The rise of remote work and moving abroad

Becoming a UK expat can mark the start of an exciting chapter, but what about your pension?

In recent years, the rise in remote work, significantly accelerated by the global pandemic, has given many individuals the flexibility to work from virtually anywhere. Coupled with a mounting cost of living crisis, this newfound freedom has led many people to contemplate the prospect of moving abroad.

The allure of a different lifestyle, potential cost savings and the opportunity to explore new cultures are compelling factors driving this trend. Whether individuals plan to return to the UK eventually or settle abroad permanently, the initial decision to relocate marks the beginning of an exciting, albeit complex, journey.

Becoming a UK expat is an exciting chapter filled with many opportunities, but it also comes with its own set of challenges. One of the most critical aspects to consider when planning a move overseas is the management of your pension.

Managing your UK pension overseas

Deciding whether to leave your pension in the UK or transfer it to your new country involves navigating complex tax implications, understanding how to access your pension pot and determining the feasibility of contributing to a UK pension while living abroad. Proper planning and seeking professional financial advice are essential steps to ensure that your move is not only adventurous but also financially sound.

Your personal circumstances, the rules of your new country and the terms set by your existing pension provider will all impact these decisions. It’s crucial to take the time to assess your available options. Given the complexities, it is important to obtain professional financial advice. This ensures you make the right choices for your financial future and provides peace of mind.

What happens to my UK pension?

When you move abroad, any pension plans you have in the UK won’t follow you unless you arrange for them to be transferred overseas. Instead, they’ll stay where they are, meaning once you reach 55 (57 from 6 April 2028), you can start taking money from them, even while you’re overseas.

Claiming your State Pension abroad

You can still claim your UK State Pension abroad, provided you’ve paid enough UK National Insurance contributions to qualify. Just like if you stayed in the UK, you need 35 years of National Insurance contributions to get the full State Pension and at least ten years to be entitled to a reduced payment. However, you must notify the Department for Work and Pensions (DWP) of your move.

State Pension increases and qualifying countries

It’s worth noting that the State Pension only increases annually in certain countries. These include any country in the European Economic Area (EEA) and Switzerland and countries with a social security agreement with the UK.

Transferring your UK pension plans

You can usually transfer your UK pension plans to a different scheme abroad, but it must be a Qualifying Recognised Overseas Pension Scheme (QROPS). This type of scheme follows similar rules to UK schemes and is listed on GOV.UK. You might be able to make this transfer tax-free, but depending on your circumstances, you might need to pay a 25% tax on the amount you’re transferring out of the UK.

Overseas transfer allowance

There is also an ‘overseas transfer allowance’, which caps the amount of pension savings you can transfer out of the UK. Unless you have protection in place, the allowance is usually £1,073,100. If you transfer more than this, you’ll normally need to pay a 25% tax charge on the excess. Transferring to a scheme that isn’t a QROPS may be considered an unauthorised payment and could result in a 55% tax charge and additional penalties.

Importance of professional financial advice

Transferring a pension plan overseas is a significant decision and may not be right for everyone. You could lose valuable benefits and guarantees associated with your UK pension. If you’re considering this option, professional financial advice is essential to ensure it’s the right choice for you. Obtaining financial advice is a legal requirement if you’re transferring a defined benefit plan worth more than £30,000.

Accessing your UK pension funds

If you’re abroad, you’ll generally be able to access your money like you would in the UK. However, some providers may limit payment options. It’s vital to contact your existing provider to understand the available payment options. If your existing plan doesn’t offer what you need, shop around for a better option, though some providers may not let you open a new plan if you live abroad.

Receiving payments abroad

Some providers will pay into an overseas bank account, although they might charge extra for this service. Others may only pay into a UK account. The exchange rate will also affect how much you receive when your pension money is converted into your local currency.

Tax implications on UK pensions

Living abroad complicates your tax situation. You might need to pay UK Income Tax on withdrawals from a UK pension plan, as it counts as UK income. However, the country you’re living in might also tax you. The UK has double-taxation agreements with numerous countries, potentially allowing you to get tax relief or a refund to avoid paying tax twice.

Tax-free allowances and overseas considerations

In the UK, you can typically take up to 25% of your pension plan tax-free, with a total tax-free amount across all pension plans being £268,275. However, this might not apply in your new country, where it could be taxed as income. It’s important to investigate the tax implications in your new country.

Continuing pension contributions

You should check with your provider if you can continue paying into a UK pension while living overseas. This depends on the rules of your pension scheme, and you may not be eligible for tax relief on these payments. Depending on your circumstances, the amount of tax relief you receive could also be limited.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

THE FINANCIAL CONDUCT AUTHORITY DO NOT REGULATE TAX PLANNING.