Are you thinking about retiring abroad? If so, it’s important to understand the impact this could have on your state pension before you make such a big move.
The dream of retiring abroad has long been on the wishlist of UK workers in search of warmer weather and cheaper living costs. Spain, France and Portugal regularly top the list of the most desirable destinations people like to retire to, according to a survey by pension provider Canada Life. But, many people fail to understand the implications moving abroad can have on their finances, particularly their state pension.
We’ve rounded up six things you need to consider if you’re thinking of retiring abroad. Find out about your entitlement to state pension, whether and how you’ll be taxed and how to claim when living overseas.
1. Some qualifying years might not count
If you retire abroad, you can still claim your state pension as long as you’ve paid enough UK national insurance contributions to qualify. To qualify for state pension abroad, you need at least 10 years on your National Insurance record to get any, and 35 years to get the full amount.
However, changes brought in from 1 January 2022 now affect how state pensions are calculated for people retiring abroad if they’ve previously lived in: Australia (before 1 March 2001), Canada, or New Zealand.
If this applies to you, you will no longer be able to count time lived abroad in these countries if you are a UK national, EU or EEA citizen or Swiss national who moves to live in, or move between an EU or EEA country or Switzerland. According to the DWP, this change is a result of the UK leaving the EU.
This change is due to affect those who have already started claiming their state pension as well as those who have yet to start claiming. The state pension payment will be calculated, or recalculated, using only your UK National Insurance record.
This doesn’t affect those who continue to live in the UK, or were already living in the EU, EEA, or Switzerland by 31 December 2021, as long as you live in the same country. In this case, you will still be able to count time living in these countries to calculate your state pension.
2. You need to use the IPC to claim
To claim your state pension when living abroad, you must be within four months of your state pension age. This is currently 66 for both men and women, but it is gradually increasing to keep up with increasing life expectancy, and depends on when you were born.
You can either claim your state pension by contacting the International Pension Centre (IPC) or send an international claim form to the IPC.
3. You might need an overseas bank account
You can get your state pension paid into a bank in the country you’re living in, or into a bank or building society in the UK. However, it’s important to note that if you choose to have it paid into an overseas account, you’ll get paid in the local currency. That means the amount you get may change depending on the exchange rate.
If you split your time between the UK and another country, you must choose which one you want your pension to be paid into. You cannot be paid in one country for part of the year and another for the rest of the year.
To be paid your state pension abroad, you can use:
- An account in your name
- A joint account
- Someone else’s account (if you have their permission)
If you choose to be paid into an overseas bank account, you’ll need the international bank account number (IBAN) and bank identification code (BIC) numbers.
4. Your state pension might not increase
The state pension is due to increase by 3.1% in April, but it’s estimated that almost half a million people who retired to countries like Australia, Canada and South Africa will never receive an increase.
This is because the state pension only increases each year if you live in certain countries that have agreements with the UK. If you live in a country that is excluded, your pension is frozen at the level it was when you first moved abroad. If you move abroad before you collect your state pension, you will get the amount it was when you became eligible.
5. You might still have to pay tax
If you move overseas but are still classed as a UK resident for tax purposes, you may have to continue paying tax on your pension – but this depends on your income.
You might be taxed on your state pension by the UK and the country where you live. If you pay tax twice, though, you can usually claim free tax relief to get some of it back. And, if the country you retire to has a ‘double taxation agreement’ with the UK, you’ll only have to pay tax on your pension once – either to the UK or the country where you now reside.
6. You won’t get pension credit
If you’re on a low income and live in the UK, you can use pension credit to help boost your state pension. This is awarded based on earnings and tops up your basic state pension. If you move abroad, your pension credit will stop, regardless of your earnings.
If you’re moving abroad, it’s important that you remember to complete your DWP change of address to ensure all your state pension details are up to date.