It has been compulsory for all employers in the United Kingdom to pay into their workers’ retirement funds, known in Britain as a pension, since 2018. This applies to expats with relevant UK individual status as well as British citizens who are working in the UK. Here’s how to know whether you are entitled to a state pension in the UK, with extra information to keep you informed.
A relevant UK individual:
- has UK earnings that are subject to UK income tax
- is a current UK resident in one of the past five tax years and became a member of a registered UK pension scheme during that time
- is a Crown Servant (anyone employed by the Crown to perform executive functions)
- is the spouse/civil partner of a Crown Servant and has earning subject to UK taxation
Under the automatic pension enrollment requirement, employers must make a minimum contribution to pension funds for their employees.
Some employers are more generous than others and will pay more than the minimum amount. At the same time, employees can be proactive and top up their pension with additional contributions. But managing pensions and ensuring you have enough money for a comfortable retirement can be confusing, especially when there are so many different sources of information. The rise of so-called finfluencers, social media influencers who share financial information on platforms such as TikTok, can only add to the confusion. How do you know whether the lively person on your phone is even qualified to offer advice on such a serious topic?
We asked pension experts about trusted sources of UK pension information and what myths and misconceptions are holding people back from setting themselves up for life after work.
Finfluencers: unreliable, unverified or misleading.
Pension providers and employers have a responsibility to provide employees with good information. According to Clare Moffat, pensions and tax expert: “Royal London research found that 39 percent of employees with a workplace pension said that their pension provider was the main source of information about their pension.”
“While pension providers are the most relied-upon source of information by employees when it came to their workplace pension, employers were a close second, with 32 percent relying on them,” says Moffat.
Social media has become increasingly popular as a source of financial information, especially among younger employees.
However, Moffat points out that Royal London’s research found that while 15 percent of people aged 18-34 were relying on social media for information, more were turning to pension providers, employers, financial advisers, family and friends, websites and turning to their colleagues.
“Many money bloggers and finfluencers use social media channels as a way of sharing information about their personal experience of managing money and this can resonate with people in a powerful way,” says Moffat. “However, there is a risk that content can be unreliable, unverified or misleading. ”
Moffat says that while there is useful pension information on social media, “it can be hard, if not impossible, for people to know what’s accurate and what’s incorrect.”
“Action has been taken by the Financial Conduct Authority and the Advertising Standards Agency, against some finfluencers who appeared to be giving unregulated financial advice,” Moffat says. “When used appropriately, having financial information available on social media can be a good thing, simplifying and engaging people in a subject which many feel is complex.”
Laura Stewart-Smith, Head of Pension Engagement, Aviva, says that “the government-backed Money and Pensions Service, MoneyHelper and Pension Wise provide clear, impartial guidance”.
“Short-form content can act as a helpful entry point, provided it links back to more detailed, regulated guidance from the pension provider or government-backed sources,” adds Stewart-Smith.
Lisa Beckett, Head of People & Culture at Trafalgar House Pensions Administration, agrees: “Short-form content can absolutely help capture Gen Z’s attention but it should point people towards trusted guidance rather than trying to explain complex pension rules in a 20-second video.”
“If a pension scheme is a workplace pension scheme, the scheme’s pension provider will have a website in which members can go to – this will provide information to members on how their pension savings are currently performing and what they can expect to have at the end of it,” says John Mullally, Group Risk & Healthcare Consultant at Cartwright Employee Rewards. “Some providers also have financial calculators that ask a range of questions to work out what sort of pension a person should expect to require if they want to have a certain level of lifestyle, taking into account various life events, such as marriage and the birth of children.”
Busting myths about pensions
For younger workers in particular, retirement may seem like a long way off and, as a result, the value of having a good pension plan in place can be underestimated.
“It’s important for employees to understand just how much of an impact early engagement with your pension can be – even a 1-percent increase in contributions in their twenties can make a noticeable difference in later life,” says Stewart-Smith. “Younger workers may be unsure about how much they’ll need in retirement or how long their pension savings may have to last. [Employers] signposting to tools and calculators can lead to more confident pension choices.”
If you have worked for multiple employers in the UK, you may be enrolled in multiple pension schemes. It can make sense financially and practically to combine all your pensions into one scheme. Stewart-Smith says pension tracing services, such as Aviva’s Find and Combine, “help reconnect people with lost pension pots”, adding that this is especially relevant to younger employees that form “a cohort moving between jobs at a faster rate than previous generations.”
“I think there is still some misunderstanding and unawareness as to how much employees need to save for their retirement and what impact tax relief can have,” Mulally points out. “The minimum 5 percent employee and 3 percent employer contributions are not going to get you very far.”
Mulally says that he “shouts from the rooftops” about compound growth making a big difference to pension pots.
“It does not require any extra work or money to be input by the employee or employer; quite often, employers also match every 1 percemnt that the employee puts in, to a certain amount,” Mulally explains. “If you can, at least contribute to that maximum level so you are getting the tax relief and a matching level of contribution from your company – it can make a big impact to an employee’s pot if they can try and do that everywhere they work that offers pension contribution matching.”
Tax relief for expats
In the UK, tax relief on pension contributions is primarily dictated by your earnings and residency status. If you are resident in the UK for employment and meet the relevant UK individual criteria, you will be eligible for tax relief. This is a UK government incentive that tops up your pension contributions by giving you back the income tax you paid on those funds and it is an efficient way to add a few more pounds to your pot.
However, it is important to be aware of the five-year rule for expats. If you leave the UK, you retain your tax relief eligibility for a limited period of time. In the year you leave the UK, tax relief is available, and in the subsequent five years, you can contribute up to £3,600 annually with tax relief as long as you joined the pension scheme before you left the UK.
For US citizens concerned about double taxation, most UK pension providers will include US citizens in their schemes if they fit the relevant UK individual requirements and are living in the UK. The good news is that UK pension providers do not have to report to the Internal Revenue Service (IRS), but some individuals may have to do this. As this varies depending on individual circumstances, US citizens should consult an accountant or financial adviser that specialises in expat clients to clarify any tax implications.
Stewart-Smith sums up what UK-based employees need to be pension-smart, regardless of nationality: “Helping with the basics – what they’re saving, how compound interest works and what a retirement income might look like – can significantly improve confidence and long-term outcomes.”
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Read more about living in the UK here in Dispatches’ archives.
Georgia Lewis
Georgia Lewis is an Australian expat who spent five years living in the United Arab Emirates before moving to London in 2011. She is a freelance writer and editor. When she's not writing or editing, she loves cooking, trying new restaurants, going to the theatre and travelling. Her favourite destinations are the Greek islands, Mallorca, Oman and Vietnam.
