A guide to pension provision in the UK for International Employees
All people employed in the U.K. can make some provision for their retirement income. This is done by one or more of the three methods shown below.
- State 2nd Pension Scheme (S2PS) This is a State Pension as provided by the UK Government. It is the cheapest. We all have to pay National Insurance. Someone paying into the State 2nd Pension Scheme (S2PS) pays a higher rate of National Insurance. This extra payment will give a higher state pension at retirement age. Whether or not paying into the S2PS will give enhanced benefits to a pension paid abroad is a question to ask your own countries authorities.
More about the State 2nd Pension Scheme (S2PS)
- Personal Pension Plan A Personal Pension Plan can be arranged by an insurance company or a bank. You pay contributions which are enhanced by Income Tax and National Insurance. The tax is calculated using the highest rate paid by the employee and is added to your contribution. If you pay tax at 20% then each contribution of £100 will only cost £80. If you pay tax at 40% then £100 will only cost £60. The employer will not make a contribution.
A Personal Pension Plan may be a not a good idea if it is going to be for a short period. This is because the Plan provider will charge administration fees which are likely to be high at the beginning of the Plan. There will also be charges for closing down the scheme.
More about Personal Pension Plans
- Occupational (company) Pension Schemes This is an arrangement, where both the employee and the employer pay contributions. This means that your benefits are guaranteed and are not subject to fluctuations in the stock market or any other charges. A member pays less Income Tax and less National Insurance than a non-member. The schemes provide more than just a pension; an important feature is that there is free Life Assurance while you are a member of the scheme:
- financial protection for your family or dependants while you are employed and after you retire;
- an index-linked income after you retire;
- after your death, pension payments for life for your surviving spouse or dependant and eligible children;
- generous pension benefits should you face an enforced early retirement;
- flexible arrangements and pension transferability (within the UK at least) if you change jobs or have to leave the scheme before you retire; and
- cover against the unwelcome financial consequences of having to stop work because of ill health, accident or infirmity.
Note: You can elect to opt out of an Occupational Pension Scheme and rely on the Basic State Pension and the State 2nd Pension Scheme (S2PS) and/or take out a personal pension to provide an income in retirement. It is likely, though, that in order to obtain comparable comprehensive benefits from any other scheme you would have to pay more than your employee’s contribution to the pension scheme.
You contract of employment will set out details of your UCL pension scheme membership.
Depending on grade and eligibility conditions (stated in your contract), employees of UCL are automatically entered into either:
- Universities Superannuation Scheme (USS)
- Superannuation Arrangement of the University of London (SAUL)
Both are centralised “defined benefit” occupational pension schemes, and have been designed to meet the particular needs and career patterns of people employed in higher education in London and the UK academic world.
If the cost of pension scheme membership is a concern, use the modellers as provided by USS and SAUL which demonstrate the savings you are making and to see that the cost is lower than you think with the benefit of paying lower tax and National Insurance Contributions. UCL makes a contribution of at least 15% to the pension schemes.
If you do not wish to have automatic membership of USS or SAUL, you can elect to opt-out, but must do this as soon as possible, by making the opting out election as part of your UCL new staff registration or contacting UCL Pension Services.
You can also choose to opt-out of USS or SAUL at a later date whilst still remaining in UCL employment. It is important to consider when making an opting out decision, the benefits you are giving up and also any re-joining conditions which may apply in future.
Participation in USS and SAUL operates under PensionsExchange for all eligible employees. You are automatically included in PensionsExchange if you are a member of USS or SAUL, unless you have notified UCL that you do not wish to participate in PensionsExchange. This arrangement reduces the amount of National Insurance Contributions you pay but has no effect on the amount of your pensionable salary for pension purposes in any benefit calculations.
If you do not wish to participate in PensionsExchange, you must exercise the PensionsExchange opting out election as soon as possible, as part of your UCL new staff registration or contacting UCL Pension Services.
If you plan to be in the UK for less than 2 years or if your contract is for less than 2 years, you may wish to consider the information in the Employment Contracts of less than 2 years section.
In accordance with UK pension scheme rules, you can apply for a refund of your contributions when you leave the scheme, ie USS and SAUL if you have less than two years membership, but only if you had NOT participated in PensionsExchange. The refund will be subject to a tax charge and a statutory deduction relating to your National Insurance contributions.
If you wish to have the refund of contribution option available to you upon leaving USS or SAUL within 2 years of joining, it may NOT be advantageous for you to participate in PensionsExchange.
You may wish to make the PensionsExchange opting out election as part of your UCL new staff registration or contacting UCL Pension Services
If you have already completed your UCL new staff registration, but wish to opt out of PensionsExchange on commencement of your UCL employment, you will need to complete a PensionsExchange Opt out Form.
By opting out of PensionsExchange but retaining your USS or SAUL membership, you continue to enjoy the full range of USS or SAUL benefits, and have a refund of contributions option available upon leaving. Also, you still benefit from full tax relief at the highest marginal rate on your pension scheme contribution and some National Insurance Contribution savings.
If your contract of employment (and pension scheme membership) is extended beyond 2 years, the refund of contributions option is no longer available. You should consider opting in to PensionsExchange so that you can fully benefit from the National Insurance Contribution savings. You are able to opt in at the anniversary of the arrangement, 1 May of each year by completing a Opt In Form.
Once you have reached two years membership a refund of your contributions is not available but you will have built up a benefit entitlement in the pension scheme.
All completed (signed and dated) forms to be sent (or handed in personally) to UCL Pension Services.
Things to consider when joining a UCL Pension Scheme
Transfers from overseas schemes may be possible. You should check with the administrator of the scheme whether a transfer value could be paid to a UK scheme. Since April 2006, any transfers received from a Qualifying Recognised Overseas Pension Schemes (QROPS) are excluded from the calculation of the available Lifetime Allowance and of the Annual Allowance for tax purposes.
USS has factsheets on a range of topics, including Transfers In, that give in-depth detail on a range of specific topics
If you are considering transferring benefits in to the UK from overseas with a view to transferring them out at a later date to an overseas scheme, you should contact USS or SAUL for further details. If a transfer cannot be paid to the UK (because of the restrictions that may apply to some countries / schemes), the benefits will have to remain in your old (previous) scheme.
USS and SAUL also provide special transfer arrangements (within a timescale) with certain other pension schemes in related areas such as Teachers, Civil Service, Government departments and the National Health Service. This is known as the Public Sector Transfer Club and consists of a number of salary related occupational pension schemes that have agreed reciprocal transfer arrangements. The Club offers those who move between Club schemes the opportunity to transfer pension benefits on special terms. In general, when you transfer your pension benefits between Club schemes, you will receive a broadly equivalent service credit in the new scheme, regardless of any increase in salary on moving.
All members of USS and SAUL should complete these forms to let the scheme Trustees know where to pay the tax-free lump sum and benefits in the event of your death, particularly if your dependants / family are based overseas. All completed forms should be sent to UCL Pension Services.
As UCL is classified as a NHS “Directions Employer”, it may be possible for you to re-join the National Health Service Pension Scheme (NHSPS) by making an one-off election upon joining UCL, as part of your UCL Staff Registration as long as you meet all of the following eligibility requirements:
- You have contributed to the NHSPS within 364 days of joining UCL
- You are employed at UCL Medical School or Clinical Department
- Your role includes teaching of Medical students at UCL
Upon leaving the employment of UCL and leaving the UK, the pension scheme will be notified accordingly, once you have been processed for the final time on the UCL payroll. The pension scheme will write to you at the home address held on the HR system, and provide you with the leaving service options available to you. It is important that you update this on MyView before you leave UCL.
A transfer can generally be made from USS or SAUL to an overseas scheme that is allowed by its governing law to accept it and is willing to do so, but the transaction will attract a large UK tax charge unless the receiving scheme gives certain information and undertakings to HMRC; and it will be subject to extra formalities here and probably also in the overseas country concerned.
USS has factsheets on a range of topics, including Transfers Out, that give in-depth detail on a range of specific topics.
It is possible for your pension to be paid abroad. You should review the tax position that could be applicable to the payment in the UK and also the receipt of the pension payment abroad. SAUL advise that if go to live abroad, or you intend to do so, they will pay your pension directly to a valid bank or building society account in the UK – this does not include Post Office accounts; or convert payments into local currency and pay them directly to your overseas bank account. Please note that this may not be available in some countries. USS also provides information about payment of pensions overseas.
- HMRC Information Forms to complete if you have left or are about to leave the UK.
- HMRC Form P85 Leaving the UK, getting your tax right.
- Money, Tax & Benefits information if you are leaving the UK.
- Tax Information available from HMRC about what tax you will pay while in the UK
- HMRC working or going outside UK National Insurance contributions, Retirement pension forecasts and advice for those abroad.
- Going to live abroad A guide issued by the Foreign & Commonwealth Office.
- State Pension for Britons living aboard Information about how to claim, where it can be paid and lots more information.
- The Association of International Life Offices In the Literature section there is a range of free guides for British people moving overseas, including a general guide for those retiring abroad.
Human Resource information and policies for employees based at an UCL campus’ overseas: