If you are a retired expat, or you’re heading towards retirement, you may be starting to think about your UK state pension. While the process for claiming your pension may differ slightly if you live abroad, the UK Government has processes in place to ensure you can apply for your pension no matter which of the many popular UK expat destinations you now call home.
We have taken a closer look at the claims process to help you discover how you should begin applying for your expat state pension and the factors that will impact how much you will receive.
What is a state pension?
A state pension is a regular payment made by the UK Government for residents and non-residents who have reached the state pension age. The amount you receive is based on a number of factors including how old you are, your gender and how many qualifying years of National Insurance Contributions you have made. The new state pension came into play from April 6th 2016, so everyone retiring after that date will receive the new level of state pension rather than the old amount. To help those planning for retirement abroad, we will concentrate our advice in this guide on the new state pension.
Before you claim your state pension you should consider your eligibility. The UK makes this easy, regardless of where you live, by providing an online state pension age check tool. Simply answer the questions and the tool will confirm the age at which you will be able to claim your UK state pension, which will be unaffected by your location.
Do the rules change when you leave the UK?
As long as you choose to live you years as an expat in destinations within the European Economic Area or Switzerland, expat pension rules remain the same. The only factor that is affected by your location is the amount your pension will increase year on year, with some destinations resulting in a pension freeze.
What is the state pension triple lock guarantee?
In 2010, the Government introduced the state pension triple lock guarantee, which provides those on state pension with an increase in the amount paid every year. This increase is based on:
- Inflation tracked by the Consumer Price Index (CPI)
- Any rise in the average wage
- A minimum of 2.5%
The aim of the guarantee is to ensure pension income increases in line with the cost of living, preventing pensioners from facing financial difficulties later in their life. As a result of the guarantee, ministers now review inflation rates and average wage rises each year, with new levels of payment coming into force every April.
Frozen expat state pensions
If you are an expat living in one of 53 expat destinations across the European Economic Area, your pension payment will be ‘uprated’ every April in line with inflation. However, if you live outside these countries your pension will remain at the level of your first pension payment for life or the duration of your time abroad, in a process known as a pension freeze. As a result, many expats consider their overseas country of residence based on this factor. If you choose to live outside this area and have your state pension payments frozen, you can unfreeze your payment rates by returning to Britain.
Claiming UK state pension as an expat
No matter what expat destinations you have chosen to explore, you can still claim your UK state pension with relative ease. However, you should still pay close attention to the pensions claim process to ensure you receive the right amount at the right time, particularly if you have moved away from the UK close to your retirement age.
When should I claim?
You must claim your expat state pension when you are approaching state pension age. The Department of Work & Pensions (DWP) does not pay the state pension automatically so you must make the claim yourself. However, the pensions authority will send a letter inviting you to make a claim as your pension age approaches. This letter will go to the last known address on your file, so it’s important that you update your address to prevent any delays. Of course, if you have moved overseas close to retirement age without updating your address, you may find that your letter fails to reach you. If this is the case, you can get in touch with the department directly to begin the claims process. Your claims letter will arrive roughly four months before you reach state retirement age, so you will have plenty of time to rectify any issues that occur before you reach state pension age.
How much will I receive?
As stated above, the amount you receive is based on the amount of National Insurance Contributions you have made. The full new state pension for the year 2020-21 is £175.20 a week, so this is the amount received this year by expats who have contributed 35 qualifying years of National Insurance payments. If you have contributed more than 10 years of payments you will still receive the state pension, but you may not receive the full amount.
Thankfully, the Government makes it easy to check the amount of qualifying years you have online so you can confirm how much you will receive before committing to retirement. It is also worth considering any social security contributions you have made overseas as these may be counted towards your qualifying years. Contact HMRC to find out whether your payments count towards your National Insurance Contributions.
Can I boost my expat state pension?
If you are concerned that your pension will not be enough to provide you with the expat retirement you had hoped for, you can boost your retirement income by returning to work. According to the rules of the British state pension, you can defer your payments to allow you to further contribute to your pension, and in return the Government will pay interest on your account while it remains on hold.
The interest rates for pensions that start after April 6th 2016 is 5.8%, which is significantly higher than placing the money in a bank and could, therefore, significantly contribute towards your retirement pot. Any money you receive for deferring your payments is paid as an addition to your regular state pension amount. It is worth noting that expats are only entitled to trigger a pension payment holiday on one occasion, so take care not to restart your pension payments before you have finished contributing to your retirement fund. Should you pass away before your additional amount is paid in full, your extra payment is carried over to your spouse, so they will receive your hard-earned extra payments alongside your regular pension amount if the worst should happen.
At ExpatRoute we take every care to provide you with detailed information that will help you enjoy the overseas retirement you have always wanted. However, if you have any concerns related to your pension or need help planning your personal finances, we recommend seeking the advice of an independent pensions expert.