Pensions - State Retirement

Old-age pensions are among the most important social security benefits. It is therefore natural that people intending to take up their professional activities abroad or accompanying partners residing abroad, would wish to have a clear idea about future pension rights.

Every EC country has its own rules and administrative procedures as to how a pension can be claimed, its internal administrative procedures, the pensionable age and actual pension payments. It must be appreciated that rules are constantly being revised, but at the date of this report the following is given as a guideline/personal interpretation of the two systems between UK and Germany. For exact pension benefit details, individuals should contact the respective pension organisation.

Please note that this briefing document specifically excludes details of any BAESYSTEM occupational Pension Scheme, individuals should contact the Pension Scheme administrators direct. However, for all BAE SYSTEMS Pension Members, BAESG organize annual presentation sessions for all staff to be updated on the progress of their pension scheme.

A compulsory state pension deduction is made each month (Rentenversicherung). Please refer to section Taxes/Social Security Deductions for the latest figures and percentage deductions.

Normally when individuals leave UK and become resident overseas/receive salary overseas, they will automatically leave the UK social security system entirly, as local contributions must be made with salary in Germany, not UK. However it is possible to apply to pay Class 1 contributions. If moving overseas you must request permission to continue at Class 1 contribution rate. If approved, it is only permitted to a maximum of 52 weeks. Alternatively, you can request to pay "Class 3" voluntary contributions.

It is advisable to request professional private financial advice with regard to the long-term financial benefit of "topping-up" any Retirement Pension. It is possible to pay Additional Voluntary Contributions to the UK State system, the German State system, and/or a totally private pension scheme. We cannot give direction on this aspect and therefore recommend individuals seek private financial advice.

In the UK, the current system shows that to receive a State Retirement Pension at the full rate, an individual must have a fairly complete National Insurance record for about 90% of a "working life". A working life comprises the number of complete tax years from the age of 16 to the year before State Pensionable Age (normally 49 years for men, 44 to 49 years for women, depending when born).

There are varying elements which are assessed for UK pension entitlements, e.g. actual number of contributions made, whether divorced, married or widowed and also certain provisions for married women who may have remained at home to care for children (more details below). For most individuals working overseas, there will not be a complete UK NI contribution record to qualify for the minimum Basic UK Pension. This however should not be a problem as where individuals have lived and worked in another European Community (EC) country, or in a country whose Social Security system is linked to Britain's by a Reciprocal Agreement, Social Security contributions made in that country will "top-up" the full contribution conditions for a full pension.

This area is far too complex to summarise for all different personal situations. For a correct assessment of contribution level/estimate of a potential UK retirement pension (which will exclude pension contribution in other EC countries) individuals can request a personal pension forecast from the UK Inland Revenue (see Address contacts at the end of this section).

This UK Retirement Pension Forecast is extremely helpful and will provide a detailed explanation of a personal contribution record in the UK, effects of marital status etc, and projection of full UK retirement pension. Full advice will also be given for paying additional voluntary contributions if current UK prediction shows a pension at a reduced rate. Please note however that this will only be an estimate of UK retirement pension excluding any overseas contributions. On reaching retirement age a full and proper assessment will be made.

If contributions to the German State Pension scheme have been made for less than 12 months, these contributions will be held in the "system" until retirement/application for a full pension (see below on retirement country). Contributions for this period will be confirmed and will count towards a full retirement pension in the country of residence.

To receive a German State pension (i.e. a separate German (BfA) Pension in addition to a UK pension), contributions must have been made to the German State System for a period of over 12 months. In addition, however this separate German (BfA) pension can only be claimed if contributions to any State pension scheme are more than 5 years, i.e. can include contributions made in the UK before arrival in Germany).

It is possible to request a pension forecast from the German State Pension system, however there will be numerous forms to be completed requesting information about a whole working and student life. This is not a quick procedure as an attempt is made to make a full and correct pension forecast, rather than an estimate (see below 'Formalities before leaving Germany'). The following is taken into account when calculating pension payments:-

Periods of contribution (to German scheme)
Periods of child-rearing years (up to child's 10th birthday)
Education years if continued after 17th birthday

It is possible to request a cash lump-sum on retirement as an alternative to a German State Pension, however as currently the payments are split between employer and employee, if a cash-sum is requested, this will only be an individual's own contribution payments (i.e. will not include the employers statutory contributions made). To request this, individuals must also be resident outside the EU when reaching retirement age, and have contributed for less than 60 months.

Pensionable age is the minimum age people must be before they can claim and receive a state Retirement Pension. In UK this is currently 60 for a woman and 65 for a man. Pensionable age will be equalised at 65 for both men and women from 6 April 2020. The change from the current pensionable age of 60 for women to 65 will be phased in over a 10-year period from 2010 to 2020.

Pensionable age for women born on or before 05 April 1950 is 60, women born on or after 6 April 1955 is 65. Women born after 5 April 1950 but before 6 April 1955 pensionable age is 60, plus one month for each month that their date of birth fell after 5 April 1950.

For each month of early-retirement, that old-age pension is drawn before reaching the age of 65, the pension will be reduced by 0.3%. However there are numerous special regulations and it is recommended that insured parties born between 1937 to 1950 contact the BfA for assistance.

If a parent's opportunity to work is limited due to remaining at home to bring up a family, in UK a 'Home Responsibility Protection' arrangement can help to get a basic retirement pension for that person. Calculated by reducing the number of qualifying years required for a full pension. This scheme is only applicable from 06 April 1978 and the parent must have claimed UK Child Benefit for the child, and can be claimed to a maximum of 20 'non-contributory years'.

Once a parent moves overseas/is ordinarily resident overseas and becomes subject to foreign legislation, he/she can no longer claim UK Child Benefit, but can alternatively claim the local overseas child-benefit payments. In Germany, 'Kindergeld' payments should be applied for. An arrangement also exists in Germany to protect a parent's pension rights whilst remaining at home to bring up a family. For a child's birth before 1992, 1 year is allowed as a 'non-contributory' period. If the child was born after 1992, 3-years 'non-contributory' period is allowed. I.e. in essence it should be possible to be able to claim these 'premiums' on retirement. Voluntary contributions, once the family credits come to an end, are also possible.

In addition, if resident in Germany and remain at home for "child-raising-years", due to current German State Pension Benefits, extra premiums can be claimed for time spent in full-time-education after 17th birthday. It is therefore strongly recommended that claims are established and paperwork finalised with the BfA (see below on 'formalities before leaving Germany').

In general, applications for an old-age pension should be made 3 months before reaching pension age.

Applications for a state retirement pension must be made in the country of residence. Whichever country an individual applies from will then investigate any claims made from contributions in other EC countries. Each country will assess contributions/benefits from their system and exchange information between the different EC countries' respective pension administration authorities. If an individual has contributed to any other EC country for more than 12 months, that country will commence liaisons directly with the individual, resulting in the receipt of separate independent pension payments from each applicable EC country. Each country where insurance exists will calculate and pay a pension either under their own "separate" national legislation, or a "pro-rata" calculation from EC Regulations.

Please note also, that applications should also be made in the country of residence, even if the applicant has no right to a state pension from that particular country. For example if a wife is resident in Germany but believes has no entitlement to a pension in Germany (not brought up children here/not worked at all etc), she should none the less apply for her state pension in Germany. They will then process the initial application through to UK State scheme.

If the Benefits Agency in UK have not received a pension request via an application from an overseas place of residence, and they have details of that individual's home address, they will write directly to the potential pensioner directly nonetheless (approximately four-month's before reaching UK State Pension Age). They will ask if a formal application is to be made for a UK Retirement Pension.

On retirement, if an individual plans long-term travel/ residence in any other country, in general it should be possible to receive any State Retirement pension at that overseas location. There are various options of payments, for example, if you ordinarily reside in UK and wish to go abroad for less than 3 months the pension payments can be built up and cashed in on return. If a pensioner plans to go abroad for more than three months it should be a simple transaction to arrange for payments to be made to a banking institution at the new location.

Resident in UK
A UK State pension is paid with no deduction at source for tax/social security. However the payments must be declared to the Inland Revenue on annual taxation assessment forms, as these payments are treated as income for tax purposes and any taxation liability applicable is levied at that time (i.e. taxation percentage rates dictated by the Chancellor/annual budget reviews on allowances etc).

If a German BfA pension is received in addition to a UK pension, this also must be declared in the same way as the UK pension and assessed for taxation liability in UK (should be paid gross from Germany with no German tax deductions).

Resident in Germany
German tax should not be deducted at source from Pension payments. The German BfA pension received in Germany is not taxed at source; any taxation required to be paid on a pension is assessed annually on completion of taxation returns. However, the pension payment(s) received will probably be below the threshold for German taxation.

'Ertragsanteil' - accumulated income accrued from interest on the contributions is the current taxation arrangement. If retiring at 60 it is 32% of the pension, reducing a percentage point every year to the age of 65 at 27%. As a rough guide this amounts to a tax burden of 8-10% of the gross amount of pension received and is assessed in the annual tax return.

If you are resident in Germany, and receive a separate pension payment from the UK State system as well as a German State payment, UK pension payments should also be included in the annual tax return for consideration of taxation liability in Germany.

Resident in UK
UK Health Insurance contributions are not applicable for pensioners resident in UK.

Resident in Germany
Before retirement, insurance Payments in Germany are split between employer and employee. On retirement this same principle applies, BfA pays the 'employer's' proportion, and deducts from individuals at source for their contribution percentage, the following variations may apply:

If resident in Germany and were a member of the State Health Scheme just before retirement date, liability continues to an individual to pay their "portion" of the health insurance payments. The BfA deducts this portion, and pays both that and the "employer's" portion direct to the medical insurance company.

If resident in Germany and were in a Private German Health scheme, the BfA will actually pay an individual the "employer's" portion, and each individual must then pay the full amount direct to the private health company. Please see the notes on [Healthcare in Germany], as this is the stage when an individual would probably feel the higher financial burden of opting for a private healthcare arrangement as opposed to the State healthcare plan (generally cannot revert back to a State Medical Insurance from being in a Private scheme).

If you leave Germany on retirement (or are claiming a pension outside Germany due to residency in another country), the BfA will pay an individual the "employer's" portion with monthly pension payment, it is then up to each individual to make their own medical insurance arrangements. It is not possible to take advantage of any German State medical scheme facilities or nursing care plans if non-resident in Germany.