Richard Colburn
Despite considerable growth in the British private pensions industry, according the the UK Chartered Insurance Institute around 60% of all pension payments made in Britain are still provided by the State. With so many people depending on the Government for their income in retirement, we look at how UK State Pension provision can affect expats.
The main component is the basic State Pension. Entitlement to this is broadly based on the length of your working life in the UK. The other component is based on earnings although the earnings cap is such that no additional benefit currently accrues to anyone earning more than around GBP 35,000 a year.
The frozen pension
The earnings related part of the UK State Pension can only be funded from UK earned income. The maximum earnings related State Pension income is around GBP 6,000 a year, is taxable and available only from the age of 65 for a man.
Women were entitled to state pension income from the age of 60 but their entitlement age is being increased from April 2010 so that by April 2020 it will be 65 rising to 66 for both men and women by April 2024.
Offshore planning
The UK basic State Pension does have an impact on the financial planning of British expats because unlike the earnings related State Pension, it is possible to make payments towards the basic State Pension without actually living or working in the UK. The cost of these ‘Voluntary Class 3 contributions’ is currently around GBP 400 a year. With the full 45 year required work record (either worked in the UK or paid in kind) this would currently provide a taxable income of around GBP 4,500 a year.
There are several factors to consider in deciding whether to keep your State Pension entitlement fully paid up
- There is no annual increase in basic State Pension for British expats unless you live in the EU or America
- Age is a factor in determining whether to fund from overseas
- Like the State earnings related Pension, the basic State Pension cannot be paid before State Pension age which is already scheduled to be raised to 68 for both men and women within the lifetime of the current younger British expats
- UK State Pensions are taxable
Nobody should (need to) rely on their UK State Pensions to provide security in retirement, particularly expats, but deciding whether or not to commence/continue/discontinue voluntary contributions is one (proabably small for many expats) aspect of your overall financial planning that deserves attention.
Offshore pensions plans put you firmly in control of your long term savings. You can pay in when and how much you choose and take an income at any age and free of tax.
A UK qualified financial planner will be able to review these and the other options available to you as an expat and help tailor a plan that is right for you.
It’s your money and your peace of mind.
Richard Colburn is a UK exam qualified financial adviser with Sterling Assets.
Questions to the author can be directed to 053 216 528 or email us
