Retiring Abroad as a British expat: Guide on UK Pensions

Thinking of retiring abroad? Retiring abroad is a dream for thousands of Brits. Hundreds of thousands of British pensioners live abroad, and many people who have made contributions to the UK tax system are now expats.

However, you’ll need to understand how going to live overseas will affect your pension. There are many expat pension options available, and not all of them will suit you. In this guide, we look at claiming your pension if you live overseas. Understand how UK state, private and workplace pensions work overseas for expats.

Retiring Abroad as a British expat: Guide on UK Pensions

The UK pension system has traditionally ranked highly in the world. The new UK pension rules since April 2016 include automatic enrolment for workplace pension schemes. There’s also been a gradual increase in the legal UK pension age for both men and women. The new UK state pension provides sufficient income in retirement and ensures a decent quality of life for those planning a UK retirement, however, what about retiring abroad?

How does the UK pension system work?

First things first – how does the UK pension system work when you are retiring abroad as a British expat? The UK State Pension is based on National Insurance (NI) contributions. NI is a type of tax, which can be deducted from pay at source. Self-employed people also make contributions, and voluntary contributions can be made. To pay NI, you must have a National Insurance number. The system relies on the working population being larger and contributing more than the amount of state pension that is taken out. Expats working in the UK will need to apply for one.

Am I eligible for the UK State Pension?

Usually, to be eligible for the UK State Pension, you must have made NI contributions for at least 10 years (they don’t have to be consecutive). Then, how much pension you get depends on how many years you’ve paid in for. To get the full State Pension – which is currently £179.60 per week – you’ll need to have 35 qualifying years of NI contributions. But if you don’t have this much, you may be able to top up by making voluntary contributions.

Not sure how much UK State Pension you’ll get? You can find out using the UK government’s State Pension forecast.

When do I pay NI as a British expat?

• Employees start to pay NI when they earn more than £184 a week.
• Contributions from people earning £120 to £184 per week are treated as having been paid.
• Self-employed people must pay NI if they make a profit of £6,515 or more a year.

How old do I have to be to get the UK State Pension?

Depending on when you were born, you’ll be entitled to the state pension between age 65 and 68. There’s no legal retirement age in the UK, and you don’t have to claim your pension as soon as you’re eligible for it. In fact, you can increase your entitlement by deferring claiming. Workplace and private pensions may allow you to start accessing your pension at 55, but you’ll need to check.

Are foreigners eligible for the UK State Pension?

People who have worked in the UK and paid the necessary amount of National Insurance contributions should be eligible.

Do expats get UK pension? Workplace pensions and private pensions if you are a Brit retiring abroad

Since 2016, employees earning more than a certain amount are automatically enrolled into a workplace pension unless they choose to opt out. Many Brits also pay into private pension schemes of their choice. These pensions can be paid to you wherever you live in the world, but you’ll need to check whether they can be paid into an overseas bank account. Read more about best places to retire for Brits after Brexit.

Supplementary pensions in the UK

Workplace pensions
The second pillar of the UK pension system consists of occupational, company or workplace pension schemes. The providers of these schemes will depend on the company your employer has decided to invest with.

Private pensions and providers
The third pillar of the UK pension system is made up of private pensions, which can be taken out with your choice of pension provider, or at most British banks.

Private pensions are designed to be additional sources for retirement income, and can be used to supply a guaranteed or regular income throughout retirement, or taken as a lump sum withdrawal, which is 25% tax-free in the UK.

Other pensions in the UK
Another way to save for your retirement in the UK is to open a lifetime Isa.

For those living and working in the UK, and aged between 18-39, it’s a government-backed savings account, where you can pay in up to £4,000 in each tax year, and anything you pay in is boosted with a 25% bonus from the UK government.

Can I get a pension if I live overseas?

You can receive your UK State Pension from any country in the world, but how much you receive depends on where you move to and whether that country has a social security agreement with the UK.

If you move abroad before you retire and continue paying into a UK private pension, you might not get the same tax relief on contributions as you would in the UK.

What happens to your UK pension if you move abroad?

Depending on where you move, the State Pension will:

• Increase each year – this is the case if you move to a country in the EEA, Gibraltar, Switzerland and countries that have a social security agreement with the UK (but not Canada or New Zealand)
• Be frozen at the same rate as it was when you first became entitled to the pension or the date you left the UK if you were already a pensioner. It’s estimated that there are nearly 500,000 people who are receiving a frozen UK State Pension. The majority of these people (84%) live in some of the countries most popular with British expats – Australia, Canada and New Zealand.

Your pension will be converted into the local currency, so your income will also be affected by the exchange rate.

The tables below show the number of State Pensioners by country of residence. In May 2020 Department for Work and Pensions (DWP) paid State Pensions to around 1.16 million people living abroad, of whom 492,000 had frozen entitlements – mostly living in Australia, Canada, and New Zealand.

Top foreign countries of residence, grouped by not frozen uprating arrangement and ranked by caseload:

Source: DWP

Top foreign countries of residence, grouped by frozen uprating arrangement and ranked by caseload:

Source: DWP

How can you get your British State Pension abroad?

Your pension isn’t paid to you automatically when you become eligible. You have to claim it when you are retiring abroad. If you’re moving abroad, you need to contact the International Pension Centre.

You must be within 4 months of your State Pension age to claim.

If you live part of the year abroad, you must choose which country you want your pension to be paid in. You cannot be paid in one country for part of the year and another for the rest of the year.

There may be different restrictions and taxes if you move somewhere other than the UK for your retirement. You have two options with regards to your combined pension pot in this case:

1. On the one hand, you can leave your pension pot in the UK and withdraw it from abroad.
2. Alternatively, you can move your combined pensions abroad or a combination of both.

It’s important to seek advice, however, as the tax implication could reduce your pension entitlement.

Can I get pension from two countries when I am retiring abroad?

In short, yes. People are able to claim the State Pension in more than one country. If you live or work in another country, you might be able to contribute towards the country’s State Pension scheme.

If you live or work in another country, you might be able to contribute towards the country’s State Pension scheme. It is very possible to be eligible for another country’s State Pension as well as the UK’s. To check if you can pay into or receive another country’s equivalent of the State Pension, you should contact the Pensions department for that nation.

Can I transfer my UK pensions when I am retiring abroad as a British expat?

If you’re moving abroad from the UK, you may be able to transfer your pension savings into what was called a Qualifying Recognised Overseas Pension Scheme (QROPS) and is now called a Recognised Overseas Pension Scheme (ROPS). This can have advantages in terms of consolidating your pensions into a single scheme and avoiding currency fluctuations. But it isn’t right for everyone, so it’s vital to get independent financial advice before making a decision.

Bank accounts your pension can be paid into if you are retiring abroad

Your State Pension can be paid into:

• a bank in the country you’re living in
• a bank or building society in the UK

As a Brit abroad, you can use:

• an account in your name
• a joint account
• someone else’s account – if you have their permission and keep to the terms and conditions of the account
  You’ll need the international bank account number (IBAN) and bank identification code (BIC) numbers if you have an overseas account.

You’ll be paid in local currency – the amount you get may change due to exchange rates.

Will I be taxed on my pension abroad as a British expat?

This depends on the rules of the country you’re moving to. You may also have to pay UK tax on your pension income if the country you’re moving to doesn’t have a double taxation agreement with the UK. Find out more about tax and expats.

Do tax payments abroad count towards the UK State Pension?

Some social security contributions made in EEA countries, Switzerland and countries with a social security agreement with the UK can count towards qualifying for a UK State Pension in terms of qualifying years. But they don’t count towards the pension amount you’ll receive.

Finally…

Applying for your UK pension when you are retiring abroad
It is always advisable to seek advice from a financial advisor or your local pensions office. As a British expat, it is prudent to seek advice in all countries where you have participated in pension schemes, or consult an international advisor, to ensure you maximize the amount of pension income and avoid unnecessary tax penalties (in case, for example, if you decide to buy a house abroad). If you’re thinking of moving abroad, make sure you talk to your pension scheme or provider before you move.

When it comes to claiming your state pension, all residents must personally instigate procedures with their local pension service, as the pension isn’t issued automatically.

Read about pensions and benefits when you are retiring abroad as a British expat
You can read te UK Government guidance on pensions and benefits including:

• The State Pension
• Claiming State Pension if you retire abroad
• How to protect your State Pension and benefit entitlement if you move abroad, including voluntary National Insurance contributions
• Tax on your State Pension if you retire abroad