Pensions and moving abroad – The need to knows

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As you reach retirement or look to change your retirement plans, you may have considered retiring abroad to make the most of winter sun, be closer to family, or simply to experience a different way of living.

But if you are considering this, then it’s important to understand how it could affect your State Pension, as well as any private pensions you may have. This guide will look generally at pensions and moving abroad. For specific guidance relevant to your circumstances, please speak to a financial adviser or retirement specialist.

Understanding pensions in the UK

Before you move abroad, it’s important to understand what pensions you have in the UK, and how you receive any income from them. There are two types of pensions in the UK, the State Pension and private pensions, which include workplace pensions.

1. State Pension

The State Pension is provided by the UK government and gives a basic income to those eligible. In the tax year April 24-25, the state pension was £221.20 a week. To qualify for the full State Pension, you typically need to have at least 35 qualifying years of National Insurance contributions. At least 10 qualifying years of National Insurance contributions are needed for any form of State Pension payments.

2. Private pensions

Private pensions can be workplace pensions arranged by your employer or private pensions arranged by you. If you have a workplace pension, this could be either a Defined Benefit (DB) or Defined Contribution (DC) pension or alternatively, include elements of both. You get tax relief on contributions to your pension, and the benefits provided can help to top up income received from the State Pension.

How does leaving the UK affect your pension?

You can claim your pension abroad, but there are some restrictions. Pension providers do vary but by and large, you should be able to receive your pension abroad.

Receiving the State Pension abroad

You can claim the State Pension abroad if you’ve paid the correct amount of National Insurance contributions to qualify. Your State Pension can be paid into either a bank in the country you’re living in or a bank in the UK. It can be an account in your name, a joint account, or someone else’s account with permission. To receive your State Pension from abroad, you’ll need the IBAN and BIC (Bank Identification Code) if you have an overseas account. If you have an overseas account, you’ll be paid in the local currency.

If you live part of the year abroad, then you’ll need to decide what country you want your pension to be paid in, and this will be fixed. You can’t be paid in different countries throughout the year.

Your State Pension will only increase each year if you live in:

• The European Economic Area (EEA)
• Gibraltar
• Switzerland
• Countries that have a social security agreement with the UK (but you cannot get increases in Canada or New Zealand)

You will not get yearly increases if you live outside these countries and your pension will go up to the current rate if you return to live in the UK.

Receiving a private pension abroad

If you live abroad and want to receive a private pension like a workplace or personal pension, then it will be up to your individual pension provider as to what the stipulations are. You will be able to receive the pension income. However, you should be aware that your pension provider may:

• Only pay into a UK bank account.
• Charge fees for paying into an overseas bank account.
• Pay only in GBP.

Paying tax on pension income abroad

If you reside outside the UK, you're typically considered a non-UK resident, which may lead to a complex tax situation. You might be required to pay UK tax on your pension income, as it's classified as UK income. Also, you might have to pay tax on it in the country where you reside. If the country you reside in has a double-taxation agreement with the UK, you may be able to apply for tax relief or a refund. 

If you are considering retiring abroad, it’s worth speaking to a financial adviser who can help you understand what your tax situation may be when you leave the UK.

Paying into your pension from abroad

When moving abroad, you may still be able to contribute to a UK pension scheme, but keep in mind that tax relief on these contributions may be capped or even absent. This situation often arises when living overseas or working for a foreign employer.

What do you need to do before moving overseas?

When you move, you need to notify the International Pension Centre or if you’re from Northern Ireland, you need to notify the Northern Ireland Pension Centre if you’re claiming the state pension.

You also need to contact HMRC to make sure you pay the right amount of tax.

In this process, you should also notify your pension provider(s) that you are intending to move and where your new address will be for essential communications.

What happens if you return to the UK?

As you would if you were moving abroad, if you return to the UK permanently, you also need to alert the International Pension Centre, or Northern Ireland Pension Centre if you are in receipt of the State Pension or other state provided benefits. You’ll also need to notify HMRC as well as your pension provider.

If you hadn’t received the State Pension annual increase due to the country you were in, this will be applied on your return to the UK, so it’s essential to ensure you notify the relevant bodies as soon as possible.

Are you looking to retire abroad?

Planning is key when it comes to retiring abroad. As there are potential tax implications as well as payment complications, it’s important that you consider these decisions before moving. A retirement advice specialist will be able to help you understand what the requirements are, as well as any considerations you need to have.