What is (hopefully) one of the cheeriest of occasions, retiring abroad, can and often is soiled by an endless amount of paperwork and one big question: whatever will happen to my pension? It seems daunting, but once you understand the process, you'll see it's not rocket science. Here, we explain how it works.
Transferring pensions overseas is possible, and there are multiple ways to do it.
The rules for transferring pensions abroad depend on the country you are moving into.
There are multiple international agreements in place that aim to ease the process of transferring pensions.
The tax implications associated with moving a pension overseas depend on where you’re moving, where your new pension provider is based, and the relevant international agreements.
The best way to move a pension is to transfer it to a qualifying recognised overseas pension scheme.
Can I Get My Pension if I Live Abroad?
In short, yes, you can receive your pension if you live abroad, though specific rules and taxation implications vary on multiple factors.
Our article will explore the eligibility and process of receiving a pension while living abroad, including considerations for taxation and cross-border regulations.
State Pension
Savers who have paid enough National Insurance contributions to qualify can access their state pension from abroad, with one small caveat. Depending on the country they moved into, they may not be able to benefit from state pension increases.
Countries from the Europe Economic Area (EEA)
Gibraltar
Switzerland
Countries that have a social security agreement with the UK, except Canada and New Zealand
Unlike retirees that live in the UK who benefit from every pension increase, and receive the latest state pension amounts, some retirees that live abroad may only be entitled to the amounts from when they left the country.
Savers who have moved abroad must be within four months of meeting their age requirements to claim their state pension. They can then contact the International Pension Centre or send the international claim form to make their claim.
It is also important to note that retirees can only choose one country per year as the country they want to receive their state pension. They can’t receive their state pension in one country for one part of the year, and in another for the rest of the year.
Once they meet their age requirements, savers can access their state pensions from another country. However, accessing your pension pots from abroad usually involves additional charges and administration, which is why many savers decide to transfer their savings to a provider based in the country in which they currently reside.
To do that, expats have to find a provider that meets the Qualifying Recognised Overseas Pension Scheme (QROPS) criteria and move their pension to it.
Alternatively, savers may choose to keep their retirement funds in the UK and have their incomes affected by exchange rate changes. Depending on the British Pound’s relative strength, or weakness, this solution may be a better or a worse option.
How do I receive my state pension?
A saver’s state pension can be paid into a bank in the foreign country they are currently living in, and they can use an account in their name, a joint account, or an account that belongs to someone else, as long as they have authorised access.
The necessary information for receiving a state pension abroad includes the international bank account number (IBAN) and the bank identification code (BIC) of the receiving account. Savers can choose whether to receive their pension once every four or every 13 weeks.
Retirees that qualify for a small pension, of under £5 per week, will get paid once per year in December.
Finally, retirees who have moved abroad can be subject to different tax implications when accessing their state pension. If they move to a country that doesn’t have a double-tax agreement, they may end up paying taxes in their current country as well as the UK.
Workplace Pensions and Private Pensions
Moving should not have a significant effect on private and workplace pensions, and all savers who decide to live the rest of their days abroad should have them paid in full.
However, since workplace and private pensions are managed by private providers and not the government, there may be some rules and requirements imposed by the provider.
For example, some workplace schemes will have no problem paying out to an overseas bank account, while others may only accept paying into a UK bank.
Moreover, some private pension providers offer free-of-charge overseas money transfers, while others may charge a fee for every international money transfer made to receive your pension.
All providers operate differently and have different ways of moving pensions from the UK to another country. To find out more details about your personal situation, it is best to contact your provider and let them explain how to best move your private or workplace pension to the country you want to move into.
International Agreements
There are some international agreements that can impact pensions when retiring abroad, including:
Reciprocal agreements address social security benefits, including pensions, and help ensure that individuals who have worked in multiple countries can qualify for benefits based on their combined contributions
European Union (EU) regulations coordinate social security provisions, including pensions, between the UK and EU member states.
Double taxation agreements primarily focus on avoiding double taxation and impact the taxation of pension income for UK residents living abroad.
Commonwealth agreements coordinate social security benefits, including pensions, for savers who worked and lived in the UK and the Commonwealth countries.
Research the agreements – Different agreements apply to different situations. Check out the UK government's official website, gov.uk, to find out which agreements apply to your specific situation.
Contact the International Pension Centre (IPC) – The IPC is a dedicated UK government department that handles international pensions. Contact it to get more information on eligibility, application procedures, and available benefits.
Complete Application Forms – The IPC or the relevant authority in the country of residence can provide the necessary forms and assist you with the application process. When done, submit the required documentation.
Follow Up and Communicate – Stay in touch with the IPC or the relevant authority throughout the application process. Regularly check for updates on the status of your application and be responsive to any correspondence.
If you encounter complexities or have specific questions about the application process or the benefits you may be entitled to, consider consulting a pension specialist or financial advisor with expertise in international pensions and agreements.
Tax Implications
When it comes to pensions and living abroad, the tax implications are affected by what country the retiree is considered a resident of. If they are classified as a UK resident for tax purposes, they may have to pay UK tax on their state pension, even though they live abroad.
As mentioned above, you can only transfer your pension to a qualifying recognised overseas pension scheme overseas. While transferring to a non-QROPS scheme is technically possible, it requires you to pay a minimum of 40% tax on the transfer.
In addition to whether the scheme you are transferring to is QROPS or not, the location where your provider is based can also make a difference in tax implications.
If you transfer your pension to a QROPS based in the EEA or Gibraltar and live outside the UK, Gibraltar, or the EEA, you will need to pay a 25% tax.
If you move to live outside the EEA, Gibraltar, or the UK, within five years of the transfer, you will still be subject to the 25% tax.
However, if you have lived outside of and then have moved into the UK, Gibraltar, or the EEA within five years of the transfer, you are entitled to a tax refund.
On the other hand, if you transfer your pension to a QROPS which is not based in the UK, Gibraltar, or the EEA, you do not have to pay tax as long as you live in the country where the QROPS is based.
In some cases, some expats may be taxed both in the UK and the country they currently reside in. In such cases, they may be entitled to tax relief and be able to get some or all of their money back.
On the other hand, in countries that have a double-tax agreement with the UK, retirees living abroad will only be taxed once on their state pension. Depending on the country they live in and its tax agreement with the UK, they will either pay their taxes in the UK or in their current country.
The good news is that the UK has this type of tax agreement with over 100 countries worldwide.
Transferring Pensions
Here’s a brief breakdown of all the steps you need to take to transfer your pension abroad:
Research pension transfer options – Consider all the important factors we already discussed, like international agreements and tax implications, to find a suitable option.
Consider seeking professional advice – It’s always a good idea to hire a professional who can provide guidance tailored to your specific circumstances.
Contact all your pension providers – Regardless if they’re state, workplace, or private providers, inform them of your intentions of moving your pension abroad. Be ready to provide them with the necessary information, and they will provide you with the paperwork and further guidance on the transfer process. Consolidating all your pensions into a single plan can make the process easier.
Finalise the process – Fill out the necessary forms and await the final transfer confirmation patiently.
Transfer fees – The charges related to transferring your pension vary from one provider to the next.
Administrative fees – Besides the transfer fee, some providers may charge additional administrative costs for facilitating the transfer process.
Financial adviser fees – If you decide to utilise the services of a financial advisor or pension specialist to assist you with the transfer, it will come at an additional cost.
Additionally, whether you decide to draw your pension funds into a UK bank and transfer them abroad or move your entire pension to a QROPS, you will, at one point, have to exchange them for the native currency. As currency values fluctuate, there is a chance that you may gain or lose money during the currency exchange process.
The Bottom Line
In summary, transferring pensions abroad is possible for qualified savers who made the necessary National Insurance contributions, but it is a slightly complex process.
The specific tax implications and costs associated with such a transfer vary case by case, as there are multiple factors that can affect them.
This is why seeking professional advice before taking any actions regarding retirement abroad is strongly recommended. Financial advisors can provide personalised guidance based on your individual circumstances, help you navigate the complexities of international regulations, and ensure that you make well-informed choices that align with your retirement goals.
FAQs
What happens to my pension if I move abroad permanently?
Can I continue to pay into my pension if I retire abroad?
Can I transfer my pension to a foreign scheme?
Will my pension be affected by currency exchange rates if I move?
Additional Resources
- The key to successful retirement planning is understanding the options available and finding one that works for you. Whether you're an employee or a self-employed individual, having a pension plan is a secure way to ensure you will have a steady stream of income during your retirement years.
- Self-invested personal pensions (SIPPs) and personal pensions are popular retirement-planning options in the UK. And yet, many Brits know little about these concepts. To help you out, we cover the fundamentals of SIPP and personal pensions, how they stack up against each other, and what you should consider when making a decision.
- Before you start planning trips you want to take in your golden years, you need to ensure there will be enough gold in that pot. You probably have a workplace pension already, but you can explore self-invested personal pensions if you feel a bit more adventurous.
- Saving for your future is essential, but finding the right way to invest your money can be overwhelming. For example, should you pay into an ISA or a pension plan? Let's down the options and find out.
- A drawdown pension can come in handy during retirement as it allows the holder to draw money from their pension pot as and when they need it. With the right drawdown pension plan, it’s possible to achieve maximum long-term growth with minimum risk. In this guide, we will be looking at the best-performing drawdown pensions available to help you make the best decision for your financial future.
- Your child might be decades away from retiring – but helping them build their pension early on will help them have a sizable pot once they reach retirement age. With the ability to deposit up to £3,600 per year without paying income or capital gains tax, a junior SIPP account is an excellent way to do so.
- When you leave an employer, any benefits that have been accrued in your pension will not be lost, as the fund actually belongs to you. This means that even though you are no longer working with that particular company, you will remain a member of their pension scheme and your money will stay invested as it was prior to leaving.
- A limited company pension provides a tax-efficient way for the company to build your pension pot for retirement. According to the latest data, most companies in the FTSE 100 channel between 7.5% and 11.5% of the director’s salary to their pensions.
- Are you looking for a flexible and controllable way to invest your pension savings? If so, you might want to consider a self-invested personal pension (SIPP). Unlike traditional pension plans, SIPPs give you the freedom to manage your investments in a hands-on manner and invest in a variety of assets, including stocks, bonds, and mutual funds.
