Dental specialist financial adviser Craig Barr, for Wesleyan Financial Services, examines what would happen to your NHS pension if you were to leave the NHS and move abroad.
For many dentists the transition away from NHS dentistry to private practice, can leave a number of unanswered questions surrounding their NHS pension – one less frequently answered question however, is what would happen to your NHS pension if you were to move overseas?
There are many reasons why people choose to move abroad, it may be part of a retirement plan, for family reasons or to explore a new culture and lifestyle. The prospect of moving abroad may also be quite enticing for practising dentists – good working conditions and higher salaries in a favourable climate, can form an attractive package. Continental Europe, Canada, Australia, the US and the Middle East are often popular choices for relocation.
Understanding the NHS pension scheme
The NHS pension scheme (NHSPS) is a defined benefits pension, its structure is based on pensionable earnings and is banded – essentially the more you earn, the more you contribute.
It is also inflation linked and subject to an annual increase based on the consumer price index (CPI). Active members of the scheme not only have an increase at the rate of CPI, but also benefit from an additional 1.5%.
What happens if you leave?
If you leave the NHSPS and/or NHS employment after 12 months, you will become classed as a deferred member (provided you have been a member of the NHSPS for more than two years). This means your benefits will be left in the scheme and can be drawn once you reach normal pension age.
Deferred members have an increase to their pension at the rate of CPI but are not entitled to the further 1.5%. The minute you stop having NHS income and are no longer contributing, your pension will stop growing, making it important to understand how to bridge these gaps for the future.
Can I claim my NHS pension from abroad?
If you reach pensionable age and are still living overseas your NHS pension will either, be paid into your UK bank account in Sterling, or into your local bank account where you are living, where it would be paid in the currency of that country or territory – the latter is possible in most cases.
If you are working and are moving away from the UK and have an NHS pension, it’s a good idea to register for the total rewards site – this may allow you to access an annual pension benefit statement.
Private pensions
Private pensions can also be accessed if you are living abroad. Some pension providers may only pay into a UK bank account, others may pay into an overseas bank account, but it’s worth noting that there may be additional charges to do this, making it important to check with your provider.
Practising dentists will of course be earning in local currency, however depending on the provider, it may still be possible to continue to pay into a private UK pension after leaving the UK, provided the contributions are paid into an existing UK pension scheme.
What is it important to be aware of?
Exchange rates and inflation
Fluctuating exchange rates can cause your income to rise and fall – in retirement this can seriously affect how much you have to live on. To paint a clearer picture, let’s imagine a hypothetical scenario of a retired dentist relocating to Canada. Said dentist has a monthly income from their NHS pension of £3500, the payment is received in sterling but is spent in Canadian dollars.
To illustrate how exchange rates and inflation could potentially impact this dentist’s income, let’s suppose that the value of the pound against the Canadian dollar decreases by 10% in one year.
During that same year however, Canada’s economy could potentially have a 10% increase to inflation – therefore, in theory, the dentist would have 10% less every month due to the change in currency value, but would also have a 10% increase to the cost of what they were buying due to the rise in inflation, creating a potential 20% swing in terms of the total impact of living in Canada.
An NHS pension will be inflation linked to UK rates, however, the rate of inflation in the country you choose to relocate to, may vary – favourably or unfavourably from month to month. It is a good idea to ensure that you have other sources of income whether this be other pension funds, income producing assets or savings.
The tax impact of claiming from abroad
Another important consideration is taxation; when you move abroad, in most cases you will become a non-UK resident for tax purposes. If your pension stays in the UK, it will be taxed as UK income, you may also however, be required to pay tax on it in the country you live in.
Some countries have a ‘double taxation’ agreement with the UK – if you are considering moving abroad, it is important to get specialist guidance to ensure that you understand the tax implications of the move. Depending on where you move to and the pensions and other assets you have in the UK, this can potentially become quite a complex area.
Seeking specialist support
The support and guidance from a dental specialist financial adviser and a specialist tax accountant before moving can help to ensure that you have a full overview of exactly what you have in the UK in terms of pensions and benefits and other assets, and that you fully understand the financial implications of moving abroad.
And when once you have relocated, take the opportunity to find a specialist in the country that you are in, to understand the local tax implications.
Tax treatment depends on individual circumstances and may be subject to change in future.
Seek support from specialists
If you are looking for support understanding your NHS pension or guidance with any of your finances, you can speak to a dental specialist financial adviser at Wesleyan Financial Services by booking a no-obligation financial review here or calling 0800 316 3784.
At Wesleyan Financial Services, a team of specialists focus solely on dental professionals and their unique financial planning needs. They are there to back you on each stage of life’s journey, from graduation to post-retirement and every step in between.
