June 18, 2024
Planning for Retirement as an Expat in The UK

Planning for Retirement as an Expat in The UK

Having a comfortable life post retirement is important. For those of us nearing the end of our productive careers it is a high priority. The UK is a great option for making such a life. However, it warrants a close inspection of the economic aspects. Here is a perspective.

Retiring in the UK

Millions of migrants live and work in the UK. Most send international money transfers to support their families back home with remittances. Expats who have worked in the UK for 5 years or longer can apply for permanent residency. Those who have been permanent residents for a year or more can apply for naturalization. Post-retirement income and benefits demand careful planning. Expats from the EU who have paid national insurance and social security contributions are eligible for UK state pensions. For expats from countries outside the EU such as New Zealand and Canada, this is different. The UK does not have social security agreements with non-EU countries.

Early retirement is possible for expats in the UK. However early retirees cannot claim state pension before retirement age. UK residents including expats may withdraw their occupational or private pensions at age 55. This also depends on personal circumstances like health, and pension scheme restrictions.

UK State Pension

This is based on the national insurance contributions. The state pension is available to expats who are permanent residents in the UK and have paid the national insurance contributions for at least 10 years. You need 30 years of national insurance contributions to get the full basic state pension. Those who have contributed for more than 10 but less than 30 years can get pro-rated payments. The full basic state pension is currently GBP 134.25 per week. It applies to men who were born before April 6, 1951, and women who were born before April 6, 1953. Retirees born after these dates will get the new state pension. Unlike the full basic state pension, the new full state pension requires 35 qualifying years. The receivable amount under the new full state pension is GBP 175.2 per week. The state pension age is 66.

Occupational Pension

This is provided by employers. The occupational pension is paid in addition to the state pension. Contributions to occupational pension are added to the national insurance contribution. The policy was introduced in 2012. It mandates employers to contribute 3% of their employees’ incomes to a pension scheme.

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Occupational pension exists in 2 forms. The defined contribution occupational pension depends on the amount of contributions. The defined benefit occupational pension pays a percentage of your earnings. That means, with a bigger salary and longer length of service the defined benefit occupational pension pays more. The UK state pension is independent of the occupational pension. The minimum retirement age for occupational pension is 55 years. In case of ill health it may be paid sooner.

Private Pension

This is an optional scheme which expats can choose to buy from any of several pension service providers. British banks, Lloyds, Barclays, and HSBC are some options. A private pension is a useful additional source of regular post-retirement income. You can also withdraw it as a lump sum. 25% of private pension in the UK is tax-free.

Contributions to UK private pensions can be monthly or as a lump sum. 2 options are available – the insured personal pension plan and the self-invested personal pension plan (SIPP).

Living in the UK as a Retiree

Pension is taxable in the UK if it exceeds the threshold of the annual personal allowance (GBP 11,000). Expat retirees in the UK get free healthcare, which includes emergency care. Expat retirees can buy a house or live on rent. The average monthly rent for a one-bedroom home is GBP 600. The average house costs GBP 228,000. Retired expats can opt to stay in retirement or care homes. The average cost is GBP 33,000 annually. Retirement homes with nursing care cost a bit more at GBP 45,000 annually.

About the Author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.