As you approach the end of your working life, it is natural to become increasingly concerned about your financial future. No matter where you have lived and worked, or where you want to live in the future, you will want to ensure your UK state pension is secured before you make any commitments. To help you explore your options, we have taken a look at the rules surrounding expat state pensions and taken a closer look at how working or living abroad can affect your eligibility.
About the UK state pension
The state pension is a regular payment made by the British government to those who have reached state pension age. The amount paid to eligible recipients varies based on a number of factors including the number of qualifying years of National Insurance Contributions, your age and your gender. The British government pays expats who retired before 6th April 2016 the old state pension, while those who retired after that date receive the new state pension. The full new state pension for 2020-21 is £175.20 but, as stated above, the actual payment received is based on your personal circumstances. For those on the old state pension, you can expect to receive up to £134.25 per person.
If you are eligible, the state pension can be claimed regardless of whether or not you choose to retire or receive any other additional pension. Unfortunately, there are many expatriates who have failed to claim their state pension and this has contributed to the billions of pounds worth of sitting unclaimed.
State pension eligibility
Under the new state pension, there are a number of updated criteria that need to be met before you can claim your state pension:
Men must have been born on or after 6th April 1951 to receive the new state pension, while women must have been born on or after 6th April 1953. There is no longer a default forced retirement age, so you must check your eligibility online to find out at what age you are personally eligible to receive your pension.
National Insurance (NI) status
You must have at least 10 qualifying years on your National Insurance record to be eligible to claim the basic state pension. However, these years can be separated by breaks. Each of these qualifying years can be achieved by multiple methods, including working and paying National Insurance contributions, claiming National Insurance credits, or paying voluntary National Insurance contributions. To receive the full state pension, you will need a total of 30 qualifying years of National Insurance contributions or credit records. You can make voluntary contributions at any time to increase your pension amount.
Married or in a civil partnership
If you are not eligible for the basic state pension or you are not able to claim the full amount, you may be able to apply for the top-up payment. Currently £80.45 per week, the top-up payment is claimed via a spouse or civil partner’s National Insurance contributions. Current rules state that you can apply for this top-up if you have both reached state pension age and your spouse or civil partner has reached state pension age and qualifies for some form of state pension.
Does living abroad affect my eligibility?
Living overseas can make some financial processes more complex. However, contributing to and claiming your state pension should be just as simple regardless of your location. The government states that those living and working in another country may still contribute towards a UK state pension, as long as you continue to meet the other eligibility criteria. There are circumstances in which you can still claim without meeting those criteria, for example by paying contributions to an EEA country while working abroad. However, you will still only receive the UK state pension amount that reflects the years of payments made directly to the UK.
The claims process
As with those of British residents, expat state pensions can be claimed as you approach state pension age. The pension is not paid automatically but you should be contacted by the Department of Work & Pensions (DWP) when you are four months away from your state retirement age birthday. This step in the process should only be made more complicated by your location if you have failed to provide the government with your latest address.
Unfortunately, if you fail to update your information you could be missed, so it’s recommended that you get in touch with the department’s International Pension Centre to provide them with updated details before you’re due to receive your pension information.
Pension amount vs. location
Just like British residents, expat state pensions will ordinarily be increased as the pension budget increases each year. However, this increase is dependent on where you choose to retire as residence in certain countries will result in a pension rate freeze. Countries where your pension will continue to grow include those in the EEA and EU, Gibraltar and Switzerland, and countries where the UK has a social security agreement. The exceptions to this are Canada, Australia and New Zealand. Should you choose to return to the UK at a late date, your pension payments will be returned to the current rate.
How is your state pension paid?
Regardless of where you have worked or plan to live after retirement, as long as you have state pension eligibility you will be able to choose which country your pension is paid to. You can choose to have it paid into a bank or building society in the UK, or to a bank located in another country that you will live in upon retirement. In order to successfully receive pension payments abroad, you will need an international bank account number (IBAN) and bank identification code (BIC). However, these should be provided by your overseas bank.
If you choose to live across multiple countries during your retirement, you will have to decide where your pension will be paid. For example, if you live in the UK for six months of the year and elsewhere for the remaining six months, you will have to choose which bank account will receive your pension payments. Unfortunately, you cannot choose to have your pension payment split between multiple countries. Whatever country you choose, your payments will be paid as or converted to local currency once they arrive.
Planning for the future
While we hope our advice will help you plan ahead, we know that everyone has different circumstances. Your personal working life or retirement location will affect your expat state pension eligibility, as will your age and relationship status. All of these factors, along with your National Insurance contributions, could even impact your plans for the future, so make sure you seek independent advice from a financial adviser to ensure you understand your position.