Retiring abroad can hold the promise of embarking on a new adventure. However, spending golden years outside of the UK requires thorough planning and people may need to consider how to look after their pension when they move.
A pensions expert at PensionBee shared how people can best manage their retirement savings abroad, depending on the type of pension they have.
Britons don’t have to do anything with a Defined Contribution pension unless they’re transferring it to an overseas provider.
If someone has a Defined Contribution pension, they can leave it with their UK pension provider.
Becky O’Connor Director of Public Affairs explained, however, that if they wish to transfer to a provider based in the country they’re moving to, they’ll need to be a ‘qualifying recognised overseas pension scheme (QROPS)’.
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She said”: “It’s vital that people check this, otherwise their UK provider may refuse the transfer, or they could face heavy tax penalties upon transfer.”
Transferring a Defined Benefit pension might be more tricky.
If someone has a Defined Benefit pension, sometimes known as a ‘final salary pension, they can also leave this with their UK pension provider.
However, transferring this overseas may be more complicated as they’ll receive a cash value for their pension upon transfer, she said.
Britons are warned that this means they’ll lose the guaranteed income and any safe-guarded benefits that may have been attached to the policy.
People can still receive their UK state pension if they move abroad.
This works in the same way as in the UK and can be paid into a UK or international bank account.
However, if someone is living outside of the UK and their pension is being paid into an overseas bank account, the state pension will be paid in the local currency, so the amount received is dependent on the exchange rates at the time.
The amount of tax they’ll pay depends on whether they move within Europe or not.
In Europe:
If someone transfers their pension to a QROPS based in Europe, they’ll only pay tax if they move outside of the UK, Gibraltar or the European Economic Area (EEA) within five years of transferring a pension.
People can also get a refund on the taxes paid if they move back to the UK, Gibraltar or the EEA within five years of the transfer.
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“However, it’s important for retirees to carefully consider how this move may affect their retirement savings.
“While this will be dependent on what type of pension they have, and the location they decide to retire to, it may not always be possible for them to transfer their pension abroad, so it’s crucial that they check their eligibility before they take any action to avoid heavy tax penalties upon transfer to a new provider.”
Britons are warned as always with investments, capital is at risk.
The value of their investment can go down as well as up, and they may get back less than they invest.
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