In this month’s issue of Pathfinder International, Mary Petley from the Forces Pension Society looks at what happens to your forces pension if you live abroad following your military service…
During your service in the Armed Forces you have been building up a pension entitlement in one or more Armed Forces Pension Schemes (AFPS). You will also have been paying National Insurance Contributions (NICs) which count towards your State Pension. Some of you will decide to live abroad once you leave the Armed Forces so, in this article, Mary Petley of the Forces Pension Society explores the pension-related issues you need to understand.
Armed Forces pensions are claimed in the same way no matter where you live. You claim by submitting an AFPS Form 8 about three months before your pension is due to begin and, even though you may be far too young to claim at the moment, remember you can keep an eye on your pension by requesting your annual free pension forecast by submitting an AFPS Form 14. Once your pension is in payment, you will receive a Life Certificate every two years. It is important that you deal with this piece of personal admin straight away because, if the form is not returned in accordance with the instructions it contains, it will be assumed that you have died and your pension will stop!
We are sometimes asked whether preserved/deferred benefits (so pensions not yet in payment) can be transferred to overseas pension schemes. The answer is ‘no’ – since 6 April 2015 it has only been possible to transfer a public sector pension to another UK Defined Benefit scheme.
Armed Forces pensions are taxable except where the Principal Invaliding Condition causing the medical discharge is classified as attributable to service. Where the pension is taxable, the default is that it is taxed in the United Kingdom (UK), even if you are paying other tax abroad. We recommend that, if your pension is being taxed in UK, you arm yourself with a copy of any Double Taxation Agreement which exists between the UK and the country in which you are going to live. These agreements can be found at https://www.gov.uk/government/collections/tax-treaties on the government website. 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. Once you have the agreement, make sure your accountant in your chosen country is aware of it and experienced at dealing with expats, or you could still end up being taxed twice. It is also worth asking around the expat community to ensure you have chosen a tax adviser/accountant with a proven track record.
There are some places to which you can emigrate and choose to have your pension taxed under that country’s tax regime rather than have it taxed in UK. Information on this can be found on the HMRC website. If you are thinking of opting to have your pension taxed abroad, we suggest 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 countries where the default does not apply and no option exists about where to be taxed. You will need to check the position with regard to your chosen country of residence with HMRC to be certain about the prevailing tax regime. If you are going to live in a country where your pension will be taxed in this way, you will need to claim exemption from UK taxation in order to avoid double taxation. But, wherever you are going to live, go armed with the latest information – and remember that tax rules do not remain static and new taxation agreements continue to be negotiated with other countries. General information on taxation if you live abroad can be found at: https://www.gov.uk/tax-uk-income-live-abroad .
An AFPS pension can be paid into an account in many, but not all, overseas banks. When claiming, you will be asked to submit an Overseas Pensions Payment Mandate. The AFPS Form 8 contains a link to mandates for many countries but, if the country you are going to live in is not there, contact Equiniti Paymaster. In some cases they will provide what you need or tell you the pension cannot be paid to a bank in that country – for example, one client learnt that his pension couldn’t be paid to a bank in El Salvador so had make other arrangements.
Remember, you must be named as an account holder. You couldn’t, for example, have the money paid into your partner’s account – but a joint account would be fine. The exchange rate which will be used is the Bank of England Business Exchange Rate on the date of the transfer and the basic charge for making the transfer is currently £2.75 per transaction, although it is more for banks in some countries. To check that the bank in your chosen country is one of those to which your pension can be paid and the monthly cost of the transfer, visit https://www.gov.uk/government/publications/overseas-pensions-payment-mandates , email email@example.com or ring 0345 121 2514 from UK or +44 1903 768625 from overseas. These are also the numbers to ring should you need to make a change to the way that your pension is paid.
Most of you are a long way from State Pension Age – this is currently age 67 for those born on or after 6 April 1961 but before 6 April 1970 and 68 for those born on or after 6 April 1970 but you have been paying NICs throughout your working life and they count towards, amongst other things, your State, or Old Age, Pension. You need 35 years contributions to qualify for the full State Pension. As you will be living abroad, you will not have to pay NICs so you will need to decide what to do about your UK State Pension. The options are:
- Pay voluntary NICs to add to the contributions you have already built up;
- Save the equivalent cost of paying voluntary NICs until you are sure you will remain abroad and then start paying voluntary contributions. You can buy back up to six years’ worth of contributions to fill any gap which has occurred;
- Pay nothing further towards your State Pension and, when it is due, receive only the proportion you have paid for.
It will be paid to you gross (so, 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 suggest 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.
Once in payment, the State Pension will not necessarily rise annually as it would in the UK, this will depend on what agreements are in place with your country of choice. 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. More about NI and living abroad is available at https://www.gov.uk/national-insurance-if-you-go-abroad .
If you are a member of the Forces Pension Society and have questions on the above or any other pension-related issue, contact firstname.lastname@example.org. If you are not a member but would like to learn more about us, visit www.ForcesPensionSociety.org.
Read the entire May 2021 issue of Pathfinder International magazine for free HERE!