Retiring abroad and your state pension

An increasing amount of Brits decide to retire abroad. Better climate, improved life standards and smaller living costs can all attract pensioners away from the UK. What happens to your state pension if you reach retirement age abroad?

Can I receive state pension abroad?

The good news is that you will receive your state pension even if you retire abroad. It will be paid to your UK bank account or your bank account abroad and you don’t need to worry paying extra fees, even if you receive your state pension in the currency of the country you now live in.

If you are already living abroad before you reach pension age, the International Pension Centre (IPC) will contact you four months before you reach the retirement age. If you haven’t heard from the IPC three months before you are supposed to start receiving your state pension, you should contact them. You can also contact IPC if you are looking for the option of early retirement.

Currently, the basic state pension for 2014/15 is £113.10 a week and you need to have made a minimum of 30 years National Insurance contributions. You can choose to be paid every 4 or 13 weeks. If your weekly state pension is under £5, you’ll be paid once a year in December.

If you’ve worked abroad before retirement, you might be eligible to receive the state pension from both countries. You should talk to a pension adviser in your country of residence to find out more or contact the IPC.


Am I entitled to yearly rises?

Retiring abroad becomes problematic when it comes to yearly rises. The state pension rate increases every year to counter the effects of inflation.  For pensioners living abroad the problem is that your state pension might be frozen if you live in certain countries.

Currently, your pension rate will increase normally, if you live in:

  • The European Economic Area (EEA)
  • Switzerland
  • A country which has a social security agreement with the UK (such as the US)

You’ll also be entitled to the increase if you spend over six months a year in Britain.

The problem is that not all countries have a social security agreement with the UK and thus, your state pension might stay at the same rate as the years go by. This could mean you end up losing money as the cost of living rises.

The countries that don’t have the agreement with the UK are also not always obscure ones, as retiring in countries such as Canada and Australia will mean you lose your entitlement to yearly rises. Therefore, you want to check whether you are entitled to the increases before you make your final decision on moving abroad.


Is my state pension taxed in the UK?

In addition to the above, you should keep in mind that your state pension is taxable income. Therefore, you might be required to pay tax in the UK, even if you retire abroad. If you aren’t living abroad permanently, you’ll pay tax normally on your state pension. This means that you only pay tax if your income is above a certain limit.

If you live abroad permanently and you are living in a country that has a double taxation agreement with the UK, you won’t be taxed in the UK, but only in your new country of residence.