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Guide to Pensions Abroad

Introduction

According to a recent survey, up to 50% of us would like to retire abroad. While the lure of sea, sand and sangria is a powerful one, what happens to your pension?

Occupational pension schemes

Almost all pension schemes will want to pay your pension into a UK bank account. It is then up to you to transfer the money into your local (non-UK) bank – subject to whatever transfer fees may be charged for doing so.

Personal pensions

Similar rules apply in respect of personal pensions.

State pension

In essence, you can continue to receive a UK pension, either sent to you by means of a cheque, paid into a chosen non-UK bank account or paid to a designated agent on your behalf.

There are different rules depending on the country you move to, with European Union (EU) and European Economic Area (EEA) countries ones being the most favourable. There are also “reciprocal arrangements” with some non-EEA countries.

If you are going to an EU or EEA country you will continue to receive a UK pension, up-rated in line with inflation. This applies to:

• Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Republic of Ireland, Spain, Sweden, UK (including Gibraltar, but not the Channel Islands or Isle of Man) - together with Iceland, Norway and Liechtenstein. Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, who joined the EU as new members in May 2004

The UK has reciprocal social security agreements with other countries that may help you to be paid benefits abroad. Non-EEA countries covered by reciprocal agreements are:

• Australia, Barbados, Bermuda, Canada, Isle of Man, Israel, Jamaica, Jersey & Guernsey, Malta, Mauritius, New Zealand, Philippines, Switzerland, Turkey, USA, former republics of Yugoslavia

However, this does not apply to index-linking: in Australia, Canada, New Zealand and South Africa, your pension will continue to be paid at the level it was at the time of retirement.

On the other hand, if you live in: Barbados, Bermuda, Bosnia-Herzegovina, Croatia, Guernsey, Israel, Jamaica, Jersey, Macedonia, Malta, Mauritius, the Philippines, Sark, Switzerland, Turkey, other former republics of Yugoslavia and the US, index-linking will apply.

For more information from the UK Pensions Service on retiring abroad, click here.

Depending on which country you settle in after retirement, you may come under more favourable EU social security rules, which can – in some cases – pay more generous pensions based on the National Insurance contributions you have made in the UK.

Here, it is important to check in each country what you might be entitled to receive and make a decision accordingly. Note that there is now a degree of co-ordination between all EU countries, which makes it extremely unlikely – in case you were thinking about it – that you would get away with receiving two pensions.

Tax position for non-residents of the UK

You are liable to UK tax on your UK pension, and your pension may also be subject to tax in the country in which you live.

The same applies if your former employer has purchased an annuity for you from an insurance company, rather than paying you a pension out of a pension scheme.

You will not, however, be liable to UK tax on your UK pension if you live in a country that has a “double taxation agreement” with the UK.

Where that is the case, and you make a claim for relief, the taxman will authorise payment of your pension without deduction of tax.

Contact HM Revenue & Customs, which maintains a specific office tasked with helping people in relation to their state benefits and also tax.

Details, as well as more information on the subject, are available here.

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