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Living overseas comes with many advantages and transitions – not least identifying what happens to your pension schemes. Here we look at what happens to your UK State Pension if you decide to live abroad, including the post-Brexit changes to claiming a State Pension in the EU.

For more information and advice about expat retirement planning, please contact the experienced advisers at Chase Buchanan for a tailored pension review.

UK State Pension Rules for British Citizens Living Overseas

The baseline rule is that if you’re a British citizen and have paid enough National Insurance contributions to qualify, you can claim your State Pension from anywhere in the world.

However, you ONLY qualify for the annual increase if you live in an EU/EEA country or one with whom the UK has a social security agreement (such as the USA, Turkey and Gibraltar).

Increases are currently the subject of no small amount of controversy, but to summarise:

  • Pensions usually rise annually by the higher of 2.5%, inflation, or average earnings.
  • In 2022/23, this doesn’t apply and will be calculated in line with inflation or 2.5%

The anomaly in this tax year is attributed to fluctuations in average earnings due to the Coronavirus pandemic, and we can’t yet know whether the regular triple lock system will return from 2023 onwards. Exact annual increases aside, you can claim your pension.

You can check the complete list of countries where you will receive an annual increase here.

If you move back to the UK, your pension 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:

  1. Notify the International Pension Centre of your move.
  2. Contact HMRC to provide an update on your circumstances.
  3. Provide bank details, including the IBAN and BIC if it’s an overseas account.

There is a reasonable amount of flexibility here, and you can choose which country you want your pension to be paid in.

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 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 personal 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 any annual increases regardless of where you live.
  • BUT some providers can only remit pensions to a UK bank account.
  • Others will levy additional charges to pay your pension to an overseas account.
  • Providers will pay pensions in Sterling, so the exchange rate fluctuations apply.

Any expat moving abroad and reliant on pension scheme income is therefore 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, when making any decisions about claiming overseas pension benefits, taxes come into play.

It’s a complex and multifaceted area, but let’s summarise some of the primary things that might impact your ideal solutions.

Tax Relief on a UK Pension Fund

You can live abroad and continue contributing to a British pension, but your tax reliefs will change. If you work for a non-UK employer or make contributions from outside the UK, you may receive limited tax relief or none at all.

Generally, tax relief on 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 £3,600 tax relief at source.

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.

Expats are considered ‘UK relevant individuals’ for tax relief 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 depends on how you split your time between the two countries and a range of other criteria). However, even if you aren’t a British tax resident, you might need to pay taxes to HMRC against UK income sources – and there is the potential that you will also be taxed in your home country.

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:

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 get in touch with the nearest Chase Buchanan office to arrange a convenient time to talk.