There are many advantages to moving abroad, from warmer climates to more easy-going lifestyles. However, there are also many financial factors to consider when emigrating to another country, such as transferring your pension overseas.
At Halo Financial, we aim to make your move abroad as stress-free as possible by assisting you with all your foreign exchange needs. Knowing what to do with your pension as you emigrate overseas can seem daunting, but we’re here to simplify the process.
How do I transfer my pension overseas?
The process for transferring your pension overseas will vary depending on your emigration destination. Australia, New Zealand, Canada and the United States all have different rules and regulations for transferring pensions and, as everyone’s individual circumstances are different, there is no one-size-fits-all answer to what action you should take.
An essential aspect to note regarding pensions is that it should be possible to transfer them to your new homeland if you wish to do so. However, you may find that in some instances, the available transfer value of your pension will be less than the actual fund.
Before deciding what to do with your pension, you should seek advice from a financial advisor who is fully regulated in the UK and the country in which you intend to emigrate.
Should you be looking to transfer a state pension to either Australia, New Zealand or Canada, your pension will be frozen either at the value you first draw it. If you are already drawing your pension, it will remain at the value you are receiving at your date of emigration. Those looking to move to America won’t be subjected to frozen pensions.
Transferring regular salary or pension payments overseas
If you are emigrating or moving abroad long-term, ensure that your salary or pension can be paid directly to you in your new country. You may wish to consider, if appropriate, moving a pension into a Qualifying Recognised Overseas Pension Scheme (QROPS), which may offer improved control over your pension and can be a source of tax savings.
Always consult an independent financial advisor (IFA) for any financial decisions of this nature and find out what best suits your individual needs. Halo Financial would be happy to recommend a trusted financial advisor.
A guide to international pensions
In addition to transferring your UK pension to your new country of residence, it’s also possible that you could be eligible to qualify for a federal or state pension in your new home country.
Each of the ‘big four’ long-haul emigration destinations and all EU countries operates pension schemes of one sort or another. The qualifying criteria for these schemes are slightly different for each country.
The information provided here should be used as a guide only, and it is essential to seek independent financial advice from an expert before deciding on any course of action.
Pensions in Australia
Australia offers two chief sources of retirement income – Superannuation and Age Pension.
Superannuation is funded by Australian employers, who must pay 9.5 percent of an employee’s ordinary time earnings into a ‘retirement fund’. The type of fund differs for each employer but must be registered and approved by the Australian government.
Superannuation funds are not final-salary schemes, so your income when you retire depends on your funds’ performance. You can add your money to the fund, in addition to the 9 percent from your employer. The Age Pension is funded by taxpayers and paid to you by the government.
Pensions in New Zealand
New Zealand also offers two primary retirement schemes. The government pays the country’s Superannuation scheme to all eligible people in New Zealand. To be eligible, you must have lived in New Zealand for at least ten years since you turned 20, with five of these years being since you turned 50. You do not need to have been classed as a ‘permanent resident’ for this duration.
Superannuation in New Zealand is part of your taxable income, with the amount you eventually receive governed by your earnings. It is important to note that British citizens can use National Insurance payments to make themselves eligible for New Zealand Superannuation. At the same time, you should also be aware that this will also affect your New Zealand superannuation if you’re drawing a pension from the British government.
The other major New Zealand retirement scheme is KiwiSaver – a government-backed, voluntary savings plan. All New Zealand residents are entitled to join KiwiSaver. You can choose to contribute 3%, 4% or 8% of your gross wage to KiwiSaver and must stay in the scheme for at least a year. What’s more, you are entitled to a compulsory employer contribution to your KiwiSaver account at a minimum of 2% of your gross salary.
When you reach 65 years of age, you are entitled to withdraw any funds in your account as a lump sum – although as New Zealand has no retirement age, you can continue working and withdraw your funds later.
Pensions in Canada
Canada’s major retirement scheme is the Canadian Pension Plan (CPP). As with Australia’s Age Pension and KiwiSaver, you will not be enrolled automatically into CPP, so you will need to apply yourself to join.
You can qualify for a CPP retirement pension if you have worked in Canada and made at least one valid contribution to the scheme. You must be 60 years of age to start receiving your pension. However, the CPP will reduce your pension amount by a set percentage for each month that you take before age 65.
In addition to the CPP scheme, most Canadian pensioners – at least those who have lived in the country for at least ten years since they turned 18 – should also be entitled to receive the Old Age Security (OAS) Pension. You must be 65 or older to accept payments through this scheme. You do not necessarily need to have ever been employed in Canada to receive payments through this scheme. However, this will impact the amount of money to which you are entitled. Once you reach 65, you will need to apply to start receiving your OAS pension.
Pensions in the United States
The United States offers many different retirement plans for its residents – far too many to mention in this article – but perhaps the country’s closest to what we in the UK would recognise as a ‘pension’ is the ‘Defined Benefit Plan’.
Through Defined Benefit Plans, employers pay their employees a specific benefit for life when they reach retirement age. The age at which you retire can be specified in the plan, and therefore the fund cannot be touched until you reach this age, although commonly, the age of retirement is 65. The benefit is calculated in advance using a formula based on age, earnings, and years of service.
Pensions in Spain
The Spanish pension system is based upon earning-related schemes which cover both employed and self-employed people. In Spain, you can claim a pension at the age of 65, although only people who have contributed towards the scheme for 35 years will be eligible for a full pension. If you don’t qualify for a full pension, then what you will receive will be proportional to the number of years you have contributed towards the scheme.
The amount you will receive is calculated based on the money an individual has earned 15 years before retirement. A Spanish state pension is payable to expats who have lived in the country for 15 years and paid income tax and social security contributions at this time.
Pensions in France
Finally, the primary French pension system – Caisse Nationale d’Assurance Vieillesse – is similar to Spain’s in that your earnings determine it through employment. You will be eligible to start contributing towards a basic state pension when you first register with social security.
Only people who have contributed to the scheme for at least 160 terms (quarter-years) will be eligible for a full pension. At present, a full pension is worth 50 per cent of your average earnings in your 25 highest-paid years. As with Spain, those who don’t qualify for a full pension will receive an amount proportional to the terms they have contributed.
It is worth noting that each country in the EU adds together the insurance contributions from all EU countries. Then each country sees how much state pension (if any) a person would get if the insurance contributions had all been paid into that country’s social security scheme. Each government pays a proportion of a person’s pension, dependent on what has been paid so far.
Once again, it is essential to be aware that you should take advice from a financial expert before joining any pension schemes, no matter what country you are planning to emigrate to. It is also worth noting that some companies or professions may offer their own private pension schemes, just like they do in the UK.
Transferring your pension overseas and exchange rates
The most crucial factor to consider when transferring pension payments overseas is the impact of fluctuating exchange rates. The value of your pension could be significantly impacted by market volatility, so you must make currency transfers at the optimum time.
With Halo Financial, you can protect against fluctuating exchange rates by using specialist currency tools, such as a Forward trade or a Regular currency trades service. The currency movements are significant in the current political climate and could mean a difference of hundreds or thousands of pounds when dealing with large pension pots.
You can find out more about our foreign exchange solutions by speaking to one of our expert currency consultants today, who will talk you through all the tools and resources available to help you maximise your pension funds.