Everything expats need to know about claiming a UK pension abroad
From frozen pensions to the tax implications of retiring abroad, here’s everything you need to know before making the move overseas
Retiring abroad remains a common aspiration for many, but the implications on your pension must be carefully considered (Photo: Getty Images)
As the cost of living soars and living standards decline, a growing number of retirees are looking to move overseas in search of a more affordable and fulfilling life.
Although the lure of warmer climates is tempting, choosing to relocate abroad could mean a reduced or frozen state pension.
The so-called “scandal”, as described by the End Frozen Pension campaign group, affects more than 450,000 expats worldwide.
This has left many Brits considering a move abroad questioning what will happen to their state pension and what steps they need to take to ensure they receive their full entitlement.
With that in mind, here is what you need to know about managing your state pension payments when moving overseas.
What is the frozen pensions scandal?
The “frozen pensions scandal” is an issue affecting more than 450,000 British pensioners living abroad.
Under current UK government policy, state pensions are only increased annually if the retiree lives in a country with a reciprocal social security agreement – when there is an agreement between the UK and another country.
However, people from the UK residing in certain countries, including popular destinations such as Canada, Australia, and parts of Asia and Africa, see their pensions “frozen” at the rate they first received them, with no annual increases.
This means that while pensioners in the UK benefit from the triple lock system – which guarantees yearly pension increases in line with inflation, wage growth, or a minimum of 2.5 per cent – those in frozen pension countries do not.
Over time, this can lead to a significant loss of income, making it harder for retirees to keep up with the rising cost of living.
For many affected pensioners, the financial impact is severe. A retiree who moved abroad decades ago could now be receiving a fraction of what they would if they had stayed in the UK.
Campaigners argue that this policy is unfair and penalises pensioners based solely on where they choose to live, leaving many struggling to afford basic necessities in their later years.
Can I receive my state pension abroad?
Retiring abroad remains a common aspiration for many, but the implications on your pension must be carefully considered, Tom Selby, director of public policy at AJ Bell, said.
He explained: “If you are considering finding a place in the sun for your later years, it’s important to think carefully about the implications for your finances, including your pension.
“Any potential impact will depend on several factors, including where you want to retire to.
“Provided you have enough national insurance (NI) contributions to qualify for the state pension, if you move abroad, you can continue to receive the benefit.”
However, one of the first things to check is your contribution history. You should verify that your contributions meet the required number of qualifying years for a full pension.
This can be done by logging into your personal tax account on the HMRC app or website.
Britons typically need at least 10 years of NI contributions to receive anything at all and at least 35 years to receive the maximum new state pension.
Paying voluntary national insurance contributions
If you have gaps in your NI record, you can fill them by paying voluntary contributions.
Typically, you can only pay for the prior six tax years, but there is a special window until 5 April, 2025 that allows people to make payments going back to 2006.
This could be an invaluable opportunity for expats to top up their pension before the deadline.
Selby said: “If you have gaps in your NI record, you should check to see if you can fill them, either for free or by paying voluntary NI.
“Usually, this can be done for the prior six tax years only, although until 5 April there is a window to pay voluntary NI going all the way back to 2006.”
For expats who qualify for class 2 contributions, the cost of filling gaps could be significantly lower than the standard class 3 rate.
The rates for the 2024-25 tax year are £3.45 a week for class 2 and £17.45 a week for class 3.
How to claim your state pension abroad
Once you are ready to claim your pension, you must contact the International Pension Centre within four months of your retirement date.
You will be asked to specify whether you want your pension paid into a UK bank account or an overseas account in the local currency.
But be aware that if you choose to have your pension paid into an overseas account, the amount may fluctuate due to exchange rates.
Expats who have built up a private or workplace pension should also consider the impact of moving abroad on their income.
To avoid issues with exchange rates, some expats may want to consider transferring their pension into a Qualifying Recognised Overseas Pension Scheme (QROPS) in their new country of residence.
These schemes offer the advantage of receiving pensions in local currency, which can reduce the risk associated with exchange rate volatility.
Importantly, your state pension may also not rise each year depending on where you live.
Steven Appleton, partner and head of the Manchester private client team at Brabners, said: “If you live in the UK, your state pension usually rises every year, but if you move overseas, you’re only entitled to an annual increase in Gibraltar or Switzerland, a European Economic Area country, or a country that has a social security agreement with the UK.”
The tax implications of retiring abroad
Another crucial element for expats to consider is the potential tax implications of claiming a UK state pension from abroad.
Once you move overseas, you will likely be classified as a non-UK resident for tax purposes.
But tax residency rules can be complex, and it is advisable to seek professional advice before making any decisions.
Appleton said: “When you relocate overseas, you’ll likely be classed as a non-UK resident for tax purposes.
“First, you need to check if there is a double taxation agreement with the new country.
“If there is, you’ll only need to pay tax on the pension in one country – which country will be determined by the rules of the particular double taxation agreement.
“If your new country of residence doesn’t have a double taxation agreement with the UK, you may face taxation on the same pension income twice.”
This makes it even more crucial to consult with tax and pensions experts before relocating to ensure you are fully aware of the potential tax liabilities you may face.
Source: https://inews.co.uk/inews-lifestyle/money/pensions-and-retirement/everything-expats-know-claiming-uk-pension-abroad-3590935
