Moving a UK pension overseas or moving an overseas pension to the UK

Are you thinking about leaving the UK to live in another country, or have you been working in the UK for a while and are now moving abroad? Then you might want to look at the option of moving your pension to another country.

 

If you move abroad, you don’t have to transfer your UK pension. You can choose to leave it in the UK and then take an income from it in the UK. But there might be benefits to moving your pension overseas. Find out what your options are, what the benefits might be and what you need to think about.

Why might you consider moving your pension overseas?

If you live overseas or are thinking of moving abroad, you might consider moving or ‘transferring’ to a pension outside the UK:

  • You might want your pensions to be in the country that you retire to, so you’re not receiving income in pounds and spending in a different currency (as exchange rates can fluctuate).
  • You might also find it easier to keep track of tax and regulation changes if they happen in the country where you live.
  • You might be working outside the UK for an employer that offers a pension and you like the benefits offered.

What are the options for transferring a pension overseas?

If you’re thinking about moving your pension overseas, it’s strongly recommended that you get regulated financial advice before transferring your pension outside the UK.

You might need to find an adviser in the UK who can help you, as well as an adviser in the country you want to move your pension to.

If you want to transfer your pension overseas, there are a number of rules and restrictions you must comply with, as set out by HMRC.

You’ll need to transfer to a ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS). A QROPS is an overseas pension scheme that meets HMRC rules to receive transfers from registered pension schemes in the UK.

Conditions include being available to residents in that country and not being able to take money from it before the age of 55 unless under special circumstances.

Things to think about

If you move abroad, you don’t have to transfer your UK pension pot. You can choose to leave it in the UK and then take an income from it in the UK:

  • Currency risk and exchange commission can be managed by setting up a foreign exchange account and transferring money into your local currency, as needed.
  • If you’re transferring your pension, make sure you understand the features and options in the new plan you’re transferring to and how it differs from your current pension.
  • Look out for any charges you might pay to make the transfer and check what the set-up and ongoing charges are on the new pension.
  • In all cases, it’s recommended that you should get regulated financial advice before transferring your pension outside of the UK as some of these issues can be complex. You must get regulated financial advice if you want to transfer from most defined benefit pensions and from some defined contribution pension pots which include a guarantee on how much income you’ll get. In some cases, this might result in you getting regulated advice in both the UK and the country that you’re transferring to. Standards of advice can vary in different countries, so make sure you’re confident of the professional standing, qualifications and experience of any adviser that you talk to.
  • Since 2013, regulated advisers in the UK aren’t allowed to charge commission and have to be upfront about the fees they’ll charge you for pensions advice. This isn’t the case in every country.
  • You should also look out for other fees, such as ongoing commission from your investments and switching charges.
  • Also find out how the QROPS will invest your money and whether you have any choice in the type of investments. Consider the level of risk you’re happy with. Remember you might be worse off if you transfer your pension abroad.
  • The rules about how much you’ll be taxed and when you can take money out of the pension differ from country to country. And transfers to a QROPS can be subject to a number of tax charges as listed below.

Tax when you transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS)

In some circumstances, you can transfer without paying any tax. But in others, you’ll have to pay 25% tax on the transfer.

You’ll usually be able transfer tax-free if:

  • you’re resident in the country you’re transferring to a QROPS in
  • you’re resident in a country in the European Economic Area (EEA) and the QROPS you’re transferring to is based in another EEA country or Gibraltar
  • the QROPS you’re transferring to is provided by your sponsoring employer.

If the scheme you’re transferring out of doesn’t receive the correct paperwork, they must charge the 25% on transfer regardless. And you’ll have to apply for a refund via your scheme later.

If you are exempt from the charge on transfer but then your circumstances change within five years, such as moving to another country or moving your QROPS to another country, then you might have to pay the 25% tax charge at that point.

You’ll usually have to pay a 25% tax charge for transferring if:

  • you transfer to a QROPS based in the European Economic Area (EEA) or Gibraltar and you aren’t resident in the UK, EEA or Gibraltar at the point you transfer or become non-resident within five years of the transfer
  • you transfer to a QROPS based outside the European Economic Area (EEA) or Gibraltar and you’re not resident in the country the QROPS is based in. (You can apply for a refund if you move to the country your QROPS is based in within five years of the transfer).

QROPS and the lifetime allowance

The lifetime allowance is the limit you can build up in pension benefits over your lifetime while still enjoying the full tax benefits.

For the tax year 2021/22, the lifetime allowance is £1,073,100.

If you go over the allowance, you’ll generally pay a tax charge on the excess amount if you:

  • take it as income
  • transfer overseas, or
  • reach the age of 75 with untouched pension.

If you’re under 75 and transfer out of UK registered pensions into a QROPS, the value of the transfer will be tested against the lifetime allowance. If it’s over your unused allowance, this could result in a tax charge of 25% on the excess.

If you’re under 75 and transferring into a UK registered pension from a QROPS, this will usually result in an increase to your lifetime allowance.

If either of these situations could apply to you, we recommend that you speak to a regulated financial adviser.

What happens if I transfer to an overseas scheme that’s not a QROPS?

If you transfer to an overseas pension and it’s not a QROPS, you’ll usually be classified as making an unauthorised payment from your pension. This could result in an unauthorised tax charge of 55%, with the possibility of extra penalties.

Such a transfer is also unlikely to be regulated and is likely to leave you unable to get compensation.

You might also find yourself in risky investments. In short, the worst that could happen is that you lose all your money and still find yourself with a tax charge to pay.

Be aware of scams –  don’t act on the advice of someone who has contacted you out of the blue, and always deal with a regulated financial adviser.

Am I free of UK rules and taxes on my pensions if I transfer?

On transfer, your QROPS will have a ten-year reporting requirement to HMRC. So if you breach the rules of a QROPS, such as taking money from the pension before the age of 55, you could still have to pay a tax charge of 55% plus penalties.

For people who have transferred to a QROPS before 6 April 2017, you need to have been resident outside the UK for five consecutive tax years by the time you come to take money from the pension. The period of non-UK residence was extended to ten consecutive tax years for those that transfer on or after 6 April 2017.

Even if you have been non-resident for longer than 10 full tax years, UK tax charges can still apply if you take money from a QROPS less than five years since the funds were transferred from a UK registered pension scheme.

If you’re a UK resident when you take money from your QROPS, this is likely to be subject to UK Income Tax.

If you’re resident abroad, you’ll also need to check the tax rules for that country and the country where your QROPS is based. Before you transfer, check what tax you’ll pay on the pension income.

QROPS and consumer protection

When you get regulated financial advice in the UK, you’re protected by the Financial Conduct Authority and can complain against poor advice to the Financial Ombudsman Service (FOS).

If you have a complaint in relation to how your UK registered pension scheme is run, you can also complain to the FOS or the Pensions Ombudsman.

If you get advice from an adviser regulated in another country, any complaint you make against the advice will have to be made to the authorities in that country.

If you have a complaint about how your QROPS is run, you’ll have to complain to the regulator in the country the QROPS is based.

Choosing a financial adviser

For advisers in the UK, you can search by postcode and then apply a filter to search for those that have expertise in expatriate finance in the following directories:

Outside the UK, you might be able to find an English-speaking adviser.   

Transferring pensions to the UK from another country

If you’ve built up a pension in another country and are now living in the UK, you might be thinking about whether you can bring this with you.

Can I transfer my pensions from another country to the UK?

It is possible to transfer into a registered UK pension scheme from an overseas (non-UK) pension scheme. But it will depend on the terms of the pension scheme you want to transfer into as to whether they want to accept the transfer. And you might find it challenging to find a pension provider prepared to accept the money.

The pension provider might need to carry out anti money laundering checks to verify the source of the money being transferred.

When a pension is already in payment overseas, there might be extra complications in finding a provider in the UK prepared to accept the transfer and continue the payments in the UK.

Also, check with the provider of the pension in the overseas country you want to transfer from. For example, Australian citizens can’t usually transfer Australian superannuation schemes to an overseas country before the age of 55. (The age at which an Australian citizen can transfer pensions overseas varies according to their date of birth.)

Is it a good idea to transfer my pension?

Transferring a pension is an important question and it’s important to check whether you’re likely to be better or worse off after transferring.

Whether a transfer is suitable will depend on your individual circumstances and objectives.

Things to consider

If you move to the UK, check if you’re able to leave your pension in the country you built it up in.

  • Currency risk and exchange commission can be managed by setting up a foreign exchange account and transferring money into your local currency, as needed.
  • If you’re transferring your pension, make sure you understand the features and options in the new plan you’re transferring to and how it differs from your current pension.
  • Look out for any charges you might pay to make the transfer and check what the set-up and ongoing charges are on the new pension.
  • Find out how your money will be invested in the UK pension and whether you have any choice in the type of investments. Consider the level of risk you’re happy with. You might be worse off if you transfer your pension to the UK.
  • The rules about how much you will be taxed and when you can take money out of the pension differ from country to country and transfers to ROPS can be subject to a number of tax charges (listed below).
  • In all cases, it’s recommended that you get regulated financial advice before transferring your pension into the UK as some of these issues can be complex. In some cases, this might result in you getting regulated advice in both the UK and the country that you’re transferring from. Standards of advice can vary in different countries, so make sure you’re confident of the professional standing, qualifications and experience of any adviser that you talk to.

Will I have to pay tax when I transfer my pension?

Tax treatment in the UK

The transfer payment wouldn’t be treated under tax rules as a contribution to your pension and so: 

  • there would be no tax relief payable
  • it wouldn’t count towards your annual allowance for pension contributions (the amount that can be contributed to pensions yearly while benefiting from tax relief and before you might have to pay a tax charge). 

Your lifetime allowance could be affected. The lifetime allowance is the limit you can build up in pension benefits over your lifetime while still enjoying the full tax benefits in the UK.

For the tax year 2021/22, the lifetime allowance is £1,073,100. If you go over the allowance, you’ll generally pay a tax charge on the excess amount at 55% when you take a lump sum or 25% if you:

  • take it as income
  • transfer overseas, or
  • reach the age of 75 with untouched pension.  

For the purposes of the lifetime allowance, the transfer isn’t counted as one of the tests (known as a Benefit Crystallisation Event).

So the transfer wouldn’t activate a tax charge. However, the transferred amount will form part of your pension savings in the UK and so its value will be tested against the lifetime allowance if you take money from your pension in the UK, or at the age of 75 if earlier.

Tax treatment in the overseas country

Check with your pension provider and the tax authorities in the overseas country. In some countries, for example, the United States of America, an immediate tax charge often applies on a pension transfer to another country.

Transferring a Recognised Overseas Pension Scheme (ROPS)

A recognised overseas pension scheme (ROPS) is a pension scheme established outside the UK that is broadly similar to a UK-registered pension scheme.

HMRC publish a list of ROPS. They update the list of ROPS notifications at the start and middle of each month.

If you transfer from a ROPS, you might be able to apply to HMRC for an enhanced lifetime allowance, where it’s increased by a recognised overseas scheme transfer factor.

For example, the lifetime allowance is currently £1,073,100 (2021/22 tax year) .

If you transfer £107,310 from a recognised overseas pension scheme in the 2021/22 tax year, this would be 10% of the lifetime allowance. Your lifetime allowance would be increased by 10% to reflect the fact that you haven’t received any UK tax relief on your contributions. (If the ROPS includes the value of a pension transferred from the UK, the recognised overseas transfer factor will be adjusted to take this into account.)

Will Brexit have an impact on me transferring my pension to the UK?

The UK formally left the European Union (EU) on Friday 31 January 2020.

Transfers to the UK before 31 December 2020

The Withdrawal Agreement agreed between the UK Government and the EU sets out the terms of the UK’s withdrawal from the EU.

It provided for a transition period lasting until 31 December 2020. During this period, there was no change to the arrangements for transfers of pensions into the UK, including from countries in the European Economic Area (EEA) and Switzerland.

Transfers to the UK from 1 January 2021 onwards

Transfers from the EEA or Switzerland will depend on the outcome of the UK Government’s negotiations with the EU.

When and how can I access the money in the UK?

You can’t usually begin taking money from a UK pension until the age of 55. (This will increase to age 57 from 2028.)

How you can begin taking money from your pension will depend on the pension you have transferred into the UK. 

Transfers to a Defined Benefit Scheme

If you have transferred into a Defined Benefits Scheme, you'll normally be entitled to an income for life from the retirement age set by the scheme. 

The income will usually increase each year for the rest of your life. 

A tax-free lump sum may also be provided. This might in addition to any income or, it may be an option in return for receiving a reduced income. 

Transfers to a Defined Contribution Scheme

You can normally take up to 25% of the value of your pension as a tax-free lump sum.

All other withdrawals are taxed as income. You can normally choose to take money as:

  • one lump sum
  • a regular guaranteed income for life (annuity)
  • flexible, non-guaranteed retirement income (pension drawdown)
  • a number of lump sums.

If you’re close to age 50 or over, and have a defined contribution pension plan based in the UK, you can have a free Pension Wise appointment which will talk through your options in detail. Pension Wise is an independent and impartial service set up by the government.

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impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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