Are you a U.K. expat that is now living abroad? In this article, I want to go over how your U.K. pensions, both state and private will be affected by being an expat. I will also cover your options when you leave the U.K. for your pensions.
Why do people transfer their U.K pensions overseas?
This can be done for a number of reasons, but some of the prime reasons are the consolidation of private pensions are easier to manage. Also, people have individual reasons for transferring pensions depending on the type you have if you have Defined Contribution (DC) and Defined Benefit (DB) pensions as the process differs significantly for the two pensions.
A DB scheme will have to go through a report and add to the cost. While a DC can be easier and normally faster to transfer. Not to mention the pension companies can be quite tricky to deal with as they do not want to lose the money you have invested with them.
What are the types of pensions that you have in the U.K?
These can be split into types of pensions that you might have contributed to in the U.K.
Personal Pensions
These are pensions that can be taken out by individuals or as a group. In terms of options for investments, it does depend on the scheme and when it was taken out as some of the older schemes seem to have fewer options open to them.
Note, that when you have left the U.K. your pension will remain active and can keep growing. You can keep contributing to your pensions after you leave the U.K. for up to 5 tax years up to the value of 3600 GBP per year or 2800 GBP net cost before tax relief is added.
Define Contribution (DC) pensions
For DC pensions, these are pensions that are able to leave in the U.K. when you move. DC are normally a company pension and one that you are auto-enrolled into, and usually means will not be able to contribute when you have left the employer.
These do not offer set income drawdown options and investment options and can be limited as some of the schemes have limited or restricted funds that they deal with. Although, some of the newer options do have a wider range of options.
One of the reasons, why many expats transfer is to take more control of their pensions. By transferring into a SIPPs or International SIPPs. It gains the ability to take control of your investments as many of the DC schemes are invested for a group as a whole and not for individual circumstances.
Define Benefit (DB) pensions
These are also company pension schemes and you can leave them where they are when you leave the U.K. and whether you live in the U.K or not is irrelevant until you withdraw on your pensions.
These are referred to as gold plated pensions as they give a set income for life. An added advantage of this is that they don’t have investment risk. People have many reasons for looking at moving these types of pensions, such as having significant wealth in other savings and the ability to pass the capital on to a spouse.
These are more complex to transfer and more costly as you will need to pay for a report and note that it is going against the FCA guidelines if you do transfer out.
Anyone with a value of more than 30,000 GBP will need to seek financial advice when dealing with pensions. When transferring you will be given a cash equivalent transfer value (CETV) in exchange for the income for life.
When you transfer a pension overseas you have the following options for private pensions:
- U.K SIPPs
- ROPs
- Overseas employers scheme
Note that it is dependent on where you are living and some of these might not be feasible for your personal circumstances. If you need full financial advice, please seek a qualified financial advisor.
What about your state pension?
A question that I get asked a lot is can I claim my state pension when I move abroad? Yes, you can but the taxation does depend on where you are located.
A pension in the U.K. will be subject to PAYE. If you reside in a country that has a double taxation agreement (DTA) with the U.K. your income is paid gross and are taxed in the country of residence.
If you do not have DTA or were present in a country that doesn’t have a DTA with the U.K. you could potentially be taxed twice on the same income.
Having your pension paid to your U.K. bank may be found to be problematic with currency exchange and the like.
In terms of contributions, you can contribute to a state pension when you are overseas. Note that you have 2 classes, classes 2 and 3.
Class 2 is a cheaper option and depending on factors such as income, previous contribution and employment status depends on what option you can go for.
It’s important to note that expats can continue making voluntary Class 3 National Insurance Contributions whilst living abroad, regardless of their country of residence.
To do this, you’ll need to submit the NI38 form to HMRC, which can be found here.
You can also request a State Pension forecast online or by submitting a BR19
For receiving the state pension note that it won’t go up with inflation unless you are living in these locations.
- The United Kingdom for 6+ months each year
- Countries in the European Economic Area (EEA)
- Countries that have a social security agreement with the UK
- Switzerland
If you do have any questions in regards to state and private pensions, please feel free to email info@invesmentsforexpats.com
