What retiring abroad means for your pension – as triple lock depends where you move
Regular readers will have seen our series on retiring abroad – launched after financial planners told us they were seeing a “rapidly growing” number of Britons hoping to retire to Europe.
Lots of you have got in touch to ask what retiring abroad means for your pensions.
We asked Which? Money editor Sam Richardson for his advice.
How does retiring abroad affect the triple lock?
The triple lock guarantees that state pension payments are boosted each year by the highest of inflation, wage growth or 2.5% – because of this, it rose by 4.8% this year.
But receiving this increase depends on where you live, Richardson says.
The UK state pension is only uprated if you live in the UK, the European Economic Area, Gibraltar, Switzerland or certain countries with a social security agreement with the UK, including the United States.
If you live elsewhere, your pension may be frozen at the rate when you first start claiming or when you leave the UK. Popular retirement destinations such as Canada, Australia and New Zealand fall into this category.
In the long term, you could miss out on tens of thousands of pounds.
‘It’s worth doing your research’
“There are many popular retirement destinations where your pension will effectively be frozen at the amount you’re receiving when you leave,” Richardson says.
“Even if you’re moving somewhere where your pension will continue to rise, it’s not guaranteed that this will keep up with the cost of living in your destination of choice.”
Recently introduced rules have also made it harder and more expensive to build a UK state pension from abroad, says Richardson.
This is an important note for anyone thinking about retiring early while continuing making national insurance contributions. You need a least 10 years of NI contributions to receive anything, and 35 years to qualify for the full state pension.
Richardson explains overseas residents are only able to make expensive Class 3 NI contributions as of April this year, meaning it will cost more to top up your record.
“Plus, a new 10-year rule means that in most cases, you’ll need to have previously made 10 years’ worth of UK-based NI payments, or lived in the UK for 10 consecutive years in order to continue paying in,” he adds.
What about private pensions?
If you move abroad, your UK workplace or private pension remains yours and stays invested, but your tax position and banking arrangements may change, Richardson warns.
When you begin withdrawing your money – currently from age 55, rising to 57 in 2028 – you may be taxed by both the UK and your new country unless a double-taxation agreement is in place to provide relief. You can check the government website to see if your new country has a tax agreement and learn how to claim relief.
Additionally, some UK banks may require you to close or change your account if you move overseas permanently, meaning you may need to switch to an international account, which often carries higher fees and minimum balance requirements.
If you move your UK pension to an overseas provider, it will need to be moved to a so-called Qualifying Recognised Overseas Pension Scheme. These are international schemes that HMRC has approved because they follow rules similar to the UK’s and report to it directly.
Typically, UK providers will not allow you to transfer your money to any overseas plan that is not an official QROPS. But even with an approved scheme, you may still face a 25% tax charge, alongside potentially high setup fees and management costs.
“If you’re planning for retirement abroad, it’s well worth seeking financial advice to discuss these issues, so you’re not caught out by any tricky rules or loopholes,” says Richardson.
