After a lifetime of toiling away, you’re keen to retire to Spain to enjoy some well-earned sunshine. You’re entitled to every penny, so don’t make costly errors with your pensions that could see you pinching pennies in your retirement. 

For those with State pensions, the Government’s pension top-up program has proved diabolically confusing. If you’ve reached State Pension age, you’ve got until April 5, 2017 to decide whether or not to top up your pension. Many are mistakenly making voluntary contributions that aren’t going to increase their pension. Be certain you don’t, too.  

The new pension changes:

Previously, you got a full basic State Pension of £115.95 or £6,029.40 annually if you’d paid 30 years of National Insurance (NI). Now, when you’ve reached pension age by April 6, 2016, you’re entitled to at least £155.65 per week or £8,060 annually- if you’ve paid NI for 35 years. 

The new option allows you to top up your NI contributions to fill any gaps you may have due to years of not working, self-employment or living abroad. By paying a single lump sum (a Class 3A voluntary contribution), before the April 2017 deadline, you could see up to £25 more in pension a week. 

The first step is to get your pension forecast, and the second is to understand exactly why you have gaps-otherwise you could be wasting money by filling them. Many people see their forecast, find a shortfall-and then panic-and pay extra. 

Should you mind the gaps?

Let’s say your Pension statement reveals gaps in your NI payment record because you were unemployed or self-employed. In that case, yes, fill the gaps by paying with a Class 2 or Class 3 voluntary contribution. Or maybe you were living abroad? Yes, you should pay the top up if you’ll reach pension age before next April. 

You’re entitled to a top up if you are eligible to receive a basic or Additional State Pension before 6 April 2016. That’s a man born before April 6, 1951 or a woman before April 6, 1953.

When not top up?

If you’ll reach retirement age after April 2017, the changes become confusing-this is where many are putting a foot wrong. You may see a pension shortfall because you “contracted out” or “opted out” of the old Serps (State Earnings Linked Pension) program also known as S2P. This was an earnings-linked pension top-up that let you “opt out” of the State’s system, giving you an NI rebate. 

If you contracted or opted out, don’t top-up your pension by making any voluntary contribution because your pension statement shows that you’ve contributed for less than 35 years.  Your gap is due to using Serps or S2P, which only required 30 years of payment in NI to receive basic State Pension. Topping up won’t give you any increase in the pension you receive. You’re better off leaving it as it is so that it carries into the new program and is calculated under the old rules. 

How much does it cost to top-up?

It depends on how old you are (you pay less the older you are) and how much more you’d like to receive. Also, it’s cheaper if your gap is due to self-employment or unemployment by using a Class 2 or Class 3. If you’re 69 and you’d like an extra £260 a year, the lump payment for a Class 3A would be £4,135. Check the Government’s calculator to compare prices.

Getting Your State Pension in Spain

You can claim your State Pension at home or abroad, as soon as you’re within 4 months of your pension age requirement. If you’re living part of the year overseas, you’ll need to pick the country your pension can be sent to because you can’t have it sent to more than one. 

You can make a claim by sending in your completed claim form (which you can either fill out online or copy and mail it to the address on the form). Since Spain is in the European Economic Area, your pension increases with those in the UK, but this may change, depending on future Brexit negotiations. 

A Private Pension Key Point: 

One big difference with a private pension is that you’re able to consider using a QROPS, which your State pension doesn’t allow. A Qualified Retirement Offshore Pension Scheme might be a good way to increase your pension funds if they’re between £200,000 and £1,000,000. If you’re funds are under £200,000 and you’re relying on them for income, a QROPS isn’t likely to be useful, though.

Your State or Private Pension can be paid into: Any bank or building society in the UK or your Spanish bank account. Either way, you’ll need to provide the bank’s international bank account number (IBAN) and the bank identification code (BIC) numbers for your Spanish bank account.

Before you pull a large percentage of your pension:

Many people who are purchasing property in Spain will tap their pension to do so. You can take out a lump sum of 25% of your UK retirement savings without paying taxes, so long as you do so before you move abroad. Keep as much of that money for yourself by protecting it from currency fluctuation. When you see the value of the pound fall each time there’s a shock headline in the news, that fall means you lose a lot when you buy abroad. This is when it’s essential to transfer a large amount by using a currency specialist.

Save Yourself from High Bank Fees: When you have your pension sent from your UK bank to your Spanish bank account, you’ll be paid in euros. This means that you’re exchanging currency at the most unfavourable rates. First, your bank gives you a poor exchange rate and then they add high fees each month for transferring your money.  Use a specialist currency provider to get more of your pension every single month! The service is far superior, it doesn’t cost you and you can protect yourself from currency fluctuation, too. 

If you’re considering buying a property in Spain and worried about how much you’ll have to spend, use a currency company before you buy and have them put a fixed forward in place for you. This locks in the current exchange rate for up to a year, helping you in two ways: You’ll benefit if the pound plummets, as it has over the past year. Also, you’ll have the peace of mind of knowing exactly what rate you’re getting, taking the guesswork out of budgeting for your place in the sun.