Is there such a thing as UK state pension for expats? Well, this is what you must always remember: If you have worked and paid into a UK State Pension, you are entitled to receive that pension when you reach State Pension Age no matter where you may now be living.
The UK State Pension can be neglected by British nationals living overseas because of the widespread belief that pension contributions would be lost during absences from the country. This is a common misunderstanding.
Although the State Pension may not entirely cover most foreigners’ retirement income needs, it’s still one of the cheapest ways to set up a solid financial foundation for after your working years.
If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).
Things to Know About the UK State Pension
What is the new UK state pension?
In 2016, the UK government implemented reforms to the basic State Pension system. If you reach State Pension eligibility age on or after that date, you’ll be able to receive the new State Pension under the updated guidelines.
The current full amount for the new State Pension is slightly over 10,600 British pounds per year, equivalent to 203.85 pounds per week. Individuals who reached state pension age before April 2016 receive 8,122 pounds annually, or 156.20 pounds per week.
However, the specific amount you receive is contingent upon your National Insurance contributions during your employment in the UK. You must have 10 years of National Insurance payments to qualify for any benefit, and 35 years to earn the full State Pension.
Having fewer qualifying years will result in a reduction in your weekly pension amount. If you have an incomplete National Insurance record or were contracted out, you may not be eligible for the full State Pension amount.
By contracting out, you may reduce the amount of National Insurance Contributions you’re required to pay and divert that money to another pension plan, such as a final salary pension plan via your employer or a workplace, personal, or stakeholder pension plan. Those working in the public sector often did this.
What is the Triple Lock?
Residents of the UK who are receiving their State Pension are safeguarded by the so-called Triple Lock that debuted in 2010, according to The Times.
The Triple Lock has been restored after being temporarily halted in the prior tax year owing to an inaccurate salary growth number, the report said.
This system guarantees annual increases in the state pension equal to the higher of the consumer price index, average salary growth, and 2.5%.
The government made the announcement of the latest hike in November 2022, just before the start of the next fiscal year. It became effective on April 6, 2023. State pension payments increased by 10.1% as of April 10, 2023, in line with September 2022 inflation rates.
The basic state pension paid out before April 2016 and the new state pension are both covered by the Triple Lock, which guarantees that they will increase at least as quickly as inflation.
Many financial experts, however, have long argued that the Triple Lock is unsustainable due to its high operating costs. Unfairness between generations has been raised as an objection to the triple lock too. A lot of people think it’s unjust that young people should subsidize the income of the elderly when many of them are having trouble making ends meet on their own, the Times said.
The current administration has promised to maintain the Triple Lock until at least 2024.
What are frozen pensions?
Over half a million retired Britons living abroad are facing a disadvantageous situation due to the Frozen Pension policy.
As mentioned earlier, the Triple Lock rule provides assistance to pensioners in the UK by ensuring that State Pension payments increase by 2.5%, keeping up with price inflation or average wage growth. This ensures that the value of State Pension payments remains intact over time.
However, British people who retire to specified countries outside the UK have their State Pension benefits permanently frozen at the rate in effect on the date of retirement or arrival. It’s not the same for every territory, though. In specific countries, UK State Pension payments remain frozen, while in others, they continue to receive annual increases.
Retired expats residing in the European Economic Area and several other countries such as the US, the Philippines, and Turkey will still benefit from annual increases to their State Pensions through the triple lock scheme.
Nevertheless, a significant number of affected State Pensioners reside in major Commonwealth countries like Australia and Canada. Despite having paid taxes throughout their working lives in the UK and having made full National Insurance Contributions, these individuals will miss out on the increases granted to others. Consequently, the value of their State Pension will gradually diminish over time due to inflation.
This is an important consideration to keep in mind when planning your retirement income strategy.
How does Brexit affect my state pension?
Senior Britons got the same yearly increase in their State Pension regardless of where they lived in the European Union prior to Brexit. However, the UK leaving the EU brought about a change in this arrangement.
After Brexit, the UK government originally announced that state pensions for EU expats would only see annual growth until 2023. Subsequent increases would then depend on whether reciprocal agreements were established with the remaining EU member countries.
Nevertheless, it didn’t take long before the UK government changed their mind. In early 2020, it guaranteed increases to the state pension of British residents living in the EU per year.
This new guarantee was particularly welcomed by British expats who had retired in the EU, Switzerland, and the European Economic Area.
Are there currency considerations?
There will always be the issue of currency fluctuation for anyone receiving the UK State Pension outside of the country like the decline of the pound against the euro and the dollar during the last several years.
It is important to account for the possibility of currency fluctuations since these changes may have a significant effect on your buying power abroad.
How do expats get UK state pension overseas?
The State Pension you are entitled to may still be claimed even if you have relocated overseas. After moving abroad, your State Pension may continue to be paid straight into your bank or building society. However, it is crucial to inform the pension service about your plans to leave the UK to ensure the uninterrupted flow of payments.
You are required to make a proactive claim for your State Pension no matter which nation you are currently residing in. It is not automatically paid to eligible recipients. The claim process for may vary depending on where you are living:
If you are residing in the UK, you can apply for your State Pension through the government website. You may submit your application two months prior to your eligibility date.
There is also a document on the website that’s designed for those living in Australia who wish to claim their Pension. Also note that your State Pension payments will be directly deposited into your Australian bank account. The UK government’s bulk-buying arrangements for currency exchange purposes ensure that you receive a favorable exchange rate when converting Sterling to Australian dollars.
In the months leading up to your state pension age, you should expect to receive a letter providing instructions on what steps to take. Those in England, Scotland, Wales, Northern Ireland, and the European Economic Area who are two months away from the state pension age and have not received said letter should contact the pension line.
If you are from EEA-member countries
As per the UK government website, you have to take note of the following if you’re claiming your state pension from countries within the European Economic Area:
- “If you have worked in the country you are now living in, you should make your claim for your UK state pension through the pension institution in the country you are living in. You should contact that institution for details of what you need to do, if you have not already done so.
- If you have not worked in the country you are living in then you should claim your UK state pension direct from the International Pension Centre, unless you have worked in another EEA country since leaving the UK, in which case you should make your claim through the last institution you were insured with.”
Your current EEA nation will notify the UK and any other countries where you have insurance if you file for a UK state pension there.
Your new State Pension check will arrive in your account every four weeks. You are paid in arrears as in the previous four weeks.
If you are from overseas
You must choose just one nation to get your pension. You can’t accept compensation in one nation for part of the year and another for the remainder.
You’ll get a letter detailing your pension payments after your application to claim. Your State Pension may be paid into a UK bank or building society or your present bank.
Account types vary. You may use a shared account, your own account, or someone else’s account with their consent. If you have a foreign account, you’ll need to submit the IBAN and BIC numbers.
Remember that your pension will be paid in the local currency of your chosen country. Exchange rates affect your payout.
You may pick 4 or 13-week payments. If your State Pension is less than 5 pounds a week, you will be paid on a yearly basis every December.
If you live abroad, a US bank holiday may delay your payment by one day. This is because these transactions are processed by a US-based business.
At what age can I get my state pension?
The State Pension age for both men and women is now 66 years old. It will continue to progressively grow once again beginning on May 6, 2026. For those born after April 1960, the State Pension age will continue to rise gradually, eventually topping out at 67 years old.
Keep in mind that the State Pension age is being constantly evaluated and may be changed again in the future. Potential future revisions to the State Pension age may be influenced by factors including shifts in life expectancy.
Should I add funds to my state pension from abroad?
It’s important to first assess your current entitlement to the State Pension. Get a pension statement to examine your details. You can request this statement either online or by post.
Once you know exactly how much of a State Pension you are due, you may start thinking about making additional payments on your own time. Class 2 contributions may be possible if you are self-employed or working overseas. These payments are issued every week, at the current tax year rate of 3.45 pounds.
If you are not currently working, you can still make voluntary contributions through Class 3. Just remember that Class 3 contributions are more expensive, currently set at 17.45 pounds per week. All non-working expats should still give serious thought to making these top-up payments, since they may have a beneficial effect on your State Pension down the line.
Should I fill in any contribution gaps?
Recent government action has delayed the application deadline for a full UK State Pension for anyone living outside of the country until July 31, 2023. This decision is meant to help those who did not maintain continuous National Insurance coverage between 2006 and 2016, and hence do not qualify for the full state pension as of right now. The typical grace period for making up past due payments is six years.
Some things to think about before making a move to fill in such gaps:
- Many retirees depend on the State Pension as a reliable source of lifelong income.
- Unlike the United Kingdom, pension payments to those in Australia will not rise every year.
Making voluntary contributions might be useful if you want to retire before the UK State Pension age (now 66), are unlikely to return to work in the UK for an extended length of time, or want to maximize your UK State Pension.
If you have previously contributed for 35 years (or will be working in the UK where National Insurance Contributions are paid), have a low expected lifespan, want to retire outside of the UK, or have already reached State Pension age, it may not be worthwhile to continue making contributions.
What are the tax considerations?
UK state pensions are taxed. However, there are no deductions from your state pension payment. The specific levies depend on your total taxable income and tax residence status. You may not have to pay any tax if your total income (including your state pension) is below your tax allowances. However, you may owe taxes if your total income (including the state pension and any additional pensions) exceeds your tax exemptions.
Your state pension can be exempt from UK taxation if your country has a double taxation agreement with the United Kingdom. Your nation may still tax your state pension.
Your state pension may be subject to UK and foreign taxes. If you pay taxes on the same income in many countries, you may qualify for international tax credit relief.
State pension payments that were delayed must be taxed in the year they were due.
If your total income for the tax year was more than your personal allowance amount, only then will you be required to pay tax on the back payments. HMRC will only pursue income tax repayment for the current tax year and the prior four tax years. The agency will not withhold tax from any back-payments received in 2023/24 that pertain to tax years prior to 2019/20.
What happens if I defer my state pension?
If you delay collecting your State Pension, you’ll be rewarded with a rise of about 5.8 percent every year. Extra State Pension accrued via postponement of State Pension cannot be inherited by a surviving spouse or civil partner and cannot be taken as a lump sum payment. For retirees to profit financially by delaying their state pension, they would need to live until at least age 80 or longer.
Final Thoughts on the UK State Pension for Expats
The cost of the State Pension to the British government is enormous. Therefore, the model may evolve in the long run. The age at which you begin getting it may be raised, the Triple Lock rule may be modified, or something else entirely may happen.
Don’t pay voluntary contributions for longer years than you need to since the Department of Work and Pensions won’t give you a refund. If your future plans are uncertain, this might be challenging.
Don’t rush to fill up your NIC gap if you’re living overseas but would eventually return to the UK and have accrued the required 35 years there. If you subsequently decide to remain abroad, you may still establish a contribution history by paying back up to six years.
You may not be able to collect the full amount of the new state pension even after 35 years of contributions. This is because of the tedious nature of the rules. You will have paid less in NICs and be eligible for a smaller state pension, for instance, if you participated in a contracted-out occupational pension system. However, this may always be better with further inputs.
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