As an expat who is leaving the UK there are some options you have when it comes to your pension. If you have a defined contribution pension then it is easier to transfer than a defined benefit pension. This is simply down to the regulations. Defined benefit or final salary pensions are less common these days as most employers use defined contribution pensions.
If your employer is sending you abroad to work and live then you should be able to carry on paying into their pension scheme, if you are moving abroad and changing employer or going self employed then most usual route is a SIPP. As you are residing outside the UK you won’t be able to set one up in the UK, and this leaves you an option with an international SIPP.
If you are close to the lifetime allowance, then you might be better off considering a QROPs, the current allowance is £1,073,100. If you are approaching this then a ROP’s will be more beneficial. It can come with a high tax of 25%, however, what you can save in other taxes make it a viable option if it is something you are looking at.
Leave your pension in the UK with your pension provider
The pension will continue to be held by your pension provider until you claim it, if you no longer contribute to it, it will be classed as a frozen pension. You can request early payment of these pensions from age 55 at which point you may be able to take up to 25% of the value as a lump sum and use the remained to provide a pension for your lifetime.
If you leave your pension sat in the employers funds without contributing to it then it isn’t going to perform well because of the funds they invest in. For example, a family member in the UK actually lost money from 2019 – 2020. They aren’t contributing to the pension any more and their value went down!
If you leave it just sitting there, nothing is going to happen with it and this is why many expats choose to consolidate pensions when they leave!
Transfer your pensions into an offshore pension scheme
You can look to transfer your pension into a QROPs if you want to take it offshore. You need to make sure that the scheme you are transferring in to is recognise by HMRC. If you are moving overseas to become an expat, then you need to be aware of the potential charges, you can face a tax of up to 25% by transferring into a QROPs.
If you are close to your lifetime allowance, then a QROPs has some significant advantages over a SIPPs and International SIPPs. If it is wrapped in a QROPs then you can mitigate inheritance tax whereas in SIPPs or international SIPPs.
- If the pension holder dies whilst being a member of a QROPS (and after being nonresident for 5 complete tax years) then no UK scheme charges are reportable to HMRC.
- UK nationals with UK pension funds close to the Lifetime Allowance limit can transfer to a QROPS to trigger a ‘Benefit Crystallisation Event’ (BCE).
- Under current rules, once the pension funds have been transferred to QROPS they are able to grow without further assessment with regard to Lifetime Allowance limits
However, unless you are close to the lifetime allowance then a ROP’s is generally more expensive and not required as a SIPP or an international SIPP will be more beneficial for expats. As an expat that is overseas you can’t create a SIPP that is based in the UK because you are no longer a resident, this leaves an option of an international SIPP.
An international SIPP is the same as a SIPP in the UK, however, it is based outside of the UK’s jurisdiction. The places can be the Isle of Man, Cayman, Malta and similar places. I like to use platforms and providers that have good regulations with high security.
I have written an article on SIPP providers and platforms for expats here is you would like to see some of my suggestions and opinions! SIPP Providers and Platforms.
Continue paying into your employers pension from abroad
If your employer stays the same and you are moved abroad then you should be able to carry on paying into your current pension. This isn’t always a bad idea because as long as you pay in, they must also pay in.
If you start a SIPP or international SIPP and stop contributing to your current pension then you will lose your emplyers contribution and this can be up to around 5%. It will vary depending on employer.
If this is the case it is just worth reviewing what is paid into your pension and then you can review if it would be better off transferring or not!
Summary of non-resident pension contribution options
This is very quick overview, I can delve more into the tax side, however, at the moment, I just want expats to be aware of the options available to them. If you are moving abroad with your employer, then you can still contribute to their pension scheme.
This isn’t a bad idea because you build up with their contribution as well and it helps reduce tax. You can increase contributions if you wish.
Secondly, you can leave it in the UK. I don’t really recommend this, because, pension funds aren’t great performers and they just sit there when actually you can at least be keeping up with inflation.
Lastly, you can transfer the pension or pensions offshore. If you are close to the lifetime allowance then a ROP’s might be more beneficial even though there can be a 25% charge for transferring. However, the charge allows you to mitigate IHT which is subsequently higher!
However, if you haven’t managed to build up a pension pot of near a million, then an international SIPP is a good idea. If you live offshore as a non-resident, then you can’t open a SIPP in the UK, but you can look at opening one in the Isle of Man or somewhere similar.
The platforms and providers are slightly more expensive offshore, however, the taxes are less, whereas in the UK the platform fees are lower, but the taxes are higher when you look to draw it down!
If you want to talk to someone about your pension and unravel some of the mysteries about transferring pensions, taxes, platforms and providers please email me.
