Clear Expat UK Pension Transfers Advice: How To Protect Your Nest Egg
UK Pension Transfers – The Basics
What is a pension transfer?
Transferring your pension means moving your funds from one scheme to another, either in the UK or internationally. Reasons you may wish to transfer your pension include: amalgamating multiple pensions; accessing a better scheme, or one that aligns with your principles and priorities; and moving overseas. Although there are loads of reasons to shift your pension elsewhere, in this guide, we focus on the rationales of expats and international workers.
Pension transfer risks
Transferring your pension can be a worrying time. Not only is there a litany of considerations, including exit fees, admin charges, loss of perks/bonuses and whether the tax is really greener on the other side – it’s a time when you can be vulnerable to crime. Unfortunately, when you have money, there will always be someone unscrupulous trying to scam you out of it. For this reason, UK pension legislation covers all pension transfer activity, so you should be certain the financial advice you’re getting is safe.
Which types of UK pension can you transfer?
Broadly speaking, you might have three types of pensions to consider when you leave the UK. Let’s break them down and see whether you can transfer them.
1. UK State Pension
You can’t transfer your UK state pension if you move abroad, but your NI contributions (not your country of residence or domicile) determine your entitlement to it. For this reason, you can claim the UK state pension overseas, even when you aren’t a UK citizen. DWP (Department of Works and Pensions) either pay it in to a UK bank account, or your non-UK bank account in your local currency.
How much you can claim rests on multiple factors. You can investigate these using the gov.uk guide to claiming the state pension if you retire abroad. You could claim a state pension from multiple countries if you’re eligible.
2. Occupational Pensions
Also known as workplace pensions, these are pensions set up by your employer(s). There are two subtypes:
- Defined benefit (final salary/salary-related) pensions
- Defined contribution (money purchase) pensions
You can transfer both types. Exceptions to this include:
- Unfunded public sector pension schemes (NHS, teachers etc)
- Any employer scheme still being paid into
- Schemes already in drawdown or that you’ve purchased annuities on
- Pensions held in the Pension Protection Fund
Transferring DB pensions won’t be right for everyone, and it will always be an inexact science. Is a bird in the hand worth two in the bush? You’ll need a skilled independent financial adviser to work out the answer (consulting one is a legal requirement if your DB pension is worth more than £30k).
3. Personal Pensions
Finally, you may have the following types of personal pension that you’ve set up yourself:
- Standard personal pensions
- Stakeholder pensions
- Self-invested personal pensions (SIPPs)
All these types of pensions are eligible for taking with you offshore.
Do you need to transfer your UK pension if you’re overseas?
The short answer is: no, you don’t need to transfer your UK pension if you live overseas. You can even continue to contribute to a UK pension while living abroad, so long as you use a UK bank account to make the contributions. If you stop paying into one, it will become a preserved or frozen pension. Even if you stop contributing to a pension plan, most continue to grow over time – however fees can chip away at your fund.
Also, although you can draw your UK pensions down from overseas in the same way as your state pension, there’s a catch: many providers either won’t pay into overseas accounts, or charge you fees for doing so.
Providing you let HMRC know, there’s nothing to stop you leaving your pensions where they are. But, if you don’t transfer your UK pension, it might cost you money.
Pension Transfer Options for Expats – And Their Benefits
There are two key schemes for UK pension transfers overseas for expats or international workers: QROPS and SIPPs.
QROPS stands for “Qualifying Recognised Overseas Pension Scheme” and refers to non-UK pension schemes that meet certain criteria set by HMRC. UK pension holders can transfer their fund to an QROPS potentially tax free (see below bullets for why we said potentially).
QROPS must meet strict criteria, so effectively it’s like having your cake and eating it with a UK-registered, HMRC-approved pension scheme. It’s like a UK pension scheme, but with greater flexibility, breadth of investment opportunities and tax benefits (like avoiding the dreaded LTA!).
Just as eating real cake has its consequences for the waistline, there are drawbacks to consider when transferring to a QROPS:
- You may pay tax charges – 25% if you register your QROPS in a country you don’t reside in, though there are ways around this
- Loss of certain benefits and bonuses
- High administration costs
- QROPS providers must report any withdrawals to HMRC for 10 years
- Must be resident outside the UK for 10 consecutive tax years before you can drawdown on a QROPS pension
- Can’t withdraw within five years of transferring from a UK pension
An international SIPP can be more flexible and portable than a QROPS – particularly important if you move around or return to the UK. They’re designed to be relevant to the currency you’re earning in (or will eventually spend in retirement), so you can move the capital to either GBP or another major currency if there’s a risk of it being undervalued. iSIPPs are UK-based, so FCA-approved and safe. But, you can invest your funds in a wider range of assets, so this can stimulate growth faster than a UK pension. iSIPPs also tend to be significantly cheaper than QROPS, but there is one major drawback:
- SIPPs don’t protect you from the LTA because they’re UK-based
How to determine if a QROPS or SIPP is better for expats
The answer depends entirely on your circumstances. SIPPs are cheaper and make returning to the UK easier, but QROPS tend to have more benefits/bonuses. Ultimately, the size of your pension pot is the big differentiator. If you have LTA concerns, i.e. a pension pot approaching £1m, the answer is usually clear. It’s QROPS for the win.
But the true answer to discovering the best route to your ideal expat retirement lifestyle is: get expert advice from a financial adviser specialising in expat retirement planning. That’s us, by the way. We’d love to hear from you. Contact us and make your dream retirement a reality.
Hear From Some of our Existing Clients
“I transferred my pension using Chris and Maxi’s expertise in this area. My existing scheme in the UK made it very difficult for me to take control of my own retirement savings. Chris and Maxi showed great determination, perseverance and care, in finally delivering my chosen result.”
“I wanted to transfer my pension from the UK. At first, I had a feeling of trepidation about using an online adviser. Chris and Maxi not only delivered a faultless transfer but the performance of my funds since has been first class.”