While you are planning your trip to the sun, don’t forget to pack your pension. It is quite easy to make sure that you get any pension entitlement from the UK forwarded to your overseas destination. But do remember to have full eligibility, says Iain Yule
UK state pension can be paid to you wherever you go in pursuit of a better life, even to a foreign bank account. But you should first of all find out if you have a full entitlement to it and whether it will rise in line with inflation.
Currently if you have missed even a relatively small number of years’ national insurance (NI) contributions you may face a reduced rate of state pension. You will need a NI contribution record of 30 years (35 years from April 2016) to get the full pensions amount.
If you have ‘missing years’ when you have not been paying contributions it is possible to buy your way back into the NI scheme.
It is quite easy to get a personal state pension forecast if you contact the government’s pension service at www.dwp.gov.uk or call 0845 300 0168. Have your national insurance number to hand.
The service will tell you what your current eligibility for UK state pension is and how much you can pay to replace any missing NI contributions in order to boost your pension entitlement, if necessary.
If you are UK non-resident following your move abroad it may be sensible to place at least some of your pension pot in an offshore bank account, potentially saving on UK income tax.
See ‘British Expats – Do You Need An Offshore Bank Account?’ on the homepage of World of Expats.
Even if you are fully eligible for the state pension, it may not be protected against inflation in future years. A bizarre anomaly means that in some popular retirement destinations the rate of UK state pension you receive will remain frozen at the rate first paid to you.
The UK does not index-link state pension payments made to British retirees to many Commonwealth countries, including Australia, New Zealand, Canada and South Africa.
This means that pensions are not raised each year in line with inflation, gradually eroding their value over time. Elsewhere state pensions rise each year just as they do in Britain.
Avoid Exchange Rate Shocks
Remember that wherever you retire to abroad, pounds sterling is not the local currency. If the pound weakens against your host country’s currency then you will have less to spend locally.
As you approach retirement abroad it may be best to start to convert at least some of your income-producing assets into the currency of your new country. That way you will lessen any great exchange rate shocks.
Iain Yule is the Editorial Director of www.worldofexpats.com.