Pension FAQ

What does a QROPS mean?

QROPS stands for "Qualifying Recognised Overseas Pension Scheme".

A QROPS is a pension scheme which is not based in the UK, but meets specific criteria set by the HMRC in the UK.

If you live abroad and wish to transfer a UK private pension to a foreign scheme, it must be classified as a QROPS, otherwise you could face significant penalties of up to 55% of the value of your pension pot.

The HMRC reviews offshore pension schemes and decides which pensions qualify to become a QROPS and regularly updates a list that contains all pensions which qualify as a QROPS.

Please note that you can only have a QROPS if the provider is based in your country of residence. This can limit your options.

What is a SIPP?

A SIPP is a self-invested personal pension and is designed for people who want more control over the funds held within their pension.

SIPPs typically offer a wider range of investment options than other pensions and enable investors to make their own decisions about how their pension funds are invested.

It’s relatively simple to open a SIPP with many companies offering an online service most SIPPs can only be opened and managed online.

SIPPs give the holder greater visibility on how the funds are performing and enable the investor to make changes more easily and with fewer fees and charges.

Often an investor will still use an independent financial advisor to help manage their SIPP to ensure that any funds selected to meet their risk profile and are likely to enable them to reach their retirement plans.

For UK residents, SIPPs carry the same tax reliefs as any other pension and also adhere to the same rules meaning that funds cannot be accessed until the investor reaches 55 years old.

For UK non-residents, it is important to seek advice to ensure you fully understand the tax rules in the local jurisdiction as the rules will be different to those in the UK.

If you no longer live in the UK, while it is possible to open a SIPP, there are different rules regarding contributions and pension transfers into the SIPP. For example, you can normally only make contributions to a UK SIPP up to £3,000 per year and only if you have been a non-resident for five or fewer years. It is possible to transfer funds into a SIPP regardless of how long you have spent outside the UK.

If you live outside of the UK, it is highly recommended to seek independent advice before opening a SIPP to avoid restrictions, additional fees or charges and ultimately ensure that you are choosing the most tax-efficient investment vehicle for your funds.

SIPPs will often have fewer costs and charges, but the trade-off for that is that you are taking on more responsibility for the investments held within the SIPP and therefore they may not be suitable for everybody.

You should never solely rely on online advice and you should always seek independent advice before making an investment decision, especially regarding your pensions.

Can I transfer my pension?

Yes. But whether should or not is a different matter.

Transferring your UK pension abroad is generally only advisable if you are absolutely sure that you do not want to return to the UK. If you might become a UK resident in retirement, then you must consider very carefully whether you want your pension to be administered offshore (often carrying transfer costs and higher ongoing costs).

Residents in the UK will pay UK taxes on their pension no matter where the pension is held. Equally, residents abroad will pay UK taxes on pensions if the pension remains in the UK.

Assuming you are sure you wish to retire abroad, your pension is most likely to be accepted as such where you decide to settle if it is ‘in consideration of past employment’. Many countries make a distinction between this type of pension and a SIPP for example.

You may be subject to unexpected taxes from the country in which you choose to be a resident unless you plan ahead.

A successful pension transfer depends on:

Having a good pensions adviser, properly qualified to assist in international transfers.
Choosing the right jurisdiction based on your planned country of residence
Choosing the right pension type and trust
Understanding the taxes you must pay

If you choose to leave your UK pension scheme, it’s worth remembering that the benefits you’ve built up still belong to you. If you’ve decided to leave your pension, you have the option to transfer your benefits to another scheme, which could be based abroad.

If you’re living or working abroad, and have pension benefits held in one or more UK schemes, you may want to think about transferring these overseas. It’s worth noting that your UK pension benefits can only be transferred to an overseas pension scheme if it’s recognised by the UK tax authorities and meets certain criteria.

The requirements are that the scheme is:

Regulated as a pension scheme in the country where it’s established
Recognised for tax purposes (so that any benefits paid to you from the scheme can be taxed if appropriate).

There are some UK pensions which can’t be transferred. These include the UK State Pension, certain former employer schemes already in drawdown, Civil Service and Armed Forces pensions (for example NHS, police, teacher, fire services), Council schemes, an employer scheme you still pay into, any annuities already purchased or any pension held within the Pension Protection Fund.

Can I contribute to a SIPP when a non-resident?

Strictly speaking, UK non-residents are not allowed to make contributions to a SIPP. However, if you were classed as a UK tax resident within the previous five years you should still be able to make contributions of up to £3,600 each year.

As each SIPP has slightly different rules you would need to consult your existing SIPP provider to be able to establish whether you can continue contributing to your SIPP once you have left the UK.

It is recommended that you ensure you are aware of the rules before you move abroad, if possible.

Despite these rules, it is possible to open a SIPP and transfer funds from a different UK personal pension scheme whilst you are a UK non-resident.

However, once open, you may not be able to make ongoing contributions to the SIPP, whereas you should still be able to make contributions to other existing personal pension schemes.

Important pension transfer facts to keep in mind

If you are considering transferring a pension there are some factors that can be useful to think through.

You may need to compare the cost and charges of your current scheme against the new scheme, and think about whether you’ll lose any protection or guarantees from your existing scheme by moving.

Also, investigate whether you’re gaining greater flexibility about how you access benefits or will enjoy a better tax treatment when you draw benefits under the new scheme.

It’s also useful to find out how the new scheme will be invested, managed and how this is paid for.

What are the important rules to know about expat pensions?

There are four key areas which it’s useful to understand when considering an expat pension:

How and when can I access my benefits?
What are the upfront and ongoing charges?
How will it be taxed and do any Double Taxation Agreement conditions apply?
How will it be invested?

What are the potential benefits of transferring my pension abroad?

There are a number of benefits of transferring a pension abroad.

It may make sense from a tax perspective and offer more efficiencies or favourable tax treatment.

An overseas scheme may also offer more flexible benefits, which better suit your situation. Moving to a pension abroad can also remove you from any future tests relating to the Lifetime Allowance, which again may help eliminate unnecessary tax charges.

What are the potential risks of an expat pension transfer and how can I avoid them?

It’s important to consider some of the associated consequences of moving your pension overseas.

For example, you may lose access to existing or valuable benefits and guarantees. You could face initial charges and fees, or have to pay potentially high ongoing costs.

You also need to take care that your new scheme still offers the same level of flexibility when you need to access your benefits.

Finally, do consider whether a transfer will trigger any tax penalties such as a Lifetime Allowance charge or overseas transfer charge.

Can I get my pension if I live abroad?

Personal or workplace pensions can be paid to you wherever you live.

You’ll be entitled to any built-in annual increases in the same way as if you were living in the UK.

If you’re thinking of moving abroad, make sure you talk to your pension scheme or provider before you move.

Some providers might only be able to pay into a UK bank account.

But other providers might pay into an overseas bank account if you ask. Be aware that there might be extra charges to pay.

And bear in mind that your pension income will be paid in pounds sterling.

This means it will be affected by fluctuations in exchange rates when you convert it to your local currency.

You need to be prepared for your income to rise and fall because of this.

If rates go against you, it can seriously affect how much you have to live on.

Do I pay tax on my UK pension if I live or move abroad?

If you live abroad, you’re likely to be classed as a non-UK resident.

But you might have to pay UK tax on your pension income. This is because it’s classed as UK income. You might also have to pay tax on it in the country you live in.

If it has a double-taxation agreement with the UK, you can claim tax relief in the UK to avoid being taxed twice.

Moving before you begin taking income from your pension

If you move abroad before you start to take any pension income, you have two options:

Stop paying into your pension and take your money at a later date – from age 55 at the earliest.
Continue paying into your pension. But be aware that the amount of tax relief on your contributions might be limited.

It’s important to ask for regular updates on your pension if they’re not provided automatically.

When you decide to start taking money from your pension, you generally have the same options as you would if you were living in the UK.

Transferring pensions when moving abroad

It might be possible to transfer your UK pensions to a pension arrangement overseas if the pension plan is a Qualifying Recognised Overseas Pension Scheme (QROPS).

To qualify as a QROPS, certain conditions must be met.

It’s important to get regulated financial advice from an expert on pensions and overseas transfers before deciding.

Can I save into a UK pension plan if I live abroad?

You can live abroad and save into a UK pension scheme. But there are limits to the tax relief you can claim on your contributions.

Living abroad, or working for an employer who is based overseas, means tax relief on contributions might be limited – or not available at all.

Do you qualify for tax relief?

Tax relief on your contributions is limited to whichever of these amounts is higher:

your relevant UK earnings chargeable to UK income tax for that tax year; or
the basic amount of £3,600 where relief at source is provided.

The total amount of tax relief you can benefit from is also limited by the Annual Allowance. Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay a tax charge.

To get tax relief on your contributions, you must have been a relevant UK individual for that tax year.

You are a UK relevant individual if:

you have relevant UK earnings chargeable to UK income tax for that tax year
you’re resident in the UK, or
you were resident in the UK in one of the previous five tax years and, at the time you were resident ,you became a member of a UK registered pension scheme, or
you’re a Crown Servant – or a spouse/civil partner of a Crown Servant – and have earnings subject to UK tax.

What happens to my State Pension when I move abroad?

Claiming and receiving State Pension when abroad

You can claim and receive a UK State Pension while living overseas.

But Pension Credit stops when you move overseas permanently. This is a means-tested benefit, which can top up your weekly income.

When you move, you need to notify the International Pension Centre. Their contact details are on the GOV.UK website

If you’re from Northern Ireland, you need to notify the Northern Ireland Pension Centre. Their contact details are on the nidirect website

You also need to contact HMRC to make sure you pay the right amount of tax. Their contact details are on the GOV.UK website

Your State Pension can be paid to a UK bank or building society account, or to an overseas account in the local currency.

You’ll need the international bank account number (IBAN) and bank identification code (BIC) numbers if you have an overseas account.

You’ll be paid in the local currency. That could mean the amount you get may change due to exchange rates.

Just as in the UK, you can choose to delay or stop taking your State Pension for a time and get extra State Pension.

If you move to a European Economic Area country on or after 1 January 2021, your right to some UK benefits might change.

For the latest information, please see the GOV.UK website

Increases and tax once in payment

If you live abroad, you’re likely to be classed as a non-UK resident. This means you don’t usually pay UK tax on your State Pension.

But you might pay tax in the country you live.

If you live in the UK, your State Pension usually rises each year. But if you move overseas, you’re only entitled to an annual increase if you live in:

Gibraltar or Switzerland
A European Economic Area country
A country that has a social security agreement with the UK.

If you move to a European Economic Area country on or after 1 January 2021, your right to some UK benefits may change.

For the latest information, please see the GOV.UK website

If you move back to the UK, you will receive annual increases.

Impact before State Pension

You will not build up an entitlement to a UK State Pension if you live and work abroad and pay into another country’s social security system. But you can count relevant social security contributions made in EU countries towards meeting the qualifying conditions for a UK State Pension if you pay into the social security system of:

a country in the European Economic Area
Switzerland
a country that has a social security agreement with the UK.

Example

You worked in the UK for 5 years and built up 5 years of qualifying years on your National Insurance record by the time you reach State Pension age.
You also worked in an EEA country for 20 years and paid contributions to that country’s state pension.
You will meet the minimum qualifying number of years and be entitled to receive the new State Pension because of the time you worked overseas. But the amount you will receive under the new State Pension will only be based on the 5 years of National Insurance contributions you made in the UK.

If you move to a European Economic Area country on or after 1 January 2021, your right to some UK benefits may change. For the latest information, please see the GOV.UK website

You might also be able to claim a State Pension from the country you’re living in if you’re paying into its state pension scheme.

Returning to the UK

If you return to the UK, you need to notify the International Pension Centre. Their contact details are on the GOV.UK website