|Emigrating: What You Should Know About Your Pension|
During their service in the Armed Forces, personnel tend to see more of the world than their civilian counterparts. It should be no surprise, therefore, that many ex-Servicemen and women settle abroad when they retire. This article highlights some of the pension-related issues that need to be understood.…
Last year’s change to pension transfer rules means that pension pots can no longer be transferred to overseas pension schemes. This worried some of those with plans to retire abroad as they thought it would affect drawing the pension when living abroad. We are pleased to report that the worry was unfounded. Armed Forces pensions are treated the same no matter where you live.
This means that they are paid regularly and on time, they attract Consumer Prices Index (CPI) increases and they are subject to National Insurance (NI) modification or Guaranteed Minimum Pension (GMP) adjustments at State Pension Age where appropriate. Forces Pension Society members can learn about NI modification and GMP adjustments from FPS Leaflet/01 which is available in the member’s area of the Forces Pension Society website.
Armed Forces pensions are normally taxable. The only time they are tax free is in the event of invaliding, providing the condition or injury for which the pension is paid was caused or made worse by service in the Armed Forces AND a Guaranteed Income Payment (GIP) is awarded for that condition or, if the condition or injury was incurred before 6 April 2005 and the War Pension Scheme (WPS) assess the disability as 20% or greater.
Where the pension is taxable, the default is that it is taxed in the United Kingdom (UK). In these circumstances, we recommend that individuals arm themselves with a copy of any Double Taxation Agreement which exists between the UK and the country in which they are going to live. These agreements are easily found – simply search the internet for “double taxation agreement” plus the country concerned and you should find a link to the part of the Parliament website which holds many such agreements. The purpose of the agreement is to protect you from having your money taxed in the UK and then taxed again in the country where you are going to live.
There are some countries and Dependencies to which you can emigrate and choose to have your pension taxed locally rather than in the UK – for example Southern Cyprus and the Channel Islands. There are others as well and information on this can be found on the HMRC website. In cases where you have a choice of country that taxes your Armed Forces pension, the Society recommends that you speak with a financial advisor to ensure that you make an informed decision. If you choose to be taxed in a country other than the UK and then change your mind, you can revert to UK taxation for the following year.
There are two countries where the default does not apply and no option exists about where to be taxed – Australia and Canada. If you are going to live in either of these counties you will need to claim exemption from UK taxation in order to avoid double taxation. This is the current situation, but wherever you plan to go check first – because the rules can change.
General information on taxation of pension can be found at: https://www.gov.uk/tax-on-pension
General information on taxation if you live abroad can be found at: https://www.gov.uk/tax-uk-income-live-abroad
Information on taxation in Canada is at: http://www.hmrc.gov.uk/cnr/canada-individual.pdf and on taxation in Australia is at: https://www.gov.uk/government/publications/australia-individual
It is probably a long way off for most readers but it is necessary to say a few words about UK State Pension provision. You have been paying NI contributions throughout your working life and they count towards, amongst other things, your State, or Old Age, Pension. At the moment you need 30 years contributions to qualify for a full State Pension but that will change in April 2016 to 35 years. To explain these changes fully would require an article in its own right but further information is available at: http://tinyurl.com/ofwcgka
As you will be living abroad, you will not have to pay NI contributions and so if you are short of the 35 years’ contributions criteria for a maximum State Pension, you cannot continue building towards that 35 year point through employment abroad, but there are options open to you when circumstances dictate that paying such contributions could be to your financial advantage to secure a full basic State Pension.
Once you start claiming your State Pension it will be paid to you gross (i.e. before tax). Whether your Armed Forces pension is taxed in the UK or not, you will have to declare the State Pension on your tax return. We recommend that, for the first year at least, you use a local tax accountant to help you submit your tax return. Getting the first year absolutely right and learning about the country’s tax regime from an expert will put you in good stead going forward.
The amount you will receive will depend up your NI contribution record and whether you have paid a voluntary contribution whilst living abroad.
Once in payment, the State Pension will not necessarily rise annually in value as it would in the UK. It depends where you live. For example, if you live in Canada it does not rise but if you live just over the border in the United States of America it does. You will need to visit the government website to find out what the position is for the country where you are going to live. Were you to live in a country where the pension did not increase annually and then return to live in the UK, the pension would be increased to the level it would have been at had you never emigrated. More about NI and living abroad is available at https://www.gov.uk/national-insurance-if-you-go-abroad
Finally, given the recent experience of expats living in Cyprus and the current experience of expats living in Greece, it is necessary to say a few words about bank accounts. The options available to those caught up in financial crises such as these were:
In the light of experience, the first option is very limiting given the strict limits we have seen imposed on withdrawals and, for those with savings, very worrying given the ‘haircut’ that those with significant savings in Cyprus suffered. The second option is fine if you have sufficient funds to keep you going. The third option gives safety and flexibility. If you are going to live abroad, there is a lot to be said for keeping a UK bank account ticking over lest you should need it.
The Veterans UK telephone numbers to keep handy should you need to make a change to the way that your pension is paid are:
If you find the above all rather daunting and you are a member of the Forces Pension Society, you can call our dedicated help line on 020 7820 9988 or find answers on the Society’s web site. If you are not yet a member, the cost is modest and benefits (in addition to advice from an expert) include discounts on a range of useful products and services (including transferring money abroad) and the assurance that a dedicated organisation, independent of the Government, is there to help you get the most from your Armed Forces pension.
For more information, go to www.ForcesPensionSociety.org
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