When you move abroad, it’s not uncommon to leave your financial arrangements in your home country, including your pension.
However, leaving your pension can have consequences as UK pensions are typically designed with UK residents in mind, not those living overseas.
For example, you may face unexpected tax issues when drawing income, or potential complications for your beneficiaries when they come to inherit your estate. Currency fluctuations can also affect the value of your withdrawals, while certain investment options may become restricted once you are no longer a UK resident.
As such, it’s important to make informed decisions about what to do with your pension when you move abroad to ensure it continues to support your lifestyle and long-term financial goals.
Read on to find out more about your pension options when moving abroad.
It used to be easier to move your pension overseas, but now you may face a tax charge
Transferring your UK pension to an overseas arrangement is usually possible, though it typically means the receiving provider needs to be a Qualifying Recognised Overseas Pension Scheme (QROPS).
However, such transfers can come with significant tax considerations. In some circumstances, a 25% Overseas Transfer Charge (OTC) may apply, depending on the country you transfer the pension to and your country of residence.
A similar 25% charge can also arise if the value of your transfer exceeds the Overseas Transfer Allowance, currently set at £1,073,100.
In the 2024 Autumn Budget, the previous exemption from the OTC for transfers to QROPS based in European Economic Area (EEA) countries was removed. As a result, transfers to EEA-based QROPS are now generally subject to the 25% charge unless you are resident in the same country as the QROPS at the time of transfer.
Because the rules surrounding overseas pension transfers are complex and highly dependent on individual circumstances, it’s important to seek advice from a financial adviser with international expertise before making any decisions.
Transferring defined contribution and defined benefit pensions has different implications
Not all pensions work in the same way, and this becomes particularly important when you move abroad.
Broadly speaking, UK pensions fall into two main categories:
- Defined contribution (DC) – These are where the value of your retirement income depends on how much you have contributed and how the investments perform.
- Defined benefit (DB) – Rather than being an investment pot, DB pensions provide a guaranteed income for life, typically based on your salary and length of service.
For many expats, keeping a DC pension with the original provider can feel like the simplest option, as it comes with a familiar structure and administration and is protected by UK regulations.
However, it’s also important to be aware of the drawbacks. For instance, you may encounter a currency exchange mismatch that could add up to significant sums over time. Or you could face double taxation issues depending on where you’re living.
It’s also important to note that transferring your pension overseas does not automatically mean moving it into a QROPS. There are alternative UK-based pension arrangements designed for non-UK tax residents available.
When it comes to DB pensions, they can be much more complicated to transfer, and it is sometimes advisable not to do so. For expats, the discussion is usually less about transferring the pension and more about understanding how the guaranteed income can work internationally.
The right approach will depend on your country of residence, long-term plans, and family circumstances.
The risks of doing nothing with your UK pension
There is no one-size-fits-all approach to whether or how you should transfer your pension. The key point is that you should actively plan for it, as doing nothing can leave you exposed to several common risks, including:
- Being charged both UK and local taxes
- Delays or complications for your beneficiaries
- Currency exchange fluctuations affecting your income
- Investment options available within the pension
- Missed opportunities to simplify multiple pensions.
Because of these complexities, it’s important to seek advice from a financial planner with international expertise.
They can help you assess your options, structure your pension in a way that suits the country you’re living in, and ensure it aligns with your long-term goals.
Ongoing reviews can help ensure your pension arrangements best support you
Even if you have already transferred your pension after moving abroad — whether to a QROPS or an International SIPP — ongoing reviews remain essential.
Many expats transfer their pension once and then assume the job is done. In reality, pensions require continued oversight.
Over time:
- Investment performance may drift away from your intended risk level
- Currency exposure may no longer suit where you plan to spend or retire
- Charges and platform fees may be higher than necessary
- Tax legislation in either the UK or your country of residence may change
- Your retirement income needs or family circumstances may evolve
What was appropriate five years ago may not be appropriate today.
Regular reviews allow you to assess:
- Whether your pension structure remains tax-efficient
- If fees and charges are competitive
- Whether the investment strategy is delivering appropriate growth
- If the currency setup aligns with your lifestyle and future plans
- Whether your beneficiary nominations and estate planning remain up to date
A pension is not a “set and forget” arrangement, particularly when living abroad.
If you have transferred your pension to a QROPS or International SIPP and haven’t had it independently reviewed in recent years, it may be worthwhile to reassess whether it is still structured in the most suitable way for your circumstances.
To speak with a financial planner who specialises in cross-border pension planning and ongoing pension reviews, get in touch.
Email contact@ambient-wm.com or call us on +34 658 077 450.
Please note This article is for general information only and does not constitute advice. The information is aimed at individuals only.