Saving for Retirement as a UK Immigrant: What to Know

If you’ve recently relocated to the UK and plan to stay there long term, you might already be thinking ahead to your retirement. It’s never too early to start planning—and as an immigrant, there are extra factors to take into consideration.

Here at Remitly, we’ve put together this guide to help immigrants to the UK find their way through the process of retirement planning and pensions. Read on to find out about the different types of pensions, strategies for retirement savings, resources for retirement planning, and more.

Saving for retirement as a UK immigrant: the essentials

Understanding the UK pension system

The UK has a state pension system. If you’ve worked in the UK and contributed National Insurance (NI) payments, you’ll receive regular payments to fund your retirement. If you haven’t started working in the UK yet, check out our guide to getting a National Insurance number.

You can start claiming these payments when you reach state pension age, which depends on when you were born—the UK government website has a useful calculator to help you. 

The state pension only covers basic essential living costs, so you can supplement it with a workplace or private pension. It’s also worth knowing that you can carry on working after retirement age if you choose to; retirement in the UK is not compulsory, except in some special cases where a job requires certain physical capabilities or has an age limit set by law.

Pension planning for immigrants: tax considerations and pitfalls

As an immigrant to the UK, you can draw a state pension when you reach retirement age if you meet the qualifying period for contributions. You can also enrol in an employer’s pension scheme or a private pension scheme.

However, you may also have worked and paid into a pension scheme in your home country. In this case, you may be able to transfer your contributions to your UK pension. Check whether your scheme is a recognised overseas pension scheme (ROPS), as not all are. If you receive income from a foreign state pension while living in the UK, you may have to pay tax on it.

Changes in residency and employment status

If you decide to retire outside the UK, different restrictions and taxes may apply. This depends on the bilateral agreement between the UK and the other country, and may result in you paying tax in both countries. However, many double taxation agreements exist to avoid you having to pay tax twice on the same income.

If you’re planning to leave the UK, currency fluctuations may mean your retirement savings decline in value due to the exchange rate. You may want to invest some of your savings in the currency of your home country, especially if you’re intending to buy property there.

If you need an easy and convenient way to transfer funds, Remitly makes the whole process fast, safe and transparent.

Retirement savings options in the UK

State pension and eligibility

To receive the full state pension, you normally need to have made 35 years of contributions. If you don’t meet this requirement but have made at least ten years of contributions (these don’t need to be consecutive years), you’ll receive a pro-rata pension amount calculated from the pension contributions you’ve made.

You will only pay NI contributions if you earn over a certain threshold. If you’re on a low income or not working, you may be able to make additional voluntary contributions in order to qualify. You might also be able to get National Insurance credits in place of contributions if you receive certain benefits.

Employer pensions and contributions

If you’re working in the UK, you may also be eligible to pay into a workplace pension. If you’re aged between 22 and state pension age and earn at least £10,000 a year, you’ll usually be automatically enrolled. However, you can opt out if you wish. From 2019, the minimum contribution an employer must pay is 3% of your earnings, with the total minimum contribution being 8% (where you pay 5%).

There are two kinds of workplace pension schemes:

  • Defined contribution pension schemes. The money paid in by you or your employer is invested by the pension provider. The value of your pension pot can go up or down depending on how the investments perform.
  • Defined benefit pension schemes. These are often known as “final salary” pension schemes and are more common in the public sector. The amount you get at retirement depends on your scheme’s rules, usually based on your salary and how long you’ve worked for your employer. The pension provider will guarantee to pay you a certain amount each year when you retire.

Personal pensions and private savings

If you’re self-employed, unemployed or otherwise don’t have access to a workplace pension, you can take out a personal pension in order to save for retirement. A personal pension is a kind of defined contribution pension.

You can also take out a personal pension in addition to a workplace pension—however, an employer’s scheme is likely to provide better value than taking out a separate personal pension.

Another option is a self-invested personal pension (SIPP), which offers a wider range of investments than other private pensions. You can choose and manage your own investments, or pay a financial adviser to do this for you.

If you are unable to access a pension scheme or prefer not to, there are other options to save for retirement, such as investing in property. You could also consider an Individual Savings Account (ISA), which allows you to save up to £20,000 a year tax-free.

There are different kinds of ISA, but one that’s designed for saving to buy a home or for later life is the Lifetime ISA. However, you must be under 40 years old to open this account and you can only pay into it until you’re 50. It’s worth checking what options your UK bank offers.

Strategies for retirement savings

How much do you need for retirement?

The most recent UK government statistics show that the average weekly income for pensioners is £267. This works out at a little under £14,000 per year—much less than half the average UK pre-tax earnings. The Pensions and Lifetime Savings Association has calculated that the annual amount required for a “moderate” lifestyle in retirement is £31,300 for a single person and £43,100 for a couple, whereas for a “comfortable” lifestyle it’s £43,100 for a single person and £59,000 for a two-person household.

It’s never too early to start tracking your budget, joining a pension scheme, or putting some money aside in a high-interest account, especially if you have a regular income.

Understanding and applying the 4% rule

The 4% rule for retirement budgeting states that you should be able to withdraw 4% of your pension fund in the first year of retirement and the same monetary amount each year, adjusted for the rate of inflation. It’s also known as the “safe withdrawal rate” (SWR). This should ensure that your funds last for 30 years. However, some financial experts advise working on a lower SWR of 3.3%. 

This isn’t a hard and fast rule. It was calculated on the assumption that, over a 30-year period, a balanced portfolio will generate sufficient returns to cover the impact of 4% withdrawals annually. As market conditions can fluctuate, it’s worth checking the current economic outlook to get a closer idea of your realistic SWR.

Increasing pension contributions

If you want to ensure a comfortable retirement, there are several ways of boosting your pension contributions:

  • Making extra contributions. If you have a defined contribution pension, you might be able to make extra contributions to it. You will also get tax relief on these. Speak to your employer or your pension provider for details.
  • Delaying withdrawing from your pension.
    • If you have a defined benefit pension, this could mean you’ll get a higher income when you begin taking the money.
    • Having a defined contribution pension gives you more time to contribute to your pension pot and benefit from potential growth, so you might have built up more savings by the time you retire. Talk to your pension provider about delaying your retirement date and check whether there are extra charges for doing so.
  • Making voluntary NI contributions. If you don’t have enough contributions to qualify for the full state pension, you can make voluntary National Insurance contributions. Check your National Insurance record to see what you’ve paid and whether you would benefit from making additional contributions. This may be particularly useful if there are gaps in your record.

Managing multiple pension pots

If you’ve worked for several different employers and have multiple pension pots, or if you’re self-employed and have several personal pensions, you could consider the possibility of consolidating your pension. This depends on several factors, including what types of pension you have. 

If you’re considering combining your pension pots, it may be useful to get independent financial advice, as this may not always be the best option for you. Beware of companies that claim to do all the work for you; they are not necessarily acting in your best interest. 

If you have both UK and overseas pensions, you can often consolidate them, but it depends on the types of pensions involved and the tax implications.

Tools and resources for retirement planning

Online retirement planning tools

The UK government website has a useful calculator to plan your retirement income. There you can find out when you can claim your state pension, if you can retire early, how much state pension you’ll receive, and how you can increase your pension.

You can also contact the Future Pension Centre for questions about the state pension, or to ask for a forecast.

If you have a defined contribution pension, you may be able to access your pension pot from the age of 55 (this will rise to 57 from 2028). However, this might not be the right choice for everyone. There’s a free government scheme called Pension Wise, which offers free, impartial guidance for anyone over 50.

Professional financial advice for retirement planning

Many people rely on personal recommendations from friends or family when seeking financial advice. However, as an immigrant to the UK, this may not be applicable to you. If you belong to a trade union or professional body, they may be able to recommend a suitable financial adviser. 

The Personal Finance Society can help you find a retirement planning specialist in your area, as can Unbiased, a free service that also has some useful tools such as a pension calculator, pension guide, and information on typical fees for financial advice services.

Frequently asked questions

Can I pay into a UK pension if I am non-resident?

Yes, you can live outside the UK and continue to save into a UK pension scheme, although some pension providers will not allow non-residents to set up a new policy. However, there are limits to the tax relief you can claim on your contributions.

If you live outside the UK or work for an employer based outside the UK, you may get no tax relief, or limited tax relief, on your contributions. It’s worth getting specialist cross-border advice on your pension and how it’s taxed.

How do I know a pension or investment opportunity isn’t a scam?

If you’re thinking of taking out a personal pension or investing for your future in another way, check the Financial Conduct Authority’s ScamSmart service to find out whether the provider is legitimate.

I’ve lost track of my pensions. How can I find a lost pension?

You can do this using your National Insurance number. Find out more here about how to track down a lost pension. You can also use the government’s Pension Tracing Service.

About Cassidy Rush

Cassidy Rush is a writer and editor at Remitly with a focus on personal finance, immigration, and careers.