Guide to your Pension Abroad
Are you planning to move overseas and want to move your pension abroad as well? If so, there are certain things you should consider, such as finding out the possible implications of early withdrawal. Familiarize yourself with technical terms that you may come across from time to time. Suppose, if you are moving your pension abroad from Canada or Australia, you should know the terms, such as social security agreement and the concept of double taxation agreements.
The social security agreement is an international agreement between countries to coordinate pension plans of these countries for those who have lived and work in both places. Canada is one of the many countries that has signed this agreement with those nations who have comparable pension plans. However, bear in mind that the requirements are different for every agreement. Therefore, you must always check the details that are relevant to you. Double taxation agreement, on the other hand, is an agreement to make sure a person doesn’t pay tax twice on the same income.
Understanding of these concepts is very important, especially if you are planning to move your pension abroad.
Things to Know for Your Canadian Pension Abroad
If you are a Canadian and planning to move your pension abroad, there are a few things you need to familiarize with.
Based on your overall income and country of residence, the Canadian pension is subject to two different taxes, i.e., Old Age Security Recovery Tax or Non-resident tax.
Your pension from the Quebec Pension plan or Canada pension plan (CPP), along with the Old age security (OAS) can be subject to the non-resident tax at 25 percent. However, it can be exempted or decreased by a tax treaty between the country of your residence and Canada. This amount is normally deducted from the benefit payments.
If your country of residence has a tax treaty with Canada, your tax liability will automatically be reduced or exempted. However, if there is no tax treaty, you will have to request for reduction or exemption.
- Receiving Pension in Another Country
You can receive your pension in a foreign country directly in the local bank account or via cheque. The Receiver General of Canada offers direct deposit facility or issue cheque in many countries around the world in local currency. Receiving pension in a local currency can save you a lot of cost in the form of reduced bank fee and better exchange rate.
Some countries where the pension payments are made in local currency via check include Finland, Denmark, Cyprus, Australia, Austria, Belgium, India, Greece, Germany, France, Norway, New Zealand, South Africa, Singapore, Portugal, Panama, Oman, Pakistan, U.S., UK, Sweden, Sri Lanka, Spain, and UAE.
If you wish to receive your pension and benefits in local currency, contact the Social Security Agreement to change the delivery address of the cheque. The amount of the cheque receipt, however, is different from the amount on the cheque. This is because the receipt represents the amount before conversion of Canadian dollars into the local currency.
- Ensuring Future Cheques are in the Correct Currency
Once you change your address, both the CPP and OAS cheques are received in the currency of new country if it is in the list of countries where foreign currency payment is made, and the Bank of America conversion service also supports it. But if it is not in the list, Receiver General of Canada will only deliver it in Canadian currency.
Things to Know for Your Australian Pension Abroad
If you wish to move the Superannuation or Age Pension from Australia to another country, there are certain things you must know.
You will get the pension for the whole period you are outside Australia, but the rate may vary depending on
- The length of your stay
- The changes in your assets and income, or
- The social security agreement with another country
The agreement will help you get Australian payments overseas, but you must meet the minimum period criteria. For example, you should have at least 10 years Australian residence for the Age Pension. But if you only live for a period of 8 years, the social security agreement may allow you to use a 2-year insurance period in another country to still receive the payments. Insurance is basically the contribution you made to the social security scheme when you were working abroad.
- Superannuation in Australia
If you are a permanent resident or Australian citizen who is permanently moving aboard, your Super will be subject to the same rules as imposed on other Australians. You can also leave the Super as it is until you retire or choose to continue contributing if you are aboard. However, no access is granted to the Super until a person reaches the preservation age, i.e., between 55 and 60. The same rule applies to a person who is permanently leaving Australia and never intend to come back.
To be well-informed, you should consider the following when moving abroad:
- Combine all your Super accounts into a single low-cost fund. If the management fee is higher, it would eventually eat away the entire balance while you are away. Therefore, have a low-cost Super fund will help you retain savings in the long run.
- Decreasing the overall cost also results in a decreased contribution to life insurance policy, which means you won’t have to pay for multiple policies.
- Make sure your Super fund doesn’t change into a Lost Super, which happens when you are reported as a lost member by the Superannuation fund. If the Fund is unable to contact a person for 5 years, he or she is considered a lost member.
- Lastly, in case of a self-managed Superannuation fund, make sure you fully comply with the Australian government rules and regulations. It usually has 3 tests and the main test is to have a central control and management of the fund in Australia.
Although, you can always make a contribution to the Super fund while you are abroad, when it comes to self-managed Super fund, there are certain restrictions. For example, consult with a financial expert to make sure the payment made by you toward the fund is tax effective and not in breach of a contribution limit. Otherwise, you may end up carrying a burden of additional tax liability.
If, however, you have been transferred by your employer in a country that has a superannuation bilateral agreement with Australia, he will keep making Superannuation Guarantee contribution into your account.
- Other Considerations for Super Fund
Carry out a thorough research about the situation of retirement savings abroad and see if there is any tax implication to make withdrawals once you reach the preservation age. Moreover, keep your details updated with the Superannuation fund so they don’t lose contact with you. In case of lost super, seek help from experts to locate it for you. Consolidate all your funds into a plan that offers a lower fee.
Although, you can continue making contributions to the fund regardless where you live, it is not tax-effective and you may end up with more tax liability.
Things to Know for Your U.S. Pension Abroad
If a U.S. citizen plans to retire abroad, he or she may continue to receive the payment overseas as long as they qualify for it. They must, however, be aware of the foreign pension plan and bilateral social security that can impact the social security amount you receive.
- Bilateral Social Security Agreement
An American expatriate may still be able to get social security retirement payment if he has worked less than 40 quarters under social security in the U.S. but kept making a contribution in a similar program with which America has a bilateral social security agreement with.
In 2014, the U.S. signed the Totalization agreement with 25 countries that served two purposes; it eliminated dual security taxation – a situation when a person has to pay for social insurance taxes in both countries. And secondly, it filled the gap in benefit protection for people whose career spans between the U.S. and another country.
The agreement keeps track of the total quarters worked abroad and in America. If a person didn’t spend the time required to qualify for a social insurance program in either country, but the combined period was sufficient for one country’s program, both the countries will have to make the proportionate contribution to the retirement program.
- Windfall Elimination Provision (WEP)
If an American made contribution to the U.S. social security system and also worked abroad, he or she must be familiar with the Windfall Elimination Provision. It affects the American expats where they earned a pension in a job that didn’t require them to make a payment of U.S. Social Security taxes, but also did other jobs for a substantial period of time to be eligible for the benefits from the U.S. Social Security scheme. If WEP is not in place, a person would be getting two full pensions.
Familiarity with these terms is important for Americans if they wish to receive their pension abroad as it will enable them to identify what they are eligible for and what steps they should take to qualify for it.