Relocating to another country is a lifelong aspiration for thousands of people and families, whether seeking a place to raise children, enjoy professional career opportunities, or retire to a location with a warm, year-round climate.
One of the many important considerations around your finances is your pension, particularly if you are expecting to live overseas permanently or are planning to move to your perfect retirement destination and rely on your pension savings.
Chase Buchanan Wealth Management, the global expat wealth management adviser, explains how your relocation plans may impact your retirement wealth and pension income, whether you are expecting to draw a State Pension, private pension savings, or have a high-value workplace pension scheme.
UK State Pension Entitlements for Overseas Expats
Starting with the UK State Pension, the good news is that if you are a British citizen and are entitled to the State Pension, this position will not change regardless of where you move. However, your pension income will normally be frozen and remain static – you are not automatically entitled to the annual increase.
The government uses the ‘triple lock’ to decide the rate at which State Pension payments will rise during each subsequent tax year. Expats will only receive those increases if they:
- Remain UK residents and live there for at least six months of the year.
- Reside within a country within the European Economic Area or with a reciprocal social security agreement with the UK.
- Move to Switzerland.
Otherwise, your State Pension income will only increase if you return to the UK in the future.
The claims process is the same for any qualifying recipient from any location, and you can request your pension benefits be paid to a UK or an overseas bank account of your choosing. The caveat is that pension payments will always be remitted in GBP – if you have those payments sent to an international account, the exchange rate may impact the value you receive.
Expatriates currently living overseas and wishing to process an application for the UK State Pension can contact the International Pension Centre – the portal also provides tools to check your eligibility and to submit a claim online.
The Impact on Private and Workplace Pension Schemes
Other pension funds will also be affected by an international move, but much depends on the nature of the funds you hold and the scheme terms. Generally, any pension fund based in the UK will be exposed to British taxation, although that may differ for claimants living in a country with a double taxation agreement with the UK.
In the latter scenario, the norm would be for your pension fund to remit payments to you without making tax deductions – you would then be responsible for submitting declarations and paying the relevant tax arising on that income, depending on the tax regime in your country of residence.
It is essential you consult an experienced financial adviser if you believe this applies. It may, for example, be necessary to submit formal applications to take advantage of a double taxation agreement or to pay the tax obligation in one country and apply for a credit for the difference in the other.
While double taxation agreements prevent you from paying taxes twice on the same income, failing to follow the rules or apply to the relevant tax office could result in fines or penalties.
Expats should also note that many UK pension providers will not make a payment to any account outside of the country. Those that will often charge substantial fees to do so.
You may need to retain a UK-based bank account and account for transactional charges and exchange rates to transfer your pension income overseas.
Moving Overseas With Variable Pension Fund Structures
We mentioned the need to check the terms of your pension fund since your options may differ depending on whether you have one of the following types of pension:
- Personal pensions may be a private pension fund or a workplace pension scheme. Some personal pensions are accessible from overseas, but you may be able to continue making contributions for a maximum period, often up to five years, with a threshold upper contribution cap.
- Defined contribution pensions can potentially be left with the UK provider, and the benefits are not usually impacted by your country of residence. However, you are not typically able to make any further contributions, and your options will depend on the terms the trustees impose.
- Defined benefit pension funds are valuable assets and provide a guaranteed income, often for life. Like a defined contribution fund, you are not usually able to make any further contributions after leaving the UK, but this should not impact the fund's value or your access to pension benefits, provided you have already made the minimum required contributions or complied with the fund terms.
The right solutions should always be adapted to your financial position and relocation plans, but many expats decide to transfer their UK-based pension fund to an eligible overseas scheme. This course of action may be less advisable for a defined benefit scheme, so professional financial advice is strongly advisable.
We’ll summarise the options below, but the best way forward should ensure you have control over your pension savings and how they are invested, maximise tax efficiencies available, and incorporate pension freedoms, such as the ability to make lump-sum withdrawals.
Alternative Ways to Management Pension Savings During an International Relocation
Like every aspect of cross-border pension management, there is no one correct answer, and you might transfer a pension fund in a number of ways. The transfer process will also depend on the type of scheme you hold – and what the transfer value is calculated to be.
Most foreign national residents living outside of the UK choose one of the following:
- Transferring a pension to a self-invested pension plan (SIPP) – this means the fund remains in the UK but has greater flexibility and can be customised to your priorities and requirements.
- Transferring a pension to a Recognised Overseas Pension Scheme (ROPS). HMRC publishes and regularly updates its directory of approved ROPS, which varies depending on where you are planning to move.
- Transferring a UK pension fund to an employer’s pension scheme in their new country of residence, where applicable and allowed.
In every case, a professional adviser can assist in working through the implications of your relocation based on your tax residency position, the location, nature and value of your retirement assets, your plans in terms of investment or purchasing property overseas, and when you expect to retire.
For more information about how moving overseas will affect your pension entitlement and the value of your pension benefits, please get in touch with your closest Chase Buchanan office to schedule a convenient time to talk.
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About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company who specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
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