UK Pension Glossary

What is a Defined Benefit Pension?

Wikipedia provides a good overview of this kind of pension:

A defined benefit pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum (or combination thereof) on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.

A defined benefit plan is ‘defined’ in the sense that the benefit formula is defined and known in advance. Conversely, for a “defined contribution retirement saving plan”, the formula for computing the employer’s and employee’s contributions is defined and known in advance, but the benefit to be paid out is not known in advance.

The most common type of formula used is based on the employee’s terminal earnings (final salary). Under this formula, benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career.

These plans have proven quite expensive for employers to fund, and very few are still around in the UK for active members. The overall pension deficit in the UK defined benefit plans is as high as 1.5 trillion pounds according to some estimates. Most of them were discontinued in the late 1990s or early 2000s. If you worked in the UK before that you will likely have a defined benefit pension.

What is a Defined Contribution Pension?

Wikipedia provides a good overview of this kind of pension:

A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis.[1] Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employer contributions and, if applicable, employee contributions) plus any investment earnings on the money in the account. Only employer contributions to the account are guaranteed, not the future benefits. In defined contribution plans, future benefits fluctuate on the basis of investment earnings.

A defined contribution plan is quite similar to an Australian superannuation and is by far the most common in the UK today. They are also called ‘money purchase pensions’ and all personal pensions and SIPPs fall into this category of pension.

What is the UK State Pension?

Wikipedia provides a good overview of this kind of pension:

The State Pension is a “contribution-based” benefit, and depends on an individual’s National Insurance (NI) contribution history. For someone with the 30 qualifying years (years in which NI contributions were paid), it is payable at a flat rate of £119.30 a week (up to April 2016). 35 years contribution is needed to get the full new state pension from 6 April 2016. A smaller, pro-rata, pension is paid to someone with fewer qualifying years. People who were contracted-out paid lower NI contributions and will receive a lower state pension. An “age addition” of 25p a week is paid to people over 80.

The Basic State Pension is increased in April each year to pensioners living in the UK and in certain overseas countries which have a Social Security Agreement with the UK that includes British pension uprating. Pensioners living in other overseas countries without a current agreement have their pensions frozen at the rate in effect on the date when they left the UK, or on the date when they applied for a pension, whichever is later.

Australian residents have their pensions frozen at the rate in effect on the date when they left the UK, which is quite surprising. Jim Tilley at British Pensions in Australia (BPiA) have been fighting for years for the rights of many thousands of British expat pensioner members.

You can visit the HMRC website to learn more about:

What is a Self-Invested Personal Pension (SIPP)?

According to Wikipedia:

A Self-Invested Personal Pension (SIPP) is the name given to the type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC).

SIPPs are a type of Personal Pension Plan. Another subset of this type of pension is the Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax “wrappers”, allowing tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. Rules for contributions, benefit withdrawal etc. are the same as for other personal pension schemes.

What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?

According to Wikipedia:

A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC). A QROPS can receive transfers of UK Pension Benefits without incurring an unauthorised payment and scheme sanction charge. The QROPS programme was launched on 6 April 2006 as a direct result of EU human rights legislation with regards to freedom of capital movement.

A QROPS can be appropriate for UK citizens who have left the UK to emigrate permanently and intend to retire abroad having built up a UK pension fund. Alternatively, a person who is born outside the UK having built up benefits in an HMRC-approved UK pension scheme can move their pension offshore if they want to retire outside the UK. UK state pensions cannot be transferred, but defined contribution, defined benefit pension schemes and SSAS can be transferred abroad. A QROPS does not have to be established in the country where one retires; rather, a person can move the pension to a tax efficient jurisdiction and have the benefits paid into their country of choice.

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A Letter of Authority (LOA) is a letter signed by you that authorises us to speak directly to your UK pension scheme. This allows us to obtain all the relevant details and up-to-date facts. The LOA only authorises us to request information on the named pension scheme and does not constitute an authority to make changes to the named scheme, nor does it constitute an application to move your pension to another provider or Scheme.

You can fill out LOAs for a single or multiple pensions and sign them online following the link below. Fill out as much as you can and we will see if it suffices.

About the Eligibility Test

and its creator

This eligibility test was born out of necessity. So many Australia residents have pension rights in the UK, yet it’s so hard to find up-to-date general information. Having run bi-weekly seminars and webinars over the years just to inform people of the current rules and the latest changes in both the UK and Australia, Dr. Johnsson decided to use modern technology instead. This this provide the same kind of information, it’s slightly more tailor-made, is available on demand and in a very accessible way.

Dr. Richard Johnsson earned his doctorate in economics after studies at Uppsala (Sweden), Oxford and Sydney Universities. He has worked and lived in 7 countries, has been active in the financial services industry as an executive financial advisor, as a President & CEO of a wealth management company, as a private banking executive and has worked with international cross border pensions since 2005.

Richard has lived in Sydney since 2014 and is well-known for his professionalism, his ability to explain things in plain language and his down-to-earth attitude.

He will personally take care of all incoming contacts following this eligibility test.

Dr. Richard Johnsson

Dr. Richard Johnsson

Country Manager | Brite Australia