UK State Pension facts for expats

UK State Pension Facts for British Expats

British Expats often forget about their UK State Pension. In fact, most expats assume that time spent abroad will leave gaps in their contribution records and affect the value of their state pension permanently. But this is not true.

While the State Pension will not fulfil the retirement income needs, for most expats, it is one of the most cost-effective ways to create a basis for their retirement income.

While we cannot help with state pension queries, if you have a private pension left back in the UK, please get in touch with one of our advisers to help retrieve it back.

Contents

The New (Current) UK State Pension

The UK government reformed the basic State Pension in 2016. If you reach the State Pension age on or after that date, you now get the new State Pension under the new rules.

Those who receive the new State Pension will get 185.15 GBP per week at the time of writing. This is an increase of 5.55 GBP per week from last year. Over the course of a year, this is an increase of 288.60 GBP, taking the total annual income to 9,627.80 GBP.

Pensioners that reached the State Pension age before April 2016 will see their weekly payments increase to 141.85 GBP from 137.60 GBP. This equates to a total rise of 221 GBP over 12 months, and an annual income of 7,376.20 GBP.

Stocks and bonds

Fixed-income, fixed-tenure bonds generally pay you income at a specified rate on specific dates during the term of the bonds and, subject to risks set out in the relevant bond prospectus, the face value of the bonds is repaid on maturity. They’re considered low risk, but generally offer lower returns and aren’t the best way to maximise return on capital in the short or medium term.

Stocks, on the other hand, can be a mixed bag. We all know the stock market is volatile, but generally, the people who lose out big are those trying to speculate. However, there are quality stocks and dividend reinvestment programmes (DRIPs), which deliver good returns and absolutely belong in an investment portfolio. Picking individual stocks requires a lot of research and keeping a keen eye on the micro and macroeconomic factors affecting those stocks. Playing the stock market isn’t beyond our capability, but it is often beyond our capacity as it simply requires more effort than many of us have time for.

This is why it is vital to always seek financial advice from reputable financial advisers who have the time and capacity to analyse the stock market and come up with a portfolio which suits your needs.

The Triple Lock

Those who are in receipt of State Pension and resident in the UK have protection in the form of something called the Triple Lock. This guarantees that payments increase annually in line with whichever of the following is the highest:

 

  • price inflation
  • average wage growth (suspended in 2021)
  • 5 %

Frozen Pensions

There are more than 500,000 Britons retired overseas who are losing out because of the Frozen Pension policy.

As mentioned previously, in the UK pensioners will receive help from the Triple Lock rule. As a result of this, State Pension payments increase by the greater of two-and-a-half per cent, price inflation or average wage growth. This means that State Pension payments keep their worth as time goes on.

However, for British nationals who retire outside to certain destinations, State Pension payments are permanently frozen at either the date the individual retired or the date that they arrived in their country of residence. But this is not consistently the case – in specific countries UK State Pension payments are frozen and in others, they are not and the basis on where pensions are frozen seems quite random. Canada, New Zealand, and Australia – all locations where high volumes of British Nationals live – are headline examples of this.

Below, we supply a list of the countries where UK State Pension payments are, at the time of writing, currently frozen:

Afghanistan
Albania
Algeria
Andorra
Angola
Anguilla
Antigua
Argentina
Armenia
Ascension Island
Australia
Azerbaijan
Bahamas
Bahrain
Bangladesh
Barbuda
Belarus
Belize
Benin
Bhutan
Bolivia
Botswana
Brazil
British Antarctic Territories
British Virgin Islands
Brunei
Burkina Faso
Burundi
Cameroon
Canada
Cabo Verde
Cayman Islands
Central African Republic
Chad
Chile
China
Colombia
Comoros
Congo 
Cook Islands
Costa Rica
Cote D’Ivoire
Cuba
Democratic Republic of the Congo
Djibouti
Dominica
Dominican Republic
Ecuador
Egypt
El Salvador
Equatorial Guinea
Eswatini
Ethiopia
Falkland Islands
Faroe Islands
Fiji
Gabon
Gambia
Georgia
Ghana
Greenland
Grenada
Guatemala
Guinea
Guinea Bissau
Guyana
Haiti
Honduras
Hong Kong
India
Indonesia
Iran
Iraq
Japan
Jordan
Kazakhstan
Kenya
Kiribati
Kuwait
Kyrgyzstan
Laos
Lebanon
Lesotho
Liberia
Libya
Macau
Malawi
Malaysia
Maldives
Mali
Mauritania
Mexico
Moldova
Monaco
Mongolia
Montserrat
Morocco
Mozambique
Myanmar
Namibia
Nauru
Nepal
Netherlands Antilles
New Caledonia
New Zealand
Nicaragua
Niger
Nigeria
Norfolk Island
North Korea
Oman
Pakistan
Panama
Papua New Guinea
Paraguay
Peru
Qatar
Russian Federation
Rwanda
San Marino
Sao Tome & Principe
Saudi Arabia Senegal
Seychelles
Sierra Leone
Singapore
Solomon Islands
Somalia
South Africa
South Korea
Sri Lanka
St Helena
St Kitts & Nevis
St Lucia
St Vincent & Grenadines
Sudan
Surinam
Syria
Tahiti
Taiwan
Tajikistan
Tanzania
Thailand
Togo
Tonga
Trinidad & Tobago
Tunisia
Turkmenistan 
Turks & Caicos Islands
Tuvalu
Uganda
Ukraine
United Arab Emirates
Uruguay
Uzbekistan
Vanuatu
Vatican City
Venezuela
Vietnam
Samoa
Yemen
Zambia
Zimbabwe

Brexit and the State Pension

While Britain was a member of the European Union, British nationals who retired in another EU country had their State Pension payments increased in the same way as they would be if they were resident in the UK. Brexit changed this.

 

The UK government originally said that, after Brexit, UK state pensions for expats in the EU would increase annually only until 2023. After that time, any increases would have depended on whether reciprocal arrangements with remaining EU member countries were in place. However, in early 2020, the UK government gave assurance to British expats who were already residents in the EU that they will continue to receive annual increases to their state pension.

 

This new guarantee was very welcome for British expats currently retired in the EU, Switzerland, and the EEA.

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Currency

Those receiving UK State Pension abroad will always have currency fluctuation to consider. Sterling has dropped versus both the Euro and US Dollar in recent years for example.

Currency movements can have a tremendous impact on the purchasing power of those retired overseas and potential currency fluctuations are something that you should take into consideration when doing proper international retirement planning.

UK State Pension Qualification

If you have 10 years of relevant UK National Insurance Contributions, then you qualify. You can find out the level of contributions that you have made on this website.

British Expats CAN still receive the UK State Pension

You can still claim any State Pension you are eligible for if you have moved abroad. Furthermore, if you move overseas after you have started to receive your State Pension, and payments go directly into your bank or building society, the payments can continue. But you should let the pension service know when you are going to leave the UK.

Getting the Maximum State Pension

To get the maximum State Pension, you need to have 35 years of qualifying UK National Insurance Contributions. Every year less than this will reduce your weekly pension.

Topping Up Your UK State Pension Whilst Overseas

Your first step should be to find out what your current State Pension entitlement is. You can do this by obtaining a pension statement and you can do that here. You can also request a statement by post.

Once you know where you stand, you can apply to make voluntary contributions using a NI38 form. If you are employed or self-employed, you should be able to make Class 2 contributions and those weekly Class 2 contributions for tax year are currently 3.15 GBP.

If you are not working, then you will have to pay Class 3 voluntary contributions and these are more expensive, currently 15.85 GBP per week. This is still worthwhile though and all expats who are not working should still consider this.

Most British expats should be looking at making voluntary National Insurance payments if they do not already have 35 years’ worth of qualifying contributions.

Filling In Gaps in Contributions

You can normally pay up to 6 years of arrears.

When can I start receiving State Pension?

State Pension age was 65 for men born before 6 December 1953 and between 60 and 65 for women born after 5 April 1950 and before 6 December 1953. This is changing though. Going forward, the State Pension age will increase to:

  • 66 for people retiring in 2020 or later
  • 67 for people retiring in 2028 or later
  • 68 for people retiring in 2046 or later

 

Paying tax on my pension from abroad

You may be liable to pay tax on your State Pension by the UK and the country where you live. If you pay tax twice, you can usually claim tax relief to get a refund. If you live in a country that has a double tax treaty in place with the UK, you will only pay tax on your pension once. This may be to the UK or the country where you live, depending on that country’s tax agreement.

Contracted Out

Your pension might be lower if you contracted out. Contracting out means that you pay lower National Insurance Contributions and have the money paid into another form of pension instead, e.g., a final salary pension scheme at work or a workplace, personal or stakeholder pension (prior to 6th April 2012). This was common for those working in the public sector.

Deferring the State Pension

For each year you defer taking your State Pension, you will get just under a 5.8% increase in your pension when you do start taking it. However, you cannot take the deferred amount as a lump sum and there is no inheritance by a surviving spouse or civil partner of the extra state pension built up from deferral of State Pension. Retirees would need to live beyond 80 to realise the tax benefits from deferring their state pension, so your life expectancy dictates whether deferring is the correct thing to do.

 

Other things to consider

Future Changes – The State Pension in a huge liability for the UK government. As a result, it is possible that the model could change in future. This could be in the form of further increasing the age at which you begin receiving it, changes to the Triple Lock rule, or other unforeseen changes.

No Refunds – The DPW will not refund Voluntary contributions to you, so do not pay more years than you need to. This can be difficult if your plans are not certain. If you are living abroad and are currently missing NIC years but might go back to the UK and would then reach the necessary 35 years, anyway, then do not plug any gap just yet. You can normally pay up to 6 years in arrears, so if you later decided to stay overseas you can still build up your contribution record retrospectively.

Finally, you may not get the full new state pension even with 35 years of contributions. This is because the rules are complicated. For example, if you were a member of an occupational pension scheme that contracted out, then you will have paid fewer NICs and have a lower state pension entitlement. More contributions can still improve this though.

What we can help with

We cannot assist with UK state pension queries if you are living overseas. What we can help with, and what we are experts in is providing world-class pension transfer advice for private pensions left back in the UK.

If you have left a private pension back in the UK, get in touch and we can help you with retrieving it back.

How can we help you?

If you would like to speak to one of our advisers, please get in touch today.

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