If you’re planning on retiring abroad, getting your pension in order will be one of your top priorities. In this guide, we run through how to transfer a UK pension abroad, including the pitfalls to look out for (think significant tax rates) and the exchange rate risk that can accompany overseas pension transfers. Whilst the process can seem a little daunting at first, the good news is that there are plenty of individuals receiving expat pensions and have successfully transferred their UK pension abroad.
Transferring Your UK Pension Abroad
When transferring a pension abroad, the absolute main point of consideration is transferring your pension savings to a ‘qualifying recognised overseas pension scheme’ (or QROPS for short). It’s up to the individual to check if the overseas scheme is a QROPS with either their UK pension provider or financial adviser. The gov.uk website also has a complete list of qualifying recognised overseas pension schemes which is updated regularly.
- Transferring Pension from UK to Australia: Australia has a plethora of choices when it comes to selecting a QROPS.
- Transferring Pension from UK to NZ:New Zealand similarly has a number of options when it comes to choosing a QROPS.
- Transfer UK pension to USA:Number of providers when it comes to selecting a QROPS in the USA as well.
If the pension provider you choose is not a QROPS, your UK pension scheme may refuse to make the transfer, or you’ll have to pay at least 40% tax on the transfer (often as high as 55%).
Under some circumstances, you may also have to pay 25% tax even when transferring your pension to a QROPS. If you move to the European Economic Area (EEA) you pay tax if you move outside the EEA upon emigration or move outside the EEA within 5 years.
If you transfer to a QROPS based outside the EEA, you do not have to pay tax if you live in the country your QROPS is based in. Otherwise you’ll have to pay 25% tax.
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Considerations for Overseas Pension Transfers
Remember, 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. Currency risk and exchange fees can be managed by setting up a foreign exchange account with a specialist money transfer company and transferring money into your local currency, as and when it is needed.
In the UK, regulated advisers 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, even with QROPS. The quality of advice will also vary from country-to-country, so make sure you’re confident with the qualifications, experience and professionalism of any adviser that you talk to.
Just as with selecting a UK pension provider, understanding how your chosen QROPS will invest your money is important. Do you have options for the type of pension plan you want and do these match your risk appetite? Your designated QROPS may provide better or worse returns than your UK pension provider.
UK State Pension Living Abroad
You can claim a UK State Pension living abroad if you’ve paid enough UK National Insurance contributions in order to qualify. To make a claim, you must be within 4 months of your State Pension age. To claim your pension, you can either contact the International Pension Centre by phone or email or send the international claim form to the International Pension Centre.
Crucially, your state pension can be paid into:
- A bank in the country you’re living in
- A bank or building society in the UK
You’ll need the international bank account number (IBAN) and bank identification code (BIC) if you have an overseas account and plan to be paid into an account in the country you’re living in. You’ll be paid in local currency so the amount you get will fluctuate with exchange rates. Exchange rate risk means the amount you receive could reduce or increase.
There are ways to remove the exchange rate risk that we’ll outline here.
Using a Currency Broker to Transfer a UK Pension Abroad
Whether it’s a private pension or state pension, the best way to manage exchange rate risk may be to keep your pension in the UK and transfer your pension payments with a specialist UK currency broker. Currency brokers, such as Currencies Direct, have a range of foreign exchange solutions designed to hedge against currency fluctuations.
One of the tools at your disposal is repeat transfers. Repeat transfers can be scheduled to occur for the same amount at the same time every week/month. This makes them particularly beneficial for overseas pension transfers. When a customer knows they are due to receive the same amount at the same time of month, they can set up a number of repeat transfers so funds can automatically be exchanged with no further involvement. Simply supply the pension provider with the account details of the currency broker, with an account in your name, and then the currency broker will convert the currency and pay this into your international account.
A forward contract locks in today’s exchange rate for a point in the future. So whether the market moves against you or for you during this time, you have guaranteed today’s exchange rate for when your payment is scheduled. It is the complete hedge to currency exchange movements.
When setting up a repeat transfer, a currency broker will provide you with two options:
- Set the repeat transfers to accept the exchange rate (or spot rate) on the day they are scheduled to be sent. This suits those who are happy to accept the exchange rate on any given day – it leaves them liable to exchange rate movements. One month the rate might move in your favour and provide a greater amount and the next it might move against you and provide you with less received.
- Set multiple forward contracts to exchange on the dates of your repeat transfers. This ensures each repeat transfer has the same exchange rate that you accepted on the day you set them up. It helps individuals to budget and provide reassurance they’ll know exactly how much they’re set to receive each month.
By discussing your risk appetite with a currency broker and what you’re looking to achieve they’ll provide education around the best course of action. If your particular currency pair is at the bottom of a long term trend, it might be that they recommend opting for spot exchanges for now and then establishing a forward contract if the rate has moved in your favour in a few months.
If you Opt for an Overseas Pension…
If you opt to move your pension to a designated QROPS in another country then money transfer companies can get you up and running with a local account in that country in order to receive your overseas pension transfers. Whilst major banks are often reluctant to open bank accounts until you have a residential address in a new country, fintechs have developed a unique multi-currency account solution that gets around this problem. For example, if you’re transferring a pension from UK to Australia, transferring a pension from UK to Canada or transferring a pension from UK to NZ, there are specialist money transfer companies that can open digital bank accounts in these countries for you. Speaking of Australia, if you’re looking for the cheapest way to send money from UK to Australia, we have a dedicated guide for that.
Final Word: Overseas Pensions for UK Emigrants
Since 2017, new measures have been brought into place to tax overseas pension transfers. Providing you plan on living in the country of the QROPS you are moving your pension to, then you should avoid this tax. Still, there are a number of factors to consider before moving a UK pension abroad. It’s important to look at the stability and security of returns of the new pension provider so you can see how this stacks up against your UK pension provider. Remember, if you move abroad, you don’t have to transfer your UK pension and working with an established money transfer company to transfer a UK pension abroad may provide the best returns.
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