Simon Swallow shows why it is a great deal to be in the British pension scheme when you are working in the UK, even if you leave after only a few years

By Simon Swallow*

Every year, thousands of young New Zealanders head off on their big UK adventure - a rite of passage packed with travel, new jobs, and flat-sharing in London or Edinburgh. With more professions now open under updated visa rules, many are landing solid roles in marketing, finance, healthcare, and engineering, earning good money.

They’re building experience, earning well - and usually unknowingly walking away from thousands of pounds in free money.

What they need to know

Since 2012, the UK has rolled out automatic enrolment into workplace pension schemes. It’s a bit like KiwiSaver enrolment here in New Zealand meaning employees are signed up by default, and their employers are legally required to contribute to their pension. The minimum employer contribution is 3% of salary, though many employers offer significantly more.

For someone earning £60,000, that means a minimum £1,800+ a year of employer money, "for free".  But here’s what makes it even smarter: most large UK employers use something called a net pay arrangement - meaning employee contributions come out of salary before tax is calculated. The result?

• Putting £100 into the pension might only reduce take-home pay by £58 (as that is what you would get after tax)
• The employer tops it up with at least £75
• That’s over £175 invested for the cost of just £58
• And then that £175 grows tax-free in the UK as long as it's in a pension scheme

This is what makes the UK scheme so much better than KiwiSaver, the Government will give large tax incentives to contribute into private pensions. In fact, even if you don’t earn enough to pay tax in the UK they will give you a 20% tax back top up.

But most don't stay in the UK forever

That’s the usual thinking. And it’s true - many Kiwis plan to work in the UK for only a few years (as most go over on the Youth Mobility Scheme which allows for a three year stay). But what’s less known is that UK pension savings don’t have to stay in the UK.  It’s possible to transfer UK pensions to New Zealand later on when they move back. The money remains theirs - just moved across borders, into a compliant NZ fund. No penalties, no loss. Just long-term savings that follow them home and paid for by the UK tax department and their employers.

A missed opportunity - or a smart move

Here is a real-life example. Sarah, a 27-year-old Kiwi in London, was earning £60,000 and nearly opted out of her pension scheme. She assumed it wouldn’t matter since she planned to return home. But by staying enrolled, she ended up with over £22,000 saved in three years — most of it from tax savings and employer contributions which were an outsized 7% of her salary. 

If she had opted out Sarah would have had an extra £5,220 to spend over the three years she was working but no pension pot. By staying in, she got £22,000

There are thousands like her - professionals who could be quietly building their future without even noticing it.  In fact over the decades people have built small pension fortunes as they ramped their contribution rates to take advantage of employers matching (sometimes two for one up to a maximum of 20% of the employees salary).

For anyone earning in the UK and skipping their pension because they think it’s irrelevant: it’s not. It's one of the simplest ways to turn a good job into long-term financial security, no matter which country retirement eventually happens in. 

And young Kiwi’s now should be especially aware of the benefits of pensions with KiwiSaver well established in New Zealand.  The easiest way to think of the UK system is like KiwiSaver on steroids.

The lesson is don’t leave the free money behind in the UK.

Simon Swallow is a director of Charter Square. You can contact him here.