If you’re a Brit living abroad or planning to retire overseas, your retirement income planning should include any UK State Pension you’re entitled to.
This regular monthly income is guaranteed to be paid to you for the rest of your life, making it a valuable benefit.
Here are seven key facts about the UK State Pension if you’re living overseas when you start to take it.
1. You're entitled to claim your UK State Pension, even if you're living abroad
If you’ve paid enough UK National Insurance contributions (NICs) to qualify, you’re entitled to take whatever State Pension you’ve accrued, no matter where you are living.
To make a claim you must be within four months of your State Pension Age (SPA). So, check what your SPA will be and ensure you factor this into your retirement income plan.
2. The amount you receive is based on your NICs
The amount of State Pension you’re entitled to is based on your NICs during the time spent living and working in the UK.
From 6 April 2022, the full State Pension is £185.15 a week or £9,627.80 a year.
Based on current exchange rates (May 2022), that means a year's State Pension income is currently worth approximately:
• Euro: €11,388.64
• US dollars: $12,061.76
• CA dollars: $15,391.03
• AU dollars: $16,736.86
To be eligible for the full State Pension, individuals must usually have 35 qualifying years of NICs.
Find out how much you can claim through the State Pension forecast on the UK government website.
3. You have to claim your State Pension
Your State Pension is not automatically paid when you reach your SPA. Everyone, even those living in the UK, must take active steps to claim it.
To make your claim abroad, you'll need to complete form IPC BR1, which you can download from the government website. You can complete and submit this form up to four months before your SPA.
You can arrange to have your pension paid direct into your overseas bank account. This means you'll avoid having to use a UK account and pay currency exchange costs on transfers. And, because the UK government bulk-buys currencies for this purpose, you might also benefit from a more favourable exchange rate.
4. The amount you get won't necessarily increase if you're living overseas
You can receive your UK State Pension if you move to live in the EU, EEA, or Switzerland. If you live in these countries your UK State Pension will increase in line with the rate paid in the UK.
However, if you move outside of these countries, while you can still claim your State Pension, the amount you receive will remain constant. This means that, thanks to the effects of inflation, the real value of your State Pension will effectively decrease over time.
Should you return to the UK after you've started claiming your pension, the amount you receive will increase to the current amount you’d be entitled to had you remained in the UK.
5. You can top it up with additional contributions
Your State Pension forecast will show you how much you can expect to receive and decide whether it's in your interest to pay voluntary National Insurance contributions to increase the sum you could get.
It's usually possible to top up your NICs history for a maximum of six previous years but there are some categories of individual who can go back further.
This is rarely a straightforward decision. It's necessary to balance the cost of the contributions you’d make, and additional pension you’ll receive, against the fact that the amount of pension you'll receive will not increase above that figure, unless you returned to the UK.
Before committing to pay additional NI contributions, it's wise to get professional advice so that you can be sure that you’re making the best use of your money.
6. Your State Pension is subject to tax
How much tax you’ll pay and where you pay it depends on where you’re considered to be a resident.
The good news is that most European and English-speaking countries – including Australia, America, and Canada – have a Double Taxation Agreement (DTA) with the UK. So, you won’t be taxed twice on the same income in two different countries.
If you still spend part of each year in the UK, your State Pension may be subject to tax there.
Wherever you are tax resident, the amount of tax you’ll pay will depend on your level of income.
7. You can wait and increase your pension amount
As well as topping-up your State Pension, you can also increase the ultimate amount you’ll receive by deferring it. For every nine weeks you defer, it increases by 1%. So, if you defer for a year, it will increase by almost 5.8%.
You can defer your State Pension for as long as you want. Whether deferring is in your best interests will depend on your individual circumstances.
If you have other sources of income, you may find that deferring is a good idea, especially considering the amount it could increase by if you wait. It's also worth remembering that along with the deferral enhancement, you'll also benefit from the increased amount the State Pension may be worth if you wait a year or two before claiming it.
However, this will mean missing out on annual income that will take some time to make up with the deferred increase.
Speak with your financial adviser to find out whether deferring your State Pension is a sensible option for you.
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Wherever you live in the world, we can provide regulated financial advice. We have extensive experience in advising clients on their retirement planning and are here to support you in your transition from work to retirement.
If you have any queries about your UK State Pension, or anything to do with your retirement income, get in touch. Email firstname.lastname@example.org or call us on +44 1689 493455.
Please note: The content of this newsletter is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice.