Pensions from abroad

Millions of UK citizens who have worked or lived abroad may be able to claim extra pension from their time in other countries.

There are two ways time spent abroad may help boost your pension. First, if you worked in another country and paid social security contributions they may count towards a state pension from that country which can be paid to you here in the UK. Foreign pensions are paid on top of any UK pension you may have earned. The state pensions paid in most countries are better than ours – and some are paid before age 65 – so you may find even a few years working abroad will boost your income in retirement.

Second, the years you have worked – or sometimes just lived – in a foreign country may count towards your UK pension, filling in the gaps in your own National Insurance record.

There are 43 countries in the world which may pay you a state pension in the UK based on time you have spent working – or sometimes just living – there. They are the 19 countries in the European Union and European Economic Area and another 24 countries which have a social security agreement with the UK – see Table. The number will grow on 1 May 2004 when ten more countries join the EU and a further two will join by 2007. That will make more than 50 countries where working or living may earn you a pension in the UK.

A pension earned anywhere in the European Union or European Economic Area can be paid to you in full in the UK. How much pension you get, and if you will get one at all, will depend on the social security rules in that country.

For example, if you worked in France for at least three months you may have an entitlement to a French pension from the age of 60. The full pension is up to half your average salary in your highest paid 25 years. But if you worked and paid contributions for fewer than 37½ years, the pension will be reduced accordingly

Germany’s state pension was founded in 1889 and is the oldest in the world. If you have worked there for at least five years you should get a pension at 65 related to your earnings in Germany.

Periods of work or residence outside the EU and EEA will normally only earn you a pension if that country has a social security agreement with the UK. Even then, periods of work before the agreement came into effect may not count.

You need ten years’ work in the United States of America to get an old age pension which is paid at 65, though that is rising to 67 over the next 25 years. The pension is earnings-related – the worst five years are ignored – and the maximum is about £900 a month for a full working life. It is means-tested up to age 69.

Pensions in Canada depend not on working, but simply on residence. Anyone who lived in Canada for at least 20 years since 1966 can get an earnings-related pension paid in the UK.

Australia ended the social security agreement with the UK on 28 February 2001. It was objecting to the UK’s policy of freezing pensions paid to UK citizens living in Australia. Now the agreement has ended, time spent in Australia will not normally enable a claim for an Australian pension while in the UK. However, anyone who reached 65 in Australia and claimed their Australian pension there and then moved to the UK should still get it paid here. And under a special concession time spent in Australia will still count towards earning a UK pension here as if National Insurance contributions had been paid.

If you have worked or lived in another country and believe you may have an entitlement to a state pension from it, you should enquire at the country’s Embassy or Consulate in London. The Department for Work and Pensions normally cannot help you with pensions paid by other countries.

If you have worked or lived in one of the 43 countries but not for long enough to get a pension, then it is possible that you can use the time you spent there towards your UK pension. In that way working – or sometimes just living – abroad will not leave you with a gap in your UK National Insurance record.

Normally a pension from a foreign country will be paid direct into a UK bank account, usually in the currency of the country it comes from. Your bank will charge you to convert it into Sterling. Though some foreign pensions are converted into Sterling before they are paid.

Pensions earned from a company or private pension scheme will normally be paid anywhere in the world in full depending on the conditions of the scheme you belonged to.

Pensions – both state and private – paid from other countries will normally be subject to income tax here. Under a special concession, only 90% of the pension is taxed.

The Court of Appeal has dashed the hopes of half a million UK pensioners living abroad. They live in countries where their UK pension is frozen, in other words it is not increased in line with inflation but is paid forever at the rate it was first paid abroad. They are discriminated against just because of where they live. In 40 other countries, including the European Union and the USA, their pensions would not be frozen – they are increased as they are when paid in the UK.

Annette Carson, an Englishwoman living in South Africa with a frozen pension, challenged this discrimination in the courts. Last year she lost at the first stage when the High Court threw her case out (Saga Magazine July 2002). This year she took her case to the Court of Appeal.

Annette reached 60 in September 2000 and she has already lost more than £1000 because her pension is frozen at the April 2000 rate. She challenged this decision on the grounds that if she lived in one of the 40 favoured countries her pension would be increased each year in line with inflation. She said this was contrary to the European Convention on Human Rights by depriving her of her property and discriminating against her.

But in a unanimous decision the three Court of Appeal judges found that the policy of freezing pensions in some countries but not others did not breach the Convention. Lord Justice Laws held that there was no loss of property because the uprating of pensions was a future entitlement and not a ‘possession’. He also held there was no illegal discrimination because it was reasonable to treat people differently if they lived in different countries with different rates of inflation and costs of living.

The court also ruled that the cost of changing the policy was a factor the court could take into account. The Department for Work and Pensions estimates it would cost £400 million a year to uprate pensions throughout the world and could cost £3 billion if the change was backdated. The Court said if it overturned the present policy it would in effect be deciding where public money was spent and that was a matter for politicians not the courts.

Annette Carson and her supporters cannot afford to appeal further. "It is the end of the road. All finished. Very sad" she told Saga Magazine "but at least it has raised the profile of the campaign for justice, which will continue."

So if you are planning to live abroad remember that your pension will be frozen at the rate you get when it is first paid in the foreign country unless you live in one of the 40 countries where it is uprated. Those countries are the ones in Table 1 except Australia, Canada, and New Zealand where pensions are frozen, as they are in the rest of the world

If you have worked or lived in any of these countries you may have an entitlement to a state pension from that country or be able to use time there to boost your UK pension.

*Gibraltar is a UK Overseas Territory that counts as part of the EU for social security.

**Agreement ended on 28 February 2001.

August 2003

e-mail Paul Lewis on paul@paullewis.co.uk