While your retirement may still be a little way off, it’s important to take time to prepare your finances for when you’re no longer earning an income.
Whether you’re moving overseas for a career opportunity or are retiring abroad for a change of pace, it’s important to consider what that may mean for your pension savings.
By taking time to understand how your move might affect your pension, you’ll be better placed to make informed decisions, mitigate potential tax charges, and avoid losing valuable benefits.
Keep reading to find answers to questions you may have about your pension and whether you can still expect to receive the State Pension when you retire.
What will happen to my UK pensions when I move abroad?
When you move to a different country, any existing pension arrangements you have will remain in the country where they originated, unless you transfer them.
If you opt to leave them where they are, you’ll usually be able to start drawing money from them once you reach age 55 (rising to 57 from 6 April 2028).
Could I transfer my pension to the country I move to?
Typically, you’re able to transfer your UK pension to the country you’re relocating to, but you need to be sure you’re transferring into a qualifying recognised overseas pension scheme (QROPS).
While it sounds complicated, a QROPS is essentially a pension scheme that follows similar rules to UK schemes. You can find a list of qualifying schemes on the government website, but it’s rarely a straightforward decision.
While transfers to QROPS can be made tax-free, depending on your circumstances and where you’re living when you make the transfer, you may have to pay 25% tax on the amount you transfer out of the UK.
There’s also an overseas transfer allowance to consider, which caps the amount of pension savings you can transfer out of the UK. This is usually £1,073,100 (unless you have appropriate protections). If you move any more than this, you’ll generally be charged 25% tax on the excess.
In most circumstances, funds will become taxable once you start taking benefits. The tax charged will depend on where you’re living when you make the withdrawals.
Another important thing to consider when planning your retirement in Europe is that most European countries will view the 25% which you can take tax-free in the UK as earned income. This means you will be liable for taxes up to your marginal rate of tax, which could be as high as 55%.
Are there any other transfer options?
An alternative arrangement that might offer more flexibility is to transfer your pension to a self-invested personal pension (SIPP).
A SIPP allows you to invest your retirement savings in a wide range of assets, as well as providing lots of different options for how you access your money. Additionally, SIPP funds can be held in multiple currencies, which can help eliminate concerns around currency fluctuations.
Could I continue contributing to my UK pension while living overseas?
Maybe. It will depend on the rules of your pension provider, so ask them directly whether this is something your pension plan allows.
If you can keep paying into your scheme from abroad, you may not be eligible for the tax relief you’d usually get on your contributions. It’s worth checking as it could alter how you choose to save for your retirement while living abroad.
How can I access my UK pension pot if I retire abroad?
Even when living abroad, you can generally make pension withdrawals as you would in the UK. That said, it’s wise to check with your pension provider, as options may be limited in some cases.
If your existing plan doesn’t offer what you want, get in touch and we’ll help you find a scheme that may fit better with your long-term plans.
Can my pension be paid into a foreign bank account?
While some pension providers may be happy to pay funds into an overseas bank account, you may find there’s an additional charge for doing so. Ask your pension provider for the details related to your scheme.
Remember to account for exchange rates that may affect how much you get when your pension money is converted into your local currency.
What tax will I have to pay on withdrawals?
This can get complicated. Money you take from a UK pension scheme is treated as UK income, so payments might incur UK Income Tax.
However, depending on where in the world you’re living, you might be taxed on it twice.
Most European countries have a Double Taxation Agreement (DTA) with the UK, meaning you won’t be taxed twice on the same income. But this isn’t always the case.
Whether it is possible to cease payment of UK tax on a pension will depend on whether there is a DTA with your country of residence.
To discuss how your chosen country might affect the tax you pay, please get in touch.
Will I still be able to claim the UK State Pension if I retire abroad?
Yes – you’re entitled to claim your UK State Pension even if you’re living abroad. However, the rules around how much you will receive and any inflation-proofing will depend on where you live.
The amount of State Pension you receive is based on your record of National Insurance contributions (NICs). If you reach State Pension Age with fewer than 10 qualifying years, you won’t be entitled to any State Pension at all.
Your State Pension is not automatically paid when you reach your State Pension Age. You must take active steps to claim it.
However, you may wish to defer when you receive your State Pension, as doing so could increase the amount you receive. For every nine weeks you defer, it increases by 1%. So, if you defer for a year, it will increase by almost 5.8%.
Whether deferring is in your best interests will depend on your individual circumstances.
Read more: What happens to your UK State Pension if you’re a British expat?
The UK State Pension can be complicated. Talk to one of our expert advisers to discuss your situation in detail. They will help you understand more about what the State Pension is worth to you and advise you on all your options.
Get in touch
Your pension may be the most valuable asset you own. Make sure you protect it by doing as much research into the advantages and disadvantages of a pension transfer as possible before taking any action. We’d be delighted to discuss your situation and answer any questions you may have.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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