Expat State Pension
Understanding the Expat State Pension is crucial for British expats who are living abroad. As a British expat, it’s important to know how the UK state pension works and how it affects your retirement planning, ensuring you receive the full benefits you’re entitled to.
If you’re a British expat, it’s easy to let the State Pension fall off your radar.
In fact, most expats simply accept that periods abroad will result in gaps in their contribution record and write their State Pension off.
This is a big mistake.
While the State Pension won’t solve the whole retirement conundrum, it is certainly one of the most cost-effective ways for many expats to create a secure tranche of income.
What We Will Cover In This post
1 The new State Pension
1.1 Triple lock
1.2 Frozen pensions
2 Who qualifies for State Pension?
3 Are expats entitled to State Pension?
4 How do I get the maximum State Pension?
5 How do I continue building my UK State Pension entitlement while an expat?
6 Can I go back and make up gaps in my National Insurance record as an expat?
7 When can I start receiving State Pension?
8 How do I pay tax on my pension if I live abroad?
9 What happens to my State Pension if I contracted out?
10 What happens if I defer taking State Pension?
11 Caveats
12 Case study – Why voluntary National Insurance Contributions can be a great deal for expats
13 Conclusion
14 Further Reading
The New State Pension
The UK government reformed the basic State Pension on 6th April 2016.
If you reach State Pension age on or after that date, you’ll get the new State Pension under the new rules.
The new State Pension is designed to be simpler than the old system.
Those who receive the new State Pension will get £221.20 per week in the tax year 2024/2025.
Over the course of a year, this amounts to £11,502.40.
Triple Lock
Those who receive the State Pension and reside in the UK are protected by the “triple lock.” This guarantees that their payments increase annually based on whichever of the following is highest:
- Price inflation
- Average wage growth
- 2.5%
Frozen Pensions
British expats living in certain countries benefit from State Pension increases under the “triple lock.”
However, UK expats residing in countries such as Australia, New Zealand, South Africa, and Canada do not.
They are known as “frozen pensioners” because their pension payments remain at their original level, regardless of inflation.
This can create significant financial challenges for those who rely on the State Pension as a key source of income.
Who Qualifies for the State Pension?
If you have at least 10 years of UK National Insurance contributions, you qualify for the State Pension.
You can check your contribution record here.
Are Expats Entitled to the State Pension?
If you have moved abroad, you can still claim any State Pension you are eligible for.
If you relocate overseas after starting to receive your State Pension, payments can continue if they are made directly into your bank or building society.
However, you must inform the Pension Service before leaving the UK.
How Do I Get The Maximum State Pension?
To get the maximum State Pension, you need to have 35 years of qualifying UK National Insurance Contributions.
Every year less than this will reduce your weekly pension by GBP6.29 (220.20/35).
Your first step should be to find out your current State Pension entitlement.
You can do this by obtaining a pension statement here.
Alternatively, you can call +44 345 300 01 68 and request a statement be sent to you by post (be sure to have your National Insurance number handy).
Once you know where you stand, you can apply to make voluntary contributions using form NI38.
If you are employed or self-employed, you should be able to make Class 2 contributions.
Weekly Class 2 contributions for tax year 2024/2025 are £3.45.
Yes, that’s right, sacrifice one Starbucks latte per week and you can maximise your State Pension entitlement for years.
If you are not working, then you will have to pay Class 3 voluntary contributions.
These are more expensive, at £17.45 per week (tax year 2024/2025).
This is still a great deal though and should be considered for all those expat spouses out there who are stay-at-home parents or not working for other reasons.
How Do I Get The Maximum State Pension?
To get the maximum State Pension, you need to have 35 years of qualifying UK National Insurance Contributions.
Every year less than this will reduce your weekly pension by GBP6.29 (220.20/35).
Your first step should be to find out your current State Pension entitlement.
You can do this by obtaining a pension statement here.
Alternatively, you can call +44 345 300 01 68 and request a statement be sent to you by post (be sure to have your National Insurance number handy).
Once you know where you stand, you can apply to make voluntary contributions using form NI38.
If you are employed or self-employed, you should be able to make Class 2 contributions.
Weekly Class 2 contributions for tax year 2024/2025 are £3.45.
Yes, that’s right, sacrifice one Starbucks latte per week and you can maximise your State Pension entitlement for years.
If you are not working, then you will have to pay Class 3 voluntary contributions.
These are more expensive, at £17.45 per week (tax year 2024/2025).
This is still a great deal though and should be considered for all those expat spouses out there who are stay-at-home parents or not working for other reasons.
When Can I Start Receiving State Pension?
State Pension age was 65 for men born before 6 December 1953 and between 60 and 65 for women born after 5 April 1950 and before 6 December 1953.
This is changing though. Going forward, State Pension age will increase to:
- 67 for men and women retiring in 2028
- 68 for men and women retiring in 2046
How Do I Pay Tax On My Pension if I Live Abroad?
You may be taxed on your State Pension by the UK and the country where you live. If you pay tax twice, you can usually claim tax relief to get all or some of it back.
If you live in a country that has a double tax treaty with the UK, you will only pay tax on your pension once. This may be to the UK or the country where you live, depending on that country’s tax agreement.
What Happens To My State Pension If I Contracted Out?
Your pension might be lower if you were previously contracted out.
Being contracted out means paying lower National Insurance Contributions and having the money paid into another form of pension instead, e.g. a final salary pension scheme at work or a workplace, personal or stakeholder pension (prior to 6th April 2012).
If you worked for a public sector organisation (e.g. NHS) this is likely to have been the case.
What Happens If I Defer Taking State Pension?
For each year you defer taking your State Pension, you’ll get just under a 5.8% increase in your pension when you do start taking it.
However, you cannot take the deferred amount as a lump sum and there is no inheritance by a surviving spouse or civil partner of the extra state pension built up from deferral of State Pension.
According to research in the Telegraph, retirees will need to live to at least 81 to recoup the tax benefits from deferring their state pension.
Deferring the state pension is essentially a gamble on your own life expectancy.
It would probably be better to take the state pension when it is due and invest it if you don’t need it.
Caveats
The State Pension in the UK is expensive for the government to maintain. As a result, it is not impossible that it could be altered in future.
This could be in the form of further increasing the age that it can be received.
Alternatively, the “triple lock” could be watered down or scrapped altogether.
Case study – Why voluntary National Insurance Contributions can be a great deal for expats
To illustrate the benefit of making voluntary National Insurance Contributions, let’s use a real case study.
I have a client here in Poland, who is a British expat. Let’s call him Stephen (not his real name).
Stephen used to work in the UK and built up 20 years of qualifying National Insurance Contributions.
He left the UK ten years ago and has no intention of going back to old Blighty.
Exactly what Stephen will get from his State Pension will depend on various factors: inflation, where he will retire and how long he will live. So let’s make some assumptions and develop our scenario…
We’ll assume inflation at 2.5%, that Stephen will live until aged 86 and that he retires in one of the countries where his state pension would currently continue to be increased in payment.
Based on his current contribution history, Stephen’s State Pension accrued is worth £6,543.08 in tax year 2024/2025 (20/35 X £11,450.40). He is 51 now, so has another 16 years until he reaches his state pension age.
Stephen has taken good advice and started to boost his UK state pension rights by paying Class 2 voluntary contributions.
He will pay £179.40 this year and a total of £2,691 over the next fifteen years.
But in return, he will receive an additional £98,146.40 of pension if he lives until age 87!!! Remember that latte that I mentioned earlier?
Let those numbers sink in for a moment… he gives £2,691 and he gets back £98,146.40.
Expat State Pension guide
FAQs
The new State Pension, which applies to those reaching State Pension age after 6th April 2016, offers £221.20 per week in the tax year 2024/2025, amounting to £11,502.40 per year. This is a simplified and reformed version of the previous State Pension system.
The “triple lock” guarantees an annual increase in the State Pension based on whichever is the highest: price inflation, average wage growth, or 2.5%. This ensures that your pension keeps pace with inflation and average earnings in the UK.
Frozen pensions apply to British expats living in certain countries like Australia, New Zealand, South Africa, and Canada. In these countries, the State Pension payments are not increased with inflation, meaning your pension stays at the amount it was when you first began receiving it.
You qualify for the State Pension if you have at least 10 years of qualifying UK National Insurance contributions. You can check your contribution record through the government website.
Yes, you can still claim your State Pension if you live abroad, provided you have the necessary qualifying National Insurance contributions. If you are already receiving it, payments can continue directly into your bank account. Be sure to inform the Pension Service before leaving the UK.
To get the maximum State Pension, you need 35 years of qualifying UK National Insurance Contributions. Every year less than this reduces your weekly pension by £6.29. You can increase your contributions by making voluntary contributions, either Class 2 (£3.45 per week) or Class 3 (£17.45 per week), depending on your employment status.
Yes, you can make voluntary contributions to fill any gaps in your National Insurance record, even if you’ve lived abroad. This can be done by paying Class 2 or Class 3 contributions.
The State Pension age is currently 65 for men born before 6th December 1953, and between 60 and 65 for women born after 5th April 1950 and before 6th December 1953. The pension age will increase to 67 in 2028 and 68 in 2046.
If you live abroad, you may be taxed by both the UK and the country where you reside. However, if there is a double tax treaty between the UK and that country, you will only pay tax in one location, either the UK or your country of residence, depending on the agreement.
If you defer taking your State Pension, you will receive a 5.8% increase in your weekly pension for each year of deferral. However, the deferred pension cannot be paid as a lump sum, and there is no inheritance for a surviving spouse or civil partner from the deferred amount.
The Bottom Line
Most British expats should be looking at making voluntary National Insurance payments if they don’t already have 35 years’ worth of qualifying contributions.
It could be one of the best investments you make.
