Can I Contribute to a UK Pension When Living Abroad?

Over 453,000 retired Britons living abroad face a "Big Chill" with their state pensions "frozen," receiving just £3,000 annually on average—almost £4,900 less than UK-based retirees.

Can I Contribute to a UK Pension When Living Abroad?

Retirement planning is pivotal to ensure your financial security during your post-retirement years. If you are no longer in the United Kingdom but were part of a pension scheme while residing there, you might be wondering whether you can continue making contributions. The answer is yes, it is possible to contribute to a UK pension while living abroad, but several factors come into play.

Contributions to Pension Schemes From Abroad

If the scheme rules allow, anyone can be a contributor to the UK-approved pension scheme, no matter their residency status. That said, tax relief is only available for “relevant UK individuals”.

A relevant UK individual is anyone who:

• has UK earnings chargeable to UK income tax for the tax year
• is a UK resident
• was a resident of the UK in one of the past five tax years and was part of a UK pension scheme during their residency
• is a Crown Servant or a civil partner/spouse of a Crown Servant with relevant UK earnings.

Example Scenario: Tom, a British citizen living in Dubai, earns income from UK clients. As a UK resident with UK earnings, he can contribute to his pension scheme and claim tax relief on contributions up to his earnings or £3,600, whichever is higher.

State Pension Note: Even without ten qualifying years in your National Insurance record, you can still qualify for a State Pension if contributions were made in the EEA, Switzerland, or other countries with UK social security agreements, including Canada and New Zealand.

How Much Tax Relief Is Available?

You have to pay tax on your UK-based pensions except that of State Pension, where UK non-residents are not obliged to pay tax.

Tax relief application scenarios are as under:

• Relevant UK individuals with an annual UK relevant income of £3,600 or more a year can attain up to 100% tax relief on their contributions. However, any individual whose contributions are more than the annual allowance is subjected to a tax charge.
• Relevant UK individuals with non-relevant UK earnings or a relevant UK earning of £3,600 or less will get tax relief only on their contributions up to £3,600 a year.
• Non-relevant UK individuals with non-relevant UK income will not receive any tax relief on their contributions.
• If you are a UK non-resident, the ability to contribute to pension schemes will vary based on your provider.

Also read: How Do I Claim UK Tax Back from Overseas?

Five-Year Rule for Non-UK Residents

If you move abroad from the UK, here's a simple rule to remember about contributing to your pension:

First Year Abroad: In the year you leave the UK, you can contribute up to 100% of your UK earnings or £3,600 (whichever is higher) and get tax relief.

Next Five Years Abroad: For the following five years, you can still contribute up to £3,600 a year and receive tax relief. However, you must contribute to a pension scheme you were part of before leaving the UK. This applies if you have no UK earnings. If you do earn money in the UK, you can base your contributions on that income or contribute £3,600 a year (whichever is higher).

Here is an example to simply this rule for you:

Let’s consider Jackson moved abroad in September 2023 and was contributing £5,000 to his UK pension pot. If he earned £5,000 in the 2022/23 tax year, he can contribute that amount within that year.

However, from April 6, 2024, his maximum tax-relieved contribution will be reduced to £3,600 annually, and this limit applies for five tax years, including 2023/24. This means he can contribute with tax relief until April 5, 2029.

After April 2029, Jackson can still contribute, but without tax relief. As most providers don’t accept non-tax-relieved contributions, they may stop accepting payments after April 5, 2029.

If Jackson returns to the UK during any tax year, the five-year rule "resets," granting him another five years of tax-relieved contributions.

New State Pension UK

If you've lived or worked abroad, it may affect your new State Pension eligibility:

• Qualifying Years: You need 10 UK National Insurance (NI) years, but years from the EEA, Switzerland, or countries with UK social security agreements can count.

• Dual Pension Eligibility: You may also qualify for a foreign state pension. Check with the foreign pension service.

• Additional Years from Specific Countries: Living in Canada, New Zealand, or Australia (before April 5, 2001) can add to your UK qualifying years if you meet the criteria.

Your final pension amount will be based only on your UK NI years, up to the full rate.

If you want to learn more about paying tax as a UK non-resident, then check out this guide.

Final Verdict

It's important to understand these rules to manage your pension contributions effectively while living abroad. If you want expert advice on your UK tax obligations while living abroad, contact our tax experts now.

You can even use our pension charges calculator to calculate how much tax you owe on your pension.

FAQs

1. Will my UK pension payments be adjusted for inflation if I live abroad?

Some countries (any European Economic Area country or Switzerland) have agreements with the UK that allow for annual inflation increases in state pension payments; others do not, resulting in "frozen" pensions.

2. How do exchange rates affect my UK pension if I live abroad?

Payments are typically made in GBP, so exchange rates can affect your pension's value in local currency, impacting your purchasing power.

3. Are there tax implications on UK pensions if I am a non-resident?

UK pension income may be subject to UK tax, but some double taxation agreements can prevent double taxation.

4. What happens to my pension contributions if I return to the UK after a period abroad?

If you return, the five-year rule resets, allowing you to resume tax-relieved contributions as if you had never left.