The Great Relocation: So you want to move abroad – what about your pension?

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As the summer travel season approaches, Standard Life answers key pension questions for those looking for something more long-lasting

Dean Butler, Managing Director for Retail Direct at Standard Life comments: “In recent years the rise in remote work, accelerated by the pandemic, and the cost-of-living crisis have led to many people considering moving abroad¹. We’re also approaching the summer holiday season, and some people might come back with sand in their shoes and plans to move abroad permanently. Becoming a UK expat can mark the start of an exciting chapter, however there’s is a lot to think about and organise when you move overseas, and this should include what you do with your pension. Decisions such as whether you leave your pension in the UK or transfer it to the country you’ve moved to are complicated, and there are various things to be aware of regarding tax implications, accessing your pension pot and paying into a UK pension whilst living abroad.

“Your personal circumstances, the rules of the country you’re living in and your existing pension provider will all impact these decisions, and you should take time to assess your available options. Given the complexities, it would be wise to seek financial advice too. This will give peace of mind that you’re making the right choices for your financial future.”

Dean Butler answers key questions about how living overseas impacts pension plans in the UK:

What happens to my UK pension plans when I move abroad? “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.”

What about my state pension?: “You can still claim your UK state pension abroad as long as you’ve paid enough UK National Insurance (NI) contributions to qualify. Just like if you’d stayed in the UK, you need to have 35 years of National Insurance contributions to get the full state pension, and at least 10 years to be entitled to a reduced payment. However, you must notify the DWP of your move.
It's worth being aware that the State Pension only increases every year like it would in the UK in certain countries. These are currently any country in the European Economic Area (EEA) and Switzerland, as well as any country that has a social security agreement with the UK allowing it to pay state pension increases. A full list of the countries you’d usually get an increase in can be found on Gov.uk.”

Can I transfer my UK plans to the country I’ve moved to?: “You can usually transfer your UK plan(s) to a different pension scheme abroad, but you’ll need to make sure you’re transferring into a ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS). This is essentially a pension scheme that follows similar rules to UK schemes, and GOV.UK has a list of QROPS.
“You may be able to make this transfer tax-free, or otherwise you might need to pay 25% tax on the amount you’re transferring out of the UK - it depends on your individual circumstances, including where you live when you make that transfer. To find out if this tax charge might apply to you, you can visit GOV.UK. There is also an ‘overseas transfer allowance’ which is a cap on the amount of pension savings you can transfer out of the UK. Unless you have protection in place, the overseas transfer allowance is usually £1,073,100. If you transfer any more than this you’ll normally need to pay a 25% tax charge on the excess.
“If you try to transfer your UK plans to a scheme that isn’t a QROPS, you could face a 55% tax charge and even extra penalties on top of that. This is because it could be seen as making an unauthorised payment from your plan. Transferring to a scheme that isn’t a QROPS also probably won’t be regulated, and you might not be able to get any compensation if there’s any issue with the scheme in the future.
“It’s clear that transferring a pension plan overseas represents a big decision, and it won’t be right for everyone. Remember, you could also lose any valuable benefits and guarantees, if applicable to your UK pension. If you’re thinking about transferring, you should consider getting financial advice, to ensure it’s the right thing for you. If you’re trying to transfer a defined benefit plan worth more than £30,000, you legally need to get financial advice.”

How can I take my money from my UK pension plans?: “If you’re abroad, you’ll generally be able to take your money in the same ways as you would in the UK. However, some providers may limit payment options.
“For added clarity contact your existing provider regarding the payment options available, and then if your existing plan doesn’t offer what you want, shop around. However,your options may be still limited as some providers won’t let you open a new plan if you live abroad.”

Can the money I take from my plan be paid into a bank account overseas?: “Some providers will be willing to pay into an overseas bank account, although they may charge extra for this, while others might only pay into a UK account. The exchange rate will also affect how much you get when your pension money is changed into your local currency.”

How will I be taxed on my UK plans when I live abroad? “When you live abroad, your tax situation can be complex. If you take money from a UK pension plan, you might need to pay UK income tax on it, as it counts as UK income, but the country you’re living in might also tax you. The UK has a ‘double-taxation agreement’ with numerous countries which means you may either be able to get tax relief or a refund, so you won’t end up paying tax on your pension savings twice. You can find out more about tax on your UK income when you live abroad on GOV.UK.
In the UK, you can normally take up to 25% of your pension plan tax-free (with the total amount you can normally take tax-free across all your pension plans being £268,275). However, you might not be able to take money tax-free in the country you’ve moved to, and it may be taxed as income, so it’s important to investigate how this works in the overseas country.”

Can I keep paying into a UK pension if I live overseas? “You should check this with your provider as it depends on the rules of your pension scheme. Be aware that you may not be eligible to get any tax relief on the payments you make into that plan. Or the amount you do get might be limited. Whether you get tax relief and how much you get depends on your own circumstances. For example, you can still get tax relief if, in that particular tax year, you have ‘relevant UK earnings’ that could be taxable in the UK. ‘Relevant UK earnings’ includes things like income from employment, including salary and overtime. MoneyHelper can give you more examples too.”

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Notes to editors:

¹The Great Relocation: over 4.5 million consider moving abroad for work - HRreview

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