need to prove that you are entitled to work in the UK. If you are not entitled to work in the UK you will not be granted a National Insurance number.

If you lose your National Insurance card, you must inform the benefits office or Her Majesty’s Revenue and Customs (HMRC). You are allowed only one replacement card, but if this is lost or stolen again you must still inform the authorities; it is important to prevent any other person using your National Insurance number. Keep the authorities informed of any alterations to your status and identity, such as change of name, marital status and address. If you forget your National Insurance Number you should contact 0845 915 7006. If the authorities have your current details they will be able to contact you about claiming your State Pension when you are approaching retirement.

If you are working illegally, or earning less that the current Lower Earnings Level of £87 a week, you will not be making National Insurance contributions and thus will have no right to claim certain state benefits if and when you require them. If you do not make National Insurance contributions you will not usually be entitled to any State Pension. If you are due to retire within a few years and will not have time to build up entitlement to a full State Pension, you should ensure that you have claimed any pension you are entitled to claim from your home country.

Should you require help and advice, you should contact the Migrant Helpline on 01304 203 977 or the Border and Immigration Agency on 0870 606 7766. These organisations will be able to advise you on your best course of action, and inform you about support you are entitled to receive. You can also contact the Refugee Council Advice Line on 020 7346 6700 for assistance when you have been granted refugee status, or the Benefits Enquiry Line on 0800 88 22 00 if you wish to enquire about to your entitlement to a specific state benefit.

Pensions are the primary, and in some cases only, source of income for those who retire. Investing in Pensions is therefore an imperative part in securing a financial future for ourselves. This article will tell you, what you need to know about what kind of pension schemes are available, so that you can make an informed decision on what kind of pension scheme is best for you.

Pensions

There are three main types of pension, state, personal and occupational pensions. All three of which provide three unique ways of providing financial security for the future. There follows an explanation of all three of these pensions some of their advantages, and what you have to do in order to be eligible for them.

The state pension

What is the basic state pension?

The state pension is calculated based on the amount of National Insurance contributions you’ve paid throughout the years. It currently stands at £95.25 a week for a single person and £152.30 weekly for a couple.

Eligibility

In order to qualify for a State Pension you must first have a National Insurance number. You will have one sent to you automatically if you are a UK citizen, but you will need to apply for a number if you are a foreign national. Once you have a number, you will be required to make National Insurance contributions.

The basic State pension is available from the age of 60 for women and 65 for men. To qualify for a state pension you must have sufficient qualifying years. That is, where you have sufficient income to pay National Insurance Contributions (NICs), or are treated as having paid or being credited with NICs. At the moment and on average, men need 44 qualifying years and women need 39, in order to be eligible. This however is said to change on 6th April 2010, where only 30 qualifying years will be needed in order for one to be eligible. If someone has been unable to claim this amount of qualifying years because of long term obligations as a parent or carer, then the amount of qualifying years needed could also decreased by that date.

State pension deferrals

To get the most out of your state pension, you can put off claiming it when you reach retirement age. If you put off claiming your State Pension for at least five weeks you can earn an increase to your State Pension of 1 per cent for every five weeks you put off claiming. (This is equivalent to about 10.4 per cent extra for every year you put off claiming). If you don’t claim your State Pension for at least 12 consecutive months, which must all have fallen after 5 April 2005, you can choose to receive a one-off lump sum payment and your State Pension paid at the normal rate. The lump sum payment, when you claim it, will be based on the amount of normal weekly State Pension you would have received, plus interest added each week and compounded.

The additional State Pension

In addition to the basic State Pension, the government has an additional pension benefit This is a top-up to the basic pension. Your entitlement to the additional state Pension or ‘second state pension’ is based on how much you earn each year, and where these earnings fall on the government's earnings scale.

The calculation is based on how much you earned and for how many years you had made National Insurance contributions. Your earnings are also considered, and also takes into account time taken out of work for legitimate reasons. The additional state pension scheme helps both those in employment and those unable to work either because they are currently incapable or because they are currently caring for others. Those who fall into these categories are given the chance to earn an extra benefit on top of their basic State Pension without being required to contribute anything.

Entitlement

You can currently build up the additional state pension if, you earn above a certain amount, typically 4-5 thousand pounds throughout the tax year, care for one or more children under 6 and claim for child benefit, you are a carer throughout the tax year for someone who is ill or disabled or you are unable to work throughout the tax year because of long term illnesses and disability are entitled to benefits as a result, throughout the tax year, and have been earning for at least one tenth of your working life.

Personal pensions

In addition to the State Pension system, there are a range of non-state pension savings schemes which offer you the chance to save for, and invest in, your future. Some employers offer their workers an occupational pension scheme, and may even make contributions on their behalf. If you are self-employed or your employer does not offer an appropriate scheme, you can invest in a private pension at most banks, building societies and financial institutions.To maintain a personal pension, you will need to pay either regular doses of money, typically every month, or lump sums, which will then be invested by your pension provider.

Stakeholder pensions

A stakeholder pension is a flexible type of personal pension, which works in much the same way as money purchase pensions. This is as you have the liberty to put as much money into your ‘pension pot’. The managers of the stakeholder pension scheme invest the pension fund on your behalf. The value of your pension fund will be based on how much you have contributed and how well the fund's investments have performed. It is best to make regular payments if you can, but you can stop payments for a while if you need to without it costing you anything.

Where can you get a stakeholder pension?

You get a stakeholder pension from financial services companies such as insurance companies, banks, investment companies and building societies. Other organisations such as trade unions may also offer stakeholder pensions to their members.

The legal requirements of a stakeholder pension.

The minimum requirements for any stakeholders pension to be viable, include firstly the limits on annual management charges. These limitations mean that managers can charge fees of up to one and a half per cent of your pension fund each year for the first 10 years you hold the product, and thereafter up to one per cent. Other requirements include, being able to switch to any other pension provider without the pension provider you leave charging you. Moreover, you legally stop re-start or change your payments whenever you want. However, as a safeguard it is strongly advisable that the scheme is run by trustees, or by an authorised stakeholder manager, whose responsibility will be to make sure that the scheme meets the various legal requirements

Tax relief in personal pension schemes

For each pound you contribute to your scheme, the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot.

If you're on the higher tax rate of 40 per cent, you'll still get 40 per cent tax relief for any money you put into your pension. But the way that the money is given back to you is different. This is as the first 20 per cent is claimed back from HMRC by your pension scheme in the same way as for a lower rate taxpayer .It's then up to you to claim back the other 20 per cent when you fill in your annual tax return or by claiming by telephone or letter to your Tax Office

Is a personal pension right for you?

Most of the people who invest in this kind of pension scheme, are either those who are self employed, people who don’t have a company pension scheme offered to them and generally people who have money to save in such an investment. If for instance you're an employee, you can opt out of the additional State Pension and instead put the National Insurance payments which would have gone towards it into a personal pension, including a stakeholder pension. But such a decision would require careful planning, and financial advice before execution.

Company pensions

Company pensions are set up by employers to provide pensions for their employees on retirement. Company pension schemes vary from company to company. Your scheme is likely to fall into one of two general types – a 'salary related' or 'money purchase' scheme. In a salary-related scheme the amount you get is based on your salary and the number of years you've been in the scheme. With a money purchase scheme the amount you get is based on how much has been paid into the scheme and how well the money has been invested.

Company pension schemes, like personal pension and stakeholder pension schemes, require you to make regular contributions. These contributions are calculated as a percentage of your salary, however you may boost your benefits by making additional voluntary contributions (AVC’S). An advantage of this kind of pension scheme is that you get tax relief on the money you put into your pension pot. That means that you pay less tax on the money you put in.

If you stop working for the employer running the scheme, you will still be a member (known as a deferred member) of the scheme. If it is a salary-related scheme, your benefits will be revalued on a regular basis to ensure they keep pace with inflation. If it is a money purchase scheme your fund will continue to be invested and you will continue to receive yearly statements and forecasts on how it's performing.

So what kind of pension is right for you?

The main decision to be made here is whether you would rather invest in a private pension scheme, e.g. an occupational or personal pension scheme, or claim for a state pension. Looking at some of the advantages and disadvantages, one of the most distinctive advantages in investing in personal pensions are the profit motives the private sector operates on. In theory, this would mean a secured investment, however this does not take into consideration the ever fluctuating state of the economy. To look at this from an economic viewpoint private pensions enable the government to lower taxes. Arguably lower income tax may increase incentives to work. Lower corporation tax may then increase incentives for business investment in the UK, which means a healthier British economy. On the other hand, the government has made a commitment to people in work that they will receive a state pension. The government can’t turn round and tell people nearing retirement age that they are not going to honour these commitment. This again ultimately means a secured investment – free from the ‘fluxuation risk’ of an otherwise invested personal pension. Taking this point further, the financial crisis highlights the fact that private finance firms can go bankrupt. If people invest in a private scheme, that scheme may go bankrupt and people will be left with nothing for retirement. This has already happened with some private pension schemes. Therefore, there is an expectation the government will step in and rescue those pensioners who have seen their private scheme fail. The point is you can’t rely on the free market to guarantee pensions.

It would seem therefore, that a state pension is a safer investment. However the benefits of a personal or ‘private’ pension could very well outweigh the risks of having such a pension. This would however, depend entirely on your personal circumstances. So an important thing to remember, is when planning ahead not only must you invest in a secure pension plan, but you must also invest in the correct kind of pension plan.

by Cartwright Adams

The above article is meant to be relied upon as an informative article and in no way constitutes legal advice. For legal advice regarding your case, please contact Cartwright Adams on +4420 7887 7550 for a Consultation with a Solicitor.

For questions regarding the subject covered in this guide, please visit migreat.com.

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