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Pensions for Overseas Workers

Pensions for Overseas Workers
Published:  22 Feb at 7 PM
Overseas workers have traditionally lost out to their home-based colleagues when it comes to retirement provision, and this was even more true in the 1960s and 1970s. Whilst pension provision was improving for the average UK employee, there was no real solution to the needs of the expatriate.

Many UK companies sending employees abroad 40 years ago expected them to make their own pension provision out of their often higher, often tax-free, expatriate salaries. Inevitably many didn’t. In other cases, overseas workers believed that they would be receiving a pension from their employer, only to find at retirement that no such pension was forthcoming.

On top of that, companies often chose not to make UK national insurance (NI) contributions on behalf of their expatriates, thus creating a further gap in their pension savings, which employees were expected to plug themselves.

Often they fell between two stools. They would be obliged to contribute to the local state pension (where one existed) but would not build up enough years’ contributions to be able to draw on it at retirement. Then, when they returned to the UK, they would find that their patchy record of NI contributions here meant that they qualified only for a much reduced UK state pension.

At the moment, a man needs to have built up a record of 44 complete years’ NI contributions to obtain a full single person’s state pension of £84.25. A woman requires 39 full years, though the Government has announced that it plans to bring this down to 30.

This means that a man can miss only five complete contribution years between the ages of 16 and 65 if he is to qualify for a full state pension. If, as a result of working overseas, he ends up 11 years short of a full record, he would receive only three quarters of the basic pension — a loss of £21 a week. One simple way to avoid this is to keep up your NI contributions while abroad. You can do this by paying Class 3 (voluntary) contributions, which cost £7.55 a week or a little less than £400 a year. This is a pretty modest sum to pay for keeping your contributions record intact. If you are part of a couple, it may make sense for both of you to do this, though you would need to take advice on this.

He adds that it is also worth checking on the precise position in the country to which you are going. You could be fortunate and end up in a country, such as Germany, that has a reciprocal agreement with the UK so your contributions to the German state scheme count as contributions to your UK pension. However, the situation for many expatriates today is much the same as it was for their predecessors in the 1960s, despite the many pension reforms of recent years. A fortunate few will work for large global employers with a well-structured remuneration package that is geared towards an equalisation of benefits worldwide. But pensions are a potential minefield for most workers in small and medium-sized firms, as well as the increasing number of freelance expatriate workers.

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