Are you a UK expat or foreign national who has recently left the UK and wondering how your UK pension will be affected? It can be daunting and seem complicated for expats who have no previous experience, plus your options will vary depending on the type of pension you have and where you move to.
In this article, we will explore some of the reasons why expats and foreign nationals may want to transfer their pensions abroad and the options available. We will also link to handy resources and forms that may help you in the future.
Why do people transfer their UK pensions abroad?
There are many reasons expats and foreigners transfer their UK pensions abroad, for example, they may be looking for proper management of their pensions, consolidation, or simplifying the administration. Not only that but there are different processes applying to transfers from individual pension arrangements, DB schemes, and DC schemes.
It’s very important that anyone moving their UK pension abroad understands and is aware of any valuable guarantees before they transfer.
All expats/foreigners then have the following options, depending on where they move to:
- UK pension (SIPP)
- Overseas pension (QROPS) – you can find schemes that have told HMRC they meet the conditions to be a recognised overseas pension scheme (ROPS).
- Overseas employer’s scheme
Please note that the UK HMRC might make further changes to these options in the future as the UK has now left the EU.
The main UK pensions options for expats
When you move abroad, your pension will be preserved if you leave it in the UK. We always recommend that you review your circumstances before leaving the country, as some options will be prohibited once you leave the UK.
1. Personal Pensions
Personal Pensions can be taken out by individuals or from within a group personal pension scheme set up by an employer, which the employee can take with them and contribute to personally after they leave that employment.
Old-style personal pensions may have restricted investment ranges and reduced functionality, but they may also provide guaranteed benefits, such as guaranteed fund values at retirement age or guaranteed annuity rates. Newer plans tend to be cheaper and provide greater investment options and functionality.
After you leave the UK your personal pension will remain active and can grow depending on the charges and performance of the investments you have made. When you leave the UK, you can continue contributing for up to 5 tax years (up to £3,600 gross per annum, £2,880 net cost to you before 20% tax relief is added). These contributions can only be made to a personal pension. They cannot be made to a previous employer’s company scheme.
To make it easier to understand, we will break down the difference between defined contribution pensions and defined benefit pensions:
2. Defined contribution pensions
Expats who have a defined contribution pension are able to leave it with their UK pension provider if they wish, and where they live will not affect the pension until they come to draw benefits. A defined contribution scheme is usually a company scheme so could not accept further contributions and these types of schemes tend to offer restricted fund ranges and no income drawdown options. The trustees appointed by the company will control the investment and benefit options.
However, if UK expats wish to take greater control over the investment or access income drawdown benefits, they can do this by transferring their pension to a SIPP or abroad to a QROPS (they’ll need to ensure the QROPS (qualifying recognised overseas pension scheme is on the HMRC’s approved list to ensure your pension provider doesn’t refuse the transfer, or worse—they could face heavy penalties).
At Brite Advisors, we have put together a handy resource that explains QROPS / ROPS in more detail, which we recommend you spend some time going through when you get a chance.
3. Defined benefit pensions
Defined benefit pensions are similar to defined contribution pensions in that they are usually company schemes but also you can leave them with your pension provider when moving abroad and where you live would be irrelevant until you draw benefits. You cannot contribute to these schemes after you leave the UK.
These types of schemes offer guaranteed benefits without investment risk so are usually very valuable and should only be transferred in certain circumstances, which might include members that are not married, members who have a short life expectancy, members who might want to pass capital to beneficiaries other than a spouse, or who might have significant other retirement savings or want to be able to control their income tax liability. These transfers are subject to a stricter regulatory process and where the cash equivalent transfer value is above £30,000 you will need to ensure a UK-regulated firm provides a transfer analysis. In transferring, you’ll receive a cash equivalent transfer value in exchange for the guaranteed income and benefits provided by the scheme.
Am I able to claim my UK pension as an expat abroad?
Yes, you can draw your pension from wherever you are but there may be taxation or practical issues.
A pension sited in the UK will always be subject to UK income tax (PAYE) unless you reside in and apply from a country that has a Double Taxation Agreement (DTA) with the UK, and your income can be paid gross and taxing rights pass solely to your country of residence. If you do not apply for a DTA or where one doesn’t exist, you could be taxed twice on the same income. You may also be able to transfer to a European jurisdiction if a DTA doesn’t exist, or to avoid potentially onerous DTA applications.
Unfortunately, many UK pension providers will not let you draw benefits into a bank account overseas, and if they do pay directly into an overseas account, there may be hefty fees attributed to it. UK pensions specifically designed for expats will almost certainly pay benefits to an overseas bank (fees may apply).
However, if you do still have to use a bank account in the UK, you’ll be able to draw down your pension into that. You should make sure you are aware of the transfer fees and exchange rates offered before you access your benefits. There are many banking apps now that will transfer money overseas and conduct foreign exchange at much lower rates than high street banks. You should look into opening one of these accounts prior to leaving the UK as not all accounts are offered after you have left.
We always recommend getting transparent and trusted advice before claiming UK pensions from abroad.
How to manage your pension overseas
Just because you live abroad, it does not mean that you can’t manage your UK pension effectively or minimise costs.
In terms of monthly or yearly contributions to your UK pension, you may be able to do so if you pay through a UK bank account. Some offshore pension providers will accept contributions from overseas banks, but just remember that money you earn overseas and in a currency other than GBP will be affected by fluctuating exchange rates and will be subject to transfer fees depending on the bank. From our experience, UK pension providers won’t usually accept contributions from bank accounts overseas, so we recommend speaking directly to your UK pension provider about this.
To manage pensions overseas effectively, expats should consider investing in an all-in-one investment platform, with trustees that can accept overseas banking arrangements and that can offer services such as investment advice, pension transfers, pension administration, and asset management, along with other added benefits. Using different companies for each component is likely to increase overall costs.
For example, at Brite Advisors, we don’t use middlemen or third parties, and everything is transparent, meaning we keep control of costs and help you to keep more of your retirement money. Get in contact to find out more.
How to manage your UK pension within Europe
If a transfer to a QROPS in Europe was appropriate, you could transfer to either Gibraltar or Malta. Gibraltar is usually more suitable if you are living in a country that doesn’t have a DTA with the UK or with Malta.
Providing you are also residing in the EEA your transfer (to Gibraltar or Malta) will not be subject to an Overseas Transfer Charge (OTC), but if you live or move outside the United Kingdom, EEA or Gibraltar within five years of the original transfer, an OTC could apply. An OTC equates to 25% of your transfer fund.
The Overseas Transfer Charge (OTC) would apply if you transfer to a jurisdiction that you do not live in, in which case another UK pension (a SIPP) is likely to be the most suitable option for many expats and foreign nationals.
The good news is that you may qualify for a refund on the OTC if you move back to the United Kingdom, EEA, or Gibraltar within the same five years of transferring your pension. To do this you’ll need to contact the UK and your international provider using an APSS241 form, you can find more details about this on HMRC’s website.
What happens to my State Pension if I move overseas?
For expats with UK State Pensions—they will still be able to receive them whilst overseas, but will only get increases each year if they live in:
- The United Kingdom for 6+ months each year
- Countries in the European Economic Area (EEA)
- Countries that have a social security agreement with the UK
Expats who don’t meet the above requirements will only start receiving their UK State Pension increases once they move back to the UK. Until then, the pension paid will remain at the same level.
Can expats still claim State Pensions when living abroad?
Claiming State Pensions abroad is exactly the same as how you would do it in the United Kingdom, and they can be paid into a UK-based or international bank account. For those who are paying into an international bank account, they will need to be aware that it will be paid in GBP and could immediately be exchanged into the local currency meaning the amounts received will vary based on the exchange rates at that point in time. It may be possible to ask your overseas bank to open a GBP account so you can decide when to execute the currency exchange. You should also ask the bank what their charges are for doing this.
If you are an expat that would like to receive your UK State Pension, you’ll need to make a claim by contacting the International Pension Centre.
What happens to National Insurance Contributions?
Expats are still able to make their usual National Insurance Contributions whilst working abroad, but only in relation to increasing eligible years for UK state pension. You can also look at previous tax years and make back payments based on the National Insurance Contribution rates that applied in those particular years.
It’s important to note that expats can continue making voluntary Class 3 National Insurance Contributions whilst living abroad, regardless of their country of residence. To do this, you’ll need to submit the NI38 form to HMRC, which can be found here.
You can also request a State Pension forecast online or by submitting a BR19
What to do next?
If you’re a UK expat living abroad in countries such as Australia, UAE, South Africa, USA, or the EEA you can contact Brite Advisors for a free pension consultation. We offer an all-in-one pension management service, including investment advice, retirement advice, evidence-based investing, transfers, pension trustee administration, and asset management.
Find out more about Brite Advisors and get help from a qualified advisor: https://www.brite-advisors.com/contact/