Many of us dream about moving to sunnier climes when we retire, but might be worried about what this will mean for our retirement savings.
Tax rules overseas can be complicated, and moving abroad could affect your State Pension too, so you’ll need to think carefully about the financial implications of leaving the UK, as well as the lifestyle change you’re making. After all, you may have spent decades saving into your pension by the time you reach your fifties and sixties, so you’ll want to ensure that moving abroad still means you have access to your pot to provide you with a comfortable retirement.
With the current cost of living crisis in the UK, more people than ever are looking to retire abroad for a cheaper lifestyle, as well as better weather. According to research by Canada Life, around 64% of over-50s who are looking to retire abroad are doing so for a better lifestyle, while 54% are making the move in the hope it will reduce living costs, up from 45% in 2021.
Here, we explain what happens to your State Pension, personal and workplace pensions if you retire abroad, and how to transfer your pension abroad if this is the right option for you.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
Contents
- What happens to your State Pension if you move abroad?
- Can I access my workplace or personal pension if I move abroad?
- Should you transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS)?
- Should you transfer your pension overseas?
- Do I need professional financial advice to move a pension overseas?
- What taxes will you pay for transferring your pension to a QROPS?
- What tax do you pay on pension withdrawals if you live abroad?
- Where to seek advice
What happens to your State Pension if you move abroad?
If you qualify for some or all of the UK State Pension – currently £203.85 a week in the 2023/24 tax year – you can claim this while you’re living abroad. You need 35 years’ worth of National Insurance Contributions to receive the full State pension, and at least 10 years to be entitled to some. Find out more about the rules in our article How the State Pension works.
You can choose to have your State Pension paid into a UK bank account or a bank in the country you’re living in, but you’ll need to take account of currency fluctuations as these are likely to affect the amount you receive.
However, you may not be entitled to the increases each year in your State Pension payments if you retire abroad, depending on which country you move to. By contrast, if you retire in the UK, you’ll benefit from rises in your State Pension payments every April in line with the ‘triple lock guarantee’. This guarantees that the State Pension rises in line with whichever is higher out of earnings growth, September’s inflation figure, or 2.5%, to ensure it won’t lose value in real terms. Read more about how the triple lock works in our article What is the pension triple lock?
Tom Selby, head of retirement policy at AJ Bell, said: “Whether or not your State Pension continues to increase in line with the triple lock will depend on the country you move to. This is a major consideration as over the course of someone’s retirement the impact of having your State Pension frozen could be substantial.
“The State Pension will only increase each year if you retire to a country in the European Economic Area (EEA), Gibraltar, Switzerland and countries that have a social security agreement with the UK. For example, if you move to the USA your State Pension will increase, but if you retire in Canada or Australia it won’t.”
As part of the Brexit agreement, the UK still has a deal with the EU that anyone living within the EEA will receive increases in their State Pension.
Claiming your State Pension if you’re living abroad
If you move overseas, you should send the international claim form to the International Pension Centre (the address is on the form) to claim your State Pension. You have to choose which bank account – and which country – you want your pension to be paid into.
Can I access my workplace or personal pension if I move abroad?
If you’ve saved into workplace and/or personal pensions, you can make withdrawals if you live in another country once you reach retirement. You can receive your workplace pension abroad whether it’s a defined contribution or defined benefit (final salary) scheme.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “If you move abroad then you continue to receive your workplace pension, and you should receive any built in annual increases you are entitled to. However, it’s a good idea to speak to your scheme/provider first though as some may only pay it into a UK-based bank account. If it’s paid into an overseas account then there may be charges to pay.
“You must also be aware of the impact of currency fluctuations as you will be paid in pounds sterling so you will see your income go up and down as you convert it. In times of severe fluctuations this could cause you issues when it comes to planning your income.”
To avoid being subject to exchange rate fluctuations, and reduce charges, some Britons who retire abroad choose to transfer their UK pension to a so-called Qualifying Recognised Overseas Pension Scheme (QROPS) in the country they are living in or plan to retire to (find out more about these below).
Options for taking your pension benefits
The options you have when it comes to taking your benefits will depend on the particular type of pension you have, and which country you’re living in. Read more in our articles What are the different types of pension? and Your pension options at retirement.
Dale Critchley, pension policy manager for Aviva, said: “Generally, UK companies won’t be able to sell you a new pension plan if you’re living overseas. This might mean that it’s more difficult to access some options such as an annuity or drawdown if that isn’t available within your existing pension plan.
“However, you should still be able to transfer your plan to any UK pension that offers the full range of options, so it might be worth checking which are available to you before you leave the UK, and make sure you have a modern pension with all of the retirement options available.”
Should you transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS)?
If you’re living overseas, you can transfer your workplace or personal pension to what’s known as a ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS). This is an overseas pension scheme that meets HMRC rules to receive transfers from UK pension schemes. Rules include that the pension must be available to residents in the country, and you cannot withdraw money from the pension before the age of 55 (unless there are special circumstances involved, such as you’re diagnosed with a terminal illness). This same rule applies to defined contribution pensions in the UK, so if you’re ever told you can access your pension earlier than 55 (rising to 57 in 2028) then this is likely to be a scam.
A QROPs could be a good option for you, depending on your personal circumstances and your particular pension. They enable you to reduce the impact of exchange rate fluctuations on your pension income, and keep on top of any tax implications for the country that you live in, for example, but it’s worth seeking professional advice on the options available to you before proceeding.
Moving to an overseas scheme that isn’t a QROPS
If you move your pension to an overseas scheme that isn’t a QROPS, you could face an eye-watering 55% tax charge for making an ‘unauthorised payment’ from your pension. You may even face additional penalties on top of this, and you’re unlikely to be able to get any of this money back.
Beware that fraudsters often target pensioners who are seeking to move their money abroad. This puts you at risk of moving to an unauthorised scheme, and losing your lifetime savings. Never engage with anyone who approaches you about moving to an overseas pension scheme unless they’re an authorised financial advisor who you contacted to discuss the process. Read more in our article Don’t let scammers steal your retirement.
Should you transfer your pension overseas?
Whether it’s the right decision to transfer your pension abroad will depend on your specific circumstances, and the type of pension you have. If you’re planning to retire abroad for the longer term, moving your lifetime savings abroad may be the most sensible option, but you should be aware of any tax implications (find out more about these below).
You don’t have to move your pension to an overseas scheme, but you might prefer to do so to simplify things if you intend to remain abroad. However, you can choose to leave your pension in the UK and receive an income from it into a UK bank account, or by moving the money to an overseas account. You could manage currency and exchange rate risk by, for example, setting up a foreign exchange account and moving money into a different currency when required.
If you do decide to transfer your pension to an overseas scheme, make sure you get to grips with exactly how it works and its rules so that you know which features differ from those offered by your UK pension. Check any charges to make the transfer, as well as set-up and annual fees for the new pension. Make sure you’re clear on how the QROPS will invest your money too, and if you’re comfortable with the level of risk you’re taking.
Do I need professional financial advice to move a pension overseas?
If you’re transferring your pension outside the UK, you’re very likely to benefit from seeing a professional financial advisor to help with the process, as you’ll want to ensure it’s managed correctly. A regulated advisor should also clarify any changes involved in the transfer, and explain how much it will cost.
Beware that there are various HMRC rules and regulations you must abide by when you’re moving a pension abroad. Advisors should only recommend transfer to countries that will offer the same consumer protections or which provide greater safeguards than in the UK.
If you want to transfer away from a defined benefit pension, also known as a final salary scheme, you must get regulated financial advice. These are valuable pensions that provide a guaranteed income in retirement, and there are particular risks involved in transferring them to a different scheme, whether in the UK or abroad. Read more in our article Should I transfer my final salary pension?
Depending on your circumstances and the type of pension you wish to transfer, you may need both a UK advisor who specialises in expat pensions, and an advisor based in the country you’ll be living in. However, standards for financial advice vary from country to country, so ensure you’re comfortable and confident in the advice you receive. You should receive clear information on the fees you’ll be charged for pensions advice from UK-based professional financial advisors, and although they won’t charge commission, this may not be the case in another country.
What taxes will you pay for transferring your pension to a QROPS?
You can usually transfer your pension tax-free to a QROPS if you’re resident in the country you’re moving to, or if you’re resident in a country in the European Economic Area (EEA) and the QROPS you’re moving to is in another EEA country (or Gibraltar). However, avoiding a tax charge is dependent on ensuring all the right paperwork is done to make the transfer.
Beware that if your personal circumstances change and, for example, you become non-resident in the UK within five years, move home or move to another country, you may face a 25% tax charge, known as the overseas transfer charge, on the amount you’ve transferred to a QROPS.
In addition, the same 25% tax charge will apply if you transfer your pension to a country based in the European Economic Area (EEA) or Gibraltar at a time when you are also not resident in either the UK, EEA or Gibraltar, or elsewhere.
Laurence Hodgens, from expatriate tax adviser Hodgens Global Ltd, said: “However, if an overseas transfer charge has been paid and your circumstances change within the next five years to satisfy the requirements, the tax charge can be reclaimed from HMRC.”
Tax rules can be complicated so you may need the help of a tax l advisor. If you want help from an accountant, you can find a qualified chartered accountant in your local area using the Institute of Chartered Accountants in England and Wales’ (ICAEW) directory of chartered accountants.
What tax do you pay on pension withdrawals if you live abroad?
The amount of tax you’ll pay on pension withdrawals again depends on where you’re considered to be a resident. If there is a double taxation agreement between the UK and your host country, you may be relieved from an additional tax burden in the UK if tax is payable where you’re living.
You may be taxed on your personal State Pension payments by the UK and the country where you live. However, if you pay tax twice, you can usually get all or some of it back. If the country you live in has a so-called ‘double taxation agreement’ with the UK, you’ll only pay tax on your pension once. This may be to the UK or the country where you live, depending on that country’s tax agreement.
Previously, pension savers who retired abroad may have been concerned about breaching the Lifetime Allowance. This is the amount you can save into pensions over your lifetime without triggering a tax charge. It stood at £1,073,100 in the 2022/23 tax year. However, in the 2023 Spring Budget, the Chancellor announced that the allowance would be abolished from April 6 2023.
Ultimately, the tax implications of moving abroad can be complex and are best clarified with a professional tax advisor who specialises in expat finances.
Where to seek advice
If you’re planning to retire abroad, or are already living abroad and considering how to manage your pension income abroad, you’ll probably need professional financial advice. However, as previously mentioned, you’ll want to find an advisor who specialises in expat finances.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
The Government’s Pension Wise service, run by the Pensions Advisory Service and Citizens Advice, also provides people aged 50 and above with free guidance on their pension choices at retirement. You can give them a call on 0800 138 3944 to book a free appointment, or you can book one via their website.
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