Peter Sanderson, a Spain-based economist and accountant, advises expatriates on how to obtain and improve their state pensions. Here, he gives iexpats.com his low down on the key issues.
How did you get involved with the UK state pension?
It came about by chance because I was working with someone who was trying to organise his state pension and, having encountered problems asked me as, an accountant and someone who comes from Newcastle where the records are kept, asked me to help him organise his pension.
Is it possible to receive a UK state pension as well as a Spanish pension?
Yes it is possible.
Is it possible to receive a state pension from several different European country?
Yes, you can receive a pension from many different countries, as long as you have contributed according to the rules of the system. Indeed, it is something that an increasing number of people are doing nowadays as they tend to move around more often than they did in the past.
Every country in the European Economic Area and the European Union has its own rules and regulations, including the age at which you can receive your retirement pension and the minimum number of years which have to be contributed. However, if you have only worked a few years in these countries the years contributed are put together and each country pays its proportional part.
Recently, there’s been much of talk about expatriates making back payments into their state pension. What is your experience of this?
The typical UK expatriate living in Spain will have worked earlier in the UK and in all probability will have already built up a considerable number of years of contributions to the UK system. However, upon leaving the UK and arriving in Spain, National Insurance (NI) contributions become voluntary and, in my experience, the vast majority of expatriates give no further thought to their UK state pension until they realise that they are within sight of retirement age.
Many retirees have been pointing to the inadequacy of the UK state pension and these people have campaigning for a non means-tested state pension of 175 pounds per week. However, a married couple’s full state pension is currently 171.92 pounds – not too far away from the pension that is being demanded by many lobbyists!
In addition, if husband and wife each qualify for a full basic state pension their payments will total 214.90 pounds. It is incumbent upon all UK citizens to ascertain the situation with respect to their state pension as early as possible and take the necessary measures in order to ensure that they obtain a full state pension upon retirement. Some may argue a lack of information or a shortage of funds but the government has bent over backwards by introducing measures to facilitate the receipt of a full pension. Upon receiving a pension forecast it is possible to pay NI contributions in respect of the previous six years if they have been missed. Reducing the number of years that it is necessary to contribute to receive a full pension to 30 was fantastic news for UK expatriates but less so for UK workers who must always pay NI contributions when employed regardless of their contribution record.
The government has also introduced a new scheme called ‘The New Opportunity’ whereby it is also possible to go back in one’s National Insurance record as far as 1975 and catch up with payments in respect of an additional six years.
So, it can be seen that with a little foresight it is not too difficult to be in a position to receive a full state pension and I would suspect that your contributors last year, for whatever reason, failed to avail themselves of the information and payment facilities afforded by the UK government.
What are the practical steps to claiming a UK state pension?
A pension forecast can be obtained from HMRC in Newcastle by telephone or by writing. Following recent changes the form CA3638 is being superseded by the form BR19. It is useful to include on the form one’s National Insurance number but if it is not available a NI record can usually be traced. A period of four to eight weeks should be allowed to receive the forecast.
It is the Pension Service, which forms part of the Department for Work and Pensions, which organises the payment of pensions. Four months before reaching retirement age they will write explaining how the pension is paid, when it is paid, asking for bank account details and requesting that a ‘Claim pack’ be filled out.
Someone who has not worked in an official capacity in Spain and has never paid into the Spanish Social Security system can send off the “claim pack” directly to Newcastle and they will eventually pay the retirement pension into a bank account anywhere in the world. An expatriate who has paid into the Spanish Social Security system must apply for his or her UK state pension through their local Spanish Social Security office. Although the designated bank account can be anywhere in the world the Spanish authorities may insist on a bank account in Spain especially if one is resident in Spain, will be using the Spanish health service and pay tax in Spain.
Is it worth deferring your state pension?
Unless you have been contacted by Him up above regarding your life expectancy you should always take any pension when it becomes payable! In fact, in 2008 the Pension Service produced a 103 page booklet which was designed to encourage people to put off claiming their state pension and, in this way, the government would make short term savings. The scheme meant that for each full year you put off claiming, you would receive an extra pound a week for every 10 pounds of your state pension. While this may appear to be an attractive proposition, delaying for five years a weekly pension of 100 pounds per week would mean losing 26,000 pounds of income which would take 10 years to recover at the enhanced weekly pension rate. It is also possible to elect for a lump sum payment but this is not a lot more than the total pension that would have been given up.
Over the past few years there have been a series of pension ‘reforms’ what are they key elements our readers should be aware of?
A number of changes to the rules relating to the state pension were included in the 2007 Pension Act. The number of years that it is necessary to have contributed in order to receive a full state pension was reduced from 44 years for men and 39 years for women to 30 years for both. The other principal modification was that a single qualifying year of contributions will give right to a pension whereas previously the minimum number of years that had to have been paid to receive a pension was 11 years. These changes came into effect in April 2010.
In addition, currently a single person’s full pension is 107.45 pounds per week. The amount of the married couple’s pension is arrived at by the wife receiving 60 per cent of her husband’s single person’s pension. But since April 2010 the husband has also been able to claim 60 per cent of his wife’s pension. This will, naturally, only apply when the partner’s own contribution record results in a smaller payment.