Last Updated on 31st October 2023 Whether you are moving overseas permanently, taking up a new job post for a couple of years, or hedging your bets before you make any decisions about where you’d like to settle down with your family, your retirement plans should always be an important consideration.
Although financial planning for retirement might seem years away, or you may assume there isn’t anything you need to do immediately to protect your pension wealth, proactive pension management can make a significant difference to your future finances.
UK nationals who live in another country for any period of time should evaluate how this may impact their eligibility for the State Pension, how they intend to make contributions to private or workplace pensions from abroad, and how best to manage pension products – we’ll run through some of the primary reasons this is worthwhile.
Managing State Pension Entitlement During an International Move
British expats are entitled to the State Pension regardless of where they live, provided they have made enough National Insurance (NI) contributions during their working lives. In some countries, the amount payable may be fixed at the date of your relocation, although in other jurisdictions, you may benefit from the annual increase calculated against the ‘triple lock’.
A common challenge is that anybody who has lived abroad, even if for a short period, could find that their NI contributions have a shortfall – impacting their eligibility to claim the State Pension. Disregarding this potential problem may mean you have limited opportunities in the future to pay shortfalls and secure this income stream.
The best strategy is to request a State Pension statement to see how gaps in NI contributions have affected your eligibility. However, the sooner, the better because if you have a large shortfall stretching over a few years, it may be more feasible to make this up in stages rather than as a lump-sum payment.
Partial years can also be ‘upgraded’ to full years with minimal contributions, often beginning at £15, which is an easy and low-cost way to avoid losing out on the State Pension, currently worth £10,600 per year.
The State Pension is always remitted in GBP, so you may wish to think about how exchange rates will affect the value or decide whether to retain a UK bank account if there is the potential you will split your time between locations.
We have previously looked at Expat Retirement Planning and examined why this level of planning is important, regardless of your age now or when and where you intend to retire.
Dealing With Workplace Pensions When Living Overseas
If you are relocating long-term, you may have clearer options in terms of deciding what to do with a defined benefit or defined contribution pension scheme if there is a certainty you won’t be returning to the UK or won’t be making any further contributions to the fund.
Otherwise, the right way to proceed could depend on the terms and policies attached to the scheme, whether you can access your pension fund from abroad, and how this would affect your tax liabilities both in Britain and your overseas home.
Most personal and workplace pension products are accessible from any location, although you may not be able to draw on the fund until you reach the minimal claimant age, and other conditions may apply. For expats living overseas permanently, a pension transfer is often the optimal solution – but that isn’t always the best financial solution.
Transferring UK Pension Schemes Overseas
A defined contribution scheme could be transferred to an overseas pension fund, reinvested in a UK-based privately managed pension, or invested in a different product without necessarily impacting the gross value saved and offering options to structure your retirement savings efficiently.
Defined benefit schemes are more complex as moving your funds could remove your right to a fixed income for life or of a minimum value on retirement. Our advice is always to consult with an experienced financial adviser who will evaluate your circumstances and the pension products you currently hold. They will create a tailored strategy to indicate the available options and which will be most advantageous.
Ignoring the issue, or assuming that you do not need to take action because you may return to the UK, could be a bad move. One example relates to the Lifetime Allowance (LTA), a recently abolished limit on the amount of pension wealth you can save in the UK without being exposed to additional taxation.
If you were to move this year and transfer your pension, you would remove any exposure to this tax being reinstated – a likelihood this may happen if there is a change of governing party changes at the next general election. Failing to act could mean you miss a potentially short-term opportunity to significantly reduce the tax exposure linked with a higher-value pension.
Tax Rules for Expats Drawing on a UK Pension Fund
Further considerations apply to financial products such as ISAs, tax rules in your overseas destination, and investment products which may make up part of your pension planning portfolio. ISAs are tax-efficient products for UK savers, but expats living abroad are not permitted to make any contributions, which could mean an alternative savings option is more appropriate.
A similar analysis should be conducted to decide how best to manage any other products, savings, investments or assets since they may not be accessible from another country or may lose value if you relocate – due to cessations in contributions, the risk of currency exchange rates, or rules on drawing funds from abroad.
The tax rules in your country of residence will also influence the viability of your pension planning, where some countries offer attractive flat-rate taxes for expats against foreign-sourced pension income. Others may include pension benefits in income tax calculations, which may impact the most beneficial way to proceed.
In any circumstance, the key takeaway is that financial planning for retirement is important for every expat, at every stage of a move, and whether you expect to live overseas temporarily or want to build a new life in your dream destination.
Please get in touch with your nearest Chase Buchanan Wealth Management team for more information about anything discussed in this guide or to arrange a convenient time to consult on your pension plans.
*Information correct as of August 2023