The idea of retiring abroad and living overseas is a dream to most individuals. Especially in the UK where the weather isn’t very good and the cost of living can can expensive compared to many other countries around the world.
There are a number of factors that can come into play, about why you want to move overseas, after spending many years in workplace employment. Such as living in a warmer and sunnier climate, being nearer to members of your family, or looking for a more relaxed way of life. Having the ability of make your money go further in a country that has lower cost of living expenses.
It is estimated that around three quarters of people living in the UK at present. Would aspire to living overseas if they had the opportunity if they had the choice or freedom to do so.
The idea of moving overseas may sound very appealing, but how can somebody do it in principle. So you can sustain a certain quality of life in retirement.
So what are the basics you know to understand before moving overseas ?
To most people in the UK, the idea of accessing pension upon the the age of 55 or at time of retirement. is already considered complex enough, hence the reason why most providers will signposted you to having a free and impartial Pension Wise appointment ahead of accessing your Defined Contribution pension.
See attached to get a free appointment: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise
The idea of accessing a pension overseas could appear even more confusing, the principle is that you shouldn’t be restricted in the options you have. No matter where you reside but this will ultimately come down to the choices given to you by the respective pension provider.
So what are your options ?
You essentially have 2 options:
- You leave your pension in the UK
- You have the option to transfer overseas to recognised registered pension scheme (QUORPS)
It may be simpler to adhere to the rules in place by keeping it in the UK. As most providers will only pay pension benefits in a UK bank account. If they do pay overseas they may apply a charge each payment, and it will be subject to currency fluctuations.
Leaving a pension with your UK pension provider
As stated above you should have the same rules as somebody that has a pension residing within the UK. In that you can access a DC pot from age 55 (although this will increase to 57 from 6th April 2028). Or you can access a Defined Benefit scheme at Normal Retirement Date (NRD) or earlier but they have reduced the amount of pension entitlement being paid at it will paid for a longer period.
So what are my current options ?
- Buying an annuity, for lifetime or fixed term period
- Accessing tax-free cash then flexible income via drawdown (Flexible Access Drawdown)
- A number of lump sums (Uncrystallised Funds Pension Lump Sum)
- A combination of the above if you have a large pot in value.
- Cash the pot in the one complete go.
Be aware through, not all providers may offer all the options, based upon the type of policy you have. If you have an old policy they may only offer you an annuity, so you may have to transfer to access by recently introduced flexible options.
So it is worthwhile to first check what type of pension product you may have. And are their any special features or benefits attache to that pension based upon when it was set-up. If you have a pot from the 1980’s or early 90’s you probably have a Guaranteed Annuity rate (GAR) on offer, or it will be invested in a with profits policy. (which will pay an annual bonus each year and a terminal bonus on date of maturity)
If you do access the funds in the UK it will then be subject to UK income tax rules. Your provider will normally tax the income at source on your behalf. There is no need to complete ant self-assessment form or notify HMRC they will do it for you. But you may wish to consider where you may fit within the tax bandings currently in place, do you become a non-tax payer below the tax free personal allowance.or are you taxed at 20%, 40% or 45% as it would be added to any other income received during that respective tax year.
Under current rules, you are permitted to take 25% tax-free from each pension you have as per the rules up to total sum of £ 268,275 (as per 2024/2025).
If you do reside overuse and receive an income abroad, there are rules in place with regard to double taxation agreements. So you don’t get taxed twice, in the UK and the new country that you move to. Greater information can be found of the gov.uk website:https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.gov.uk/tax-uk-income-live-abroad&ved=2ahUKEwjt9YiM3IuJAxUNQUEAHaZWAGkQFnoECBMQAQ&usg=AOvVaw28gZy2Z69vfdek-HHWMpgx
If you are concerned about the taxation rules and they may appear bewildering and confusing, it may be worthwhile have a free and impartial Pension Wise appointment as stated above. Or speak to a Regulated Financial Adviser, or specialist tax adviser. Which can be found on the adviser directory on the FCA website: https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.fca.org.uk/firms/financial-services-register&ved=2ahUKEwjw-faH3YuJAxWRRUEAHdKsA9EQFnoECAoQAQ&usg=AOvVaw2VHqmtWJpoYHrPy3SaFAqe
What about transferring my pension pot overseas ?
You may wish to move your pot overseas, if you want to simply your affairs in future. So you have have income from the country you reside in. It may appear daunting and complex at first, but could prove beneficial in later years as part of your administration for running your financial affairs.
As long as you transfer to a qualifying recognised overseas pensions scheme (QROPS) you are permitted toothed access it in another country. It will then be accessible based on the rules in place in that new country.
If you where to try and transfer it to a non-recognised scheme, then it will be subject to some costly and hefty tax charges or penalties. Which should be avoided at all costs. But don’t worry on completing so called transfer, the pension providers or adviser acting on your behalf. Should perform the necessary background checks and due diligence ahead of any possible transfer overseas, to eliminate such potential issues arising.
Whether you transfer overseas will depend upon your individual and financial circumstances in place. It must be done with your best interests and objectives as the prime reason or concern.
Again you can check for reputable QROPS schemes ahead of possible transfers on: (https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.gov.uk/guidance/check-the-recognised-overseas-pension-schemes-notification-list&ved=2ahUKEwi2rbjk34uJAxWYUUEAHU9aAO0QFnoECBAQAQ&usg=AOvVaw28N-kAVSRKOSSLybkTKuhE
Finally – what about my state pension ?
The UK state pension will be paid to you as per the current rules in place. At present it is due from age 66 although this will increase for individuals soon to age 67. it is then under review every 5 years and for younger people it will increase to age 68.
It based on a minimum of 10 years NI contributions to receive any amount, and 35 full years to receive the full entitlement of £ 221.20 per week (£ 11,540 per annum as per 2024 tax year). This will hopefully increase each April as the Triple lock increase in place.
Under current schemes the DWP will write to you and you claim it and it is paid every 4 weeks into your back account. If you defer claiming it, it will increase by 1% for every 9 weeks of deferral.
The good news for the state pension that it can be paid to you, no matter where you reside. You aren’t restricted as to where the funds are paid to, no matter where you are residing.
The only point of concern may be, that now all countries have an agreement in place to honour the annual increase each April through the triple lock.
You will receive the increase if you reside within the European Economic Area, Gibraltar, Switzerland and other countries that have a social security agreement with the UK government.
If you were to move to Australia, Canada which are popular countries for people to become ex-pats you will not receive any increases in future. Once awarded your level of state pension will remain static for each year in future, unless the rules or agreements are amended. So in effect your income in retirement could be eroded through the level of inflation in the country you reside in.
Again a list of the countries affect by these agreement can be found on gov.uk: https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=http://gov.uk/state-pension-if-you-retire-abroad/rates-of-state-pension&ved=2ahUKEwjS95_v4ouJAxXOQEEAHT-SJfYQFnoECB0QAQ&usg=AOvVaw0rhc8XgbbtPNG-uMlGpLBS
Summary !
Hopefully the above has provided some simple clarity and background into your options regarding accessing Defined Contributions in future. If you do decide to retire aboard.
You first port of call and action, should be to check with the pension provider. Do any special features and benefits apply to that policy. Or do you have to transfer elsewhere such as new provider.
If you have several policies as a result of moving jobs or providers through different employers. It may be an idea to review what benefits are on offer and could you consolidate and simplify them ahead of accessing. This can be both beneficial if you stay in the UK or do move overseas. Most providers should provide you with a list of options and benefits available to you, either by annual statement, calling them or via FAQ section or live webchats.
It may well be that your pensions, is your largest asset in value after your main resident home. But see these assets are a part of your overall estate across numerous different investment classes.
Ultimately, you have to make the best decision for you and you family moving forwards, as part of securing your best financial security in retirement.
If you found this blog post useful and informative, then check of my other posts on https://moneyminted.co.uk which cover pensions, investing and savings. To increase your level of financial knowledge, so you too can reach your financial goals in future.
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