State Pensions and benefits while working abroad: A Guide for Employers

Global Mobility plays a crucial role in driving business success, but also presents a number of challenges for HR and GM teams managing employees across borders. Amidst these complexities, it is essential to carefully consider the implications of working abroad on employees' state pensions and benefits.

While HR and GM teams have little desire to become experts on the intricacies of international social security systems and the benefits they provide, it is essential that when moving people abroad the impacts in these areas are at least recognised and aren’t ignored during the moving process. State benefits are often emotive subjects and disproportionately important (compared to their monetary value) for employees. There can be an expectation amongst movers that their employers will understand how moving abroad impacts these, as well as potentially compensating employees for any losses.  

Understanding International Social Security Agreements 

Almost all social security agreements have provisions that deal with benefit entitlements. In most cases, this is limited to state pensions – where contributions are paid, what pension entitlements accrue, and how to ensure that employees working between two countries do not lose pension benefits as a result of contributing into two social security systems. These rules are comparatively straightforward, fairly consistent across most agreements, and so can be routinely communicated during the moving process. 

Aside from pensions, the situation is quite different. Many agreements are silent on the impact on other benefits, and in Europe in particular, the social security benefit rules applicable to cross border workers are far more complex. To illustrate this, the EU rules on cross border social security contributions are contained in about 3 pages of legislation. The benefit entitlements take up 35 pages. Complicated rules are in place regarding the portability of some benefits (ie whether they can be claimed after an individual has moved locations), qualification periods, reciprocal benefit rights and so on.  

The consequence of this is that individuals moving countries within the UK/EU/EEA may lose some home country benefits and may qualify for new host country benefits. Their expectation of their employers would probably at the very least be that they should be reminded to check their entitlements. 

Expatriate Policy Development

Employees who have been asked to move overseas by their employer, may feel aggrieved (rightly or wrongly) if such a move has caused them to lose benefits. Those employees who have initiated the request should also be made aware of the implications on their benefits if they move to an overseas employer.  

As such it is advisable that GM policies cover off the broad approach to non-employment benefits. This could be as simple as a policy clause that definitively states that an impact on state benefits as a result of a move is not the responsibility of the employer. It could, alternatively, offer a certain level of protection in case the employee genuinely does lose out.  

There is no ‘right’ approach, but employers should take care to limit their liabilities, perhaps while offering limited specialist support, and in doing so at least recognise that benefit entitlements can be impacted by an international move. 

Healthcare Coverage 

Access to healthcare is a vital aspect of any employee benefits package. While most employers have private healthcare schemes for their international movers, this may be limited in scope and not cover all eventualities. Employers should be aware of the state-provided healthcare provisions in the destination country and determine whether they expect their expatriates to use them. In Western European countries, the level of state healthcare provision can be so high that supplementary insurance or private healthcare plans may not be necessary. In addition, some countries may have reciprocal healthcare agreements that allow movers to access healthcare services without local social security contributions being paid. 

Tax Implications 

State pensions and benefits are often subject to taxation, and the tax landscape can change significantly when working abroad. Employers should provide guidance to international movers on the tax implications of their state pensions and benefits in both the home and host countries. Decisions will need to be made about whether to protect expatriates from taxes arising from any state benefits, particularly if those benefits are not taxable in the home country if this is not already covered is the policy.  

Communication and Employee Support

Effective communication is key. Providing resources and support to help movers navigate the complexities of international benefits can contribute to a positive employee experience. Employees are very aware of their ‘entitlements’ and the sudden loss of these can be a disrupting experience for them, as well as requiring a disproportionate amount of internal support to resolve. Developing an awareness of the potential problems in this area is potentially the best way to minimise the impact.  

While employee state benefits will never be at the top of the list of priorities for a GM team, the amount of time needed to resolve problems (compared to the amounts at stake) in this area make it something which is worth keeping in mind during the moving process.  

Some simple policy additions can significantly reduce ‘noise’ and generally contribute to a more satisfied population.