I discovered yesterday that I have to get an ID card when I renew my UK visa in October. This is so my personal details, including my biometric data, can be stored in a computer somewhere by the government and, more than likely, lost or misused. Yay! Oh, and I get to pay £605 for the pleasure.

Yes. £605. Let me tell you, that news hit me like a hard kick in the boob. Seeing as the original visa only cost about £200, I really wasn’t expecting that. Wowsers.

So anyway, when I discovered a way yesterday to double my pension contributions at no extra cost, I was over the moon.

How? Well, unfortunately to really get the most out of this you should be a foreign national living and working in the UK – but I know that a couple of you guys are exactly that, so yay for us! High fives.

It works like this. Everyone in the UK pays national insurance contributions. It’s taken out of your paycheque when you get paid.  These funds go towards the Basic State Pension and the Secondary State Pension.  While the Basic State Pension is compulsory, the Secondary State Pension is not. You can opt out and get the money back from the government, and divert the funds into your own private pension instead.

Why would you want to do this?
This is important.  The only reason you should really think of doing this is if you are not planning to retire in the UK.  If you’re not going to be here to receive the Secondary State Pension, why pay into it? You can divert the money into your own private pension, so that you will benefit from paying some of those taxes.

How does it work?
First of all, you have to have a private pension fund for the money to be paid into – you can’t get the money in cash.  Then you simply opt out of the scheme, and the money will automatically be refunded to you, and transferred into your pension fund. Once you have opted out this will happen automatically every year.

How much will I get?
Probably more than you would think. The amount you get depends on how much you earn and your age, but it’s approximately 5% of your income.  So if you are 27 years old, earning £35,000 you will receive a lump-sum payment of approximately £1,805 this year.  You can see a calculator here to work out your rebate. That means that if you are contributing £150 each month to your pension fund this rebate has just doubled your yearly contributions. Not bad for 5 minutes work, hey?

Sounds good, how do I do it?
If you don’t already have a pension fund, you will need to set one up.  And soon! (You really should be preparing for your retirement from the time you start full-time work, but that’s another post altogether). If you do have a pension fund, contact your provider to find out about opting out.

Or, if you want to kill two birds with one stone, this company will set you up an AXA Stakeholder Pension scheme, and organise your rebate for free. Just use their online application form. (BTW this is a highly reputable company – I have used them for international money transfers for years, and they helped me get set-up when I first arrived in the UK).

Any cons?
The main thing to remember is that this will make you completely responsible for how the money gets invested. This could be a pro to you, but if not, you will need to choose a pension fund that is managed for you. Remember that investments go up as well as down!

Can I do this even if I will be retiring in the UK?
Yes, anyone with a permanent National Insurance number can opt out of the Secondary State Pension. If you would prefer to be in control of your money rather than the government, it might be worth considering – but you should think carefully before doing this, and seek independent financial advice first.

Other info
Remember that you will still need to top up your pension contributions throughout the year as well in order to financially prepare for retirement.

Most UK pensions can be transferred overseas, so if you are retiring abroad you should check before setting up a pension whether or not this is possible. If not, you can still receive your pension paid into your bank account at home.

Useful links
Whether you decide to do this or not, make sure you fully understand the consequences first. Here are a bunch of websites with more useful information.

Moneymadeclear.gov.uk

NIrebateonline.com

Directgiv.gov.uk

1stcontactrebates

Reminder – neither this nor any other post on this site is sponsored.