By Emma Furlonger, Managing Director for Workplace Pensions at Standard Life
For example, people living in countries such as Australia, Canada and New Zealand do not currently receive annual increases and instead have their State Pension frozen at the rate they first receive.
The cost of a State Pension freeze
The impact of frozen payments can build significantly over time. For example, someone receiving the full new State Pension of £179.60 a week in 2021/22 who moved to a country where their pension was frozen at that level would still receive just £9,339.20 a year today. By comparison, someone entitled to annual increases would now receive £241.30 a week, or £12,547.60 a year – a difference of more than £3,200 annually. Compared to people entitled to the full new State Pension and receiving all annual upratings awarded between 2022/23 and 2026/27, that is more than £9,500 in missed out on State Pension income during that time period.
Emma Furlonger, Managing Director for Workplace Pensions at Standard Life, said: "Returning home after a good summer holiday can make the idea of living abroad particularly appealing, and for some people that dream will eventually become reality. However, one thing many people don't realise is that where you choose to live can have a direct impact on your retirement income. While your UK State Pension can still be paid overseas, people living in certain countries won't receive future annual increases. Over a long retirement, missing out on those increases could make a significant difference to your income.
"Private pensions also bring their own considerations, from whether you can continue contributing to how you access your savings and the tax you may pay. Understanding the rules before you move can help avoid unexpected surprises later."
Emma Furlonger shares six key pension considerations for those thinking about moving abroad:
1. What will happen to my UK pension plan if I move abroad?
"Your UK workplace and private pension plans won't automatically move overseas with you. Unless you arrange a transfer, they will normally remain with your existing UK providers. You can still access your pension savings while living abroad once you meet the relevant age and your scheme's conditions. The normal minimum pension age is currently 55 and will rise to 57 from April 2028, although some people may be able to access their pension earlier depending on their circumstances and scheme. How you receive your money can depend on your provider. Some may pay directly into an overseas bank account, while others may require a UK bank account. Charges and exchange-rate movements could also affect how much you receive, so it's worth checking when considering a move."
2. What will happen to my State Pension?
"You can still claim your UK State Pension abroad as long as you've paid enough National Insurance contributions to qualify and notify the Department for Work and Pensions of your move. However, where you choose to live can make a significant difference. In some countries your State Pension will be frozen, meaning it stays at the rate you first receive there and won't benefit from future annual increases, including those awarded under the triple lock. This applies in popular destinations such as Australia, Canada and New Zealand. By contrast, people living in the EU and countries such as the United States currently continue to receive annual increases. It's therefore important to check the rules for your chosen destination before making the move. Over a long retirement, missing annual increases could make a meaningful difference to your income."
3. Can I transfer my UK pension to the country I move to?
"You may be able to transfer UK pension savings overseas, but the receiving scheme must normally be a Qualifying Recognised Overseas Pension Scheme, known as a QROPS. If the receiving scheme doesn't qualify, your provider may refuse the transfer or you could face a tax charge of at least 40%. Even where the receiving scheme is a QROPS, a separate 25% overseas transfer charge can apply in some circumstances depending on where you live and where the scheme is based. Moving a pension overseas is a major decision and won't be right for everyone. Some transfers can also require regulated financial advice before they proceed."
4. Can I continue paying into a UK pension while living abroad?
"This depends on your provider and your pension scheme's rules. Some providers may allow overseas contributions, but UK pension tax relief isn't automatic and may be restricted. Whether you can continue receiving tax relief depends on your individual circumstances, including your earnings and how recently you lived in the UK. Check the position with your provider and consider taking financial advice if your tax position will involve more than one country."
5. How will my UK pension be taxed if I move abroad?
"You may be taxed on pension income both by the UK and by the country where you live, which is why it's important to notify HM Revenue & Customs when you move overseas. The UK has double-taxation agreements with many countries, meaning it may be possible to claim relief and avoid paying tax twice on the same pension income. While up to 25% of a pension can usually be taken tax-free in the UK, different countries may apply different tax treatments, so it's important to understand the local rules before taking money from your pension."
6. Will UK inheritance tax apply to a pension transferred overseas?
"From April 2027, most unused pension funds and pension death benefits will be brought into the value of an estate for UK Inheritance Tax purposes, although some benefits are excluded. Transferring a pension overseas won't necessarily remove it from UK Inheritance Tax considerations. Whether tax applies will depend on factors including your residence status and where the pension scheme is established. If inheritance planning forms part of your decision to transfer a pension overseas, it's important to understand both the UK and local rules and consider taking specialist advice."
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