Last Updated on 6th September 2024
Living overseas comes with many advantages and transitions – not least identifying what happens to your pension schemes. A large proportion of expatriates choose life abroad to make the most of a peaceful, comfortable retirement, selecting locations with beautiful climates, welcoming communities and excellent quality of life – alongside low property values and living costs.
Managing your pension income, knowing with certainty that you have the financial means to support the lifestyle you aspire to, and having control over your financial future and tax position is key to a relaxed retirement that meets your expectations.
Here, we look at what happens to your UK State Pension if you decide to live abroad, including the impacts your choice of destination may have on the value of your benefits
UK State Pension Rules for British Citizens Living Overseas
The baseline rule is that if you’re a British citizen and have paid sufficient National Insurance Contributions to qualify, you can claim your State Pension from anywhere in the world. One caveat is that the pension is always paid in GBP, regardless of whether you elect to have your pension paid to a UK or international account, which carries currency conversion risks.
However, you may only qualify for the annual increase based on the triple lock system if you live in an EU/EEA country, Gibraltar, Sweden, or another country with which the UK has a social security agreement – excluding New Zealand and Canada.
Annual increases are based on the highest of any of the following:
- Inflation
- Average earnings
- 2.5%
The triple lock seems likely to remain as-is for the foreseeable future, with the current government having committed to retaining the existing system and pledging to improve security for British retirees.
If you move back to the UK from a country where annual State Pension increases are inaccessible, your payments will switch to match the current rate, including any increases announced during your time abroad.
How to Claim the State Pension Outside of the UK
There are several steps you’ll need to take to ensure you get your pension and pay the correct amount of tax:
- Notify the International Pension Centre of your move.
- Contact HMRC to provide an update on your circumstances.
- Provide bank details, including the IBAN and BIC, if it’s an overseas account.
There is a reasonable amount of flexibility here. You can choose which country you want your pension to be paid to, although you must be within four months of the State Pension age to submit a claim.
The downside is that you can’t change your preference during the year, so it isn’t possible to ask for State Pension payments to be made to an account in one country for part of the year and another for the remainder. However, please note that your State Pension value is always calculated in Sterling. There is an exchange rate risk, and your payments will fluctuate up and down.
UK State Pension payments for British nationals living abroad are made every four or thirteen weeks or once in December if you receive less than £5 a week.
Receiving a Private or Workplace Pension From Abroad
If you hold a private pension or employment pension scheme, the same rules for claiming pension benefits from overseas do not always apply.
The stipulations depend on the type of pension product and the provider’s policies, for example:
- Usually, you’d be entitled to claim your pension regardless of where you live, but some schemes will only remit pensions to a UK bank account.
- Some pension funds will levy additional charges to pay your pension to an overseas account.
- Providers will often pay pensions in Sterling, so exchange rate fluctuations apply.
Therefore, any expat moving abroad and reliant on pension income is strongly advised to look into the terms of their private pension before making any decisions.
You might decide to transfer your pension to an overseas account, claim it from abroad, or cash in your fund and reinvest it elsewhere.
There are plenty of options, even if your provider won’t pay your pension to a non-UK account – or you aren’t comfortable with the exchange rate risks and applicable tax rates.
Tax Considerations for Expats Claiming a UK Pension
Inevitably, taxes come into play when making any decisions about claiming pension benefits from overseas. This is a complex and multifaceted area, making tailored guidance essential, but we’ll summarise some of the primary things that might impact your choices.
Tax Relief on a UK Pension Fund
You may be able to live abroad and continue contributing to a British pension, but any applicable tax reliefs will change. If you work for a non-UK employer or make contributions from outside the UK, for example, you may receive limited tax relief or none at all.
Generally, tax relief on private pension contributions is limited to the higher of:
- Your UK earnings that are liable for British income tax in that tax year.
- A basic allowance of £2,880 tax relief if you do not pay UK income tax.
There are also Annual Allowances to think about, which dictate how much you can save in a pension in one tax year before you become exposed to taxes; this threshold is currently £60,000.
Expats are considered ‘UK relevant individuals’ and normally qualify for tax relief against private pension contributions if they have UK earnings, are a Crown Servant (or spouse) or were resident in Britain in one of the last five tax years and became a UK registered pension fund member while a resident.
Income Tax Liabilities on Cross-Border Pension Income
Finally, it’s essential to think not just about the monetary value you receive from a pension but how much income tax you’ll need to pay from that total.
British nationals living abroad full-time will usually be non-UK residents for tax purposes, although this might depend on how you split your time between the two countries, among other criteria. However, even if you aren’t a British tax resident, you might need to pay taxes to HMRC against income arising from the UK – and there is the potential that you will also be liable for taxes in your country of residence.
Most popular expat destinations have double-tax treaties to avoid that situation, but it’s a factor you should clarify before making any assumptions.
There are several complimentary resources available through the Chase Buchanan website to explain all of these considerations a little further, with quick links below to three of our downloadable guides:
- Guide to Retirement in the EU for British Expats
- Guide to Transferring a Pension Overseas
- Guide to SIPPs vs ROPS – two of the most popular overseas pension transfer routes
If you’d like more information about the best way to plan for your retirement overseas or to clarify how any of the topics explored in this article impact your pension income, please contact the nearest Chase Buchanan Wealth Management office to arrange a convenient time to talk.
We can schedule a tailored pension review to clarify the value of all current pension assets, discuss options to improve tax efficiency and stability or provide independent advice about the optimal ways to structure your investments and other retirement savings.
* Updated August 2024