Our Pensions Abroad Guide helps you identify your options and the most important points to be taken into account when you plan to retire abroad.
Table of Contents
How Brexit Affects my Pension Abroad
So far there has been no change to the legal rights and status of UK nationals in the EU as a result of the referendum. So if you are planning on retiring to the EU, or in the process of retiring, your pension rights are still very much the same as they were before Brexit vote.
However, we are watching Brexit development very closely to make sure our information is relevant, so keep an eye on our updates.
State Pension Abroad
You are entitled to your state pension abroad provided you have paid enough NI contributions to qualify. You can choose a local bank in your new country or a bank in the UK to receive the payments. In case of a local bank the pension will be paid in a local currency, so the amount will vary according to the exchange rates.
Annual Inflation Linked Increase for Pension Abroad
If you retire to one of the EEA countries, Gibraltar or Switzerland, your pension will be annually indexed in line with inflation – which means you will get a year-on-year pension increase. The same applies to the countries which have bilateral agreements with the UK to protect their citizens’ social security rights: Barbados, Bermuda, Bosnia-Herzegovina, Jersey, Guernsey, the Isle of Man, Israel, Jamaica, Kosovo, Macedonia, Mauritius, Montenegro, the Philippines, Serbia, Turkey, the USA.
Although there is a similar reciprocal agreement with Canada and New Zealand, you can’t get a yearly increase in your UK State Pension if you retire in either of those countries.
Do I Have Greater Pension Freedom if I Retire Abroad?
April 6th 2015 was pension freedom day in the UK; it was the date from which all those with personal pensions invested in the UK gained significant freedom over how they access their pension, reinvest their pension for growth or income, or take their pension abroad.
If you have a British pension pot and you’re retiring abroad you have the potential to enjoy even greater investment freedom.
Can I Take My Pension Tax-Free?
In theory, following pension freedom day, if you have a British pension and you’re over the age of 55 you can take your entire pension and do with it whatever you want.
With very careful planning you may be able to retire abroad and enjoy your British pension at a significantly reduced rate of tax.
You have to select the right country and abide by all qualification rules however – and you should take expert advice before making any decisions.
The key is in understanding where there are double taxation agreements in place, and where retirement income specifically, or foreign sourced income, is taxed at a favourable rate.
Can I Retire Tax Free to Portugal?
In Portugal qualifying expats can take their UK pension and pay absolutely no tax on it for the first 10 years.
This would apply even if you were to withdraw large lump sums. Whereas in the UK if you withdraw anything over the first 25% of your pot it is taxed as income at your highest rate.
In 2009 Portugal introduced a Non Habitual Resident Regime to encourage those of independent financial means to come and live in Portugal and spend their wealth locally.
To qualify for the benefits of the regime you must not have been tax resident in Portugal for any of the previous five tax (calendar) years.
You must meet the criteria to be tax resident in Portugal in the year of application, as well as in every year for the 10-year period you wish to claim qualification.
So you will need to spend more than 183 days a year in Portugal, or have an habitual residence in Portugal.
You will need to submit an application to the Portuguese Tax Authorities and be approved.
Foreign pension income is exempt from Portuguese tax provided it is taxed in another country under the terms of the tax treaty, or is not regarded as Portuguese source income under domestic legislation.
So, if you qualify for the Non Habitual Resident Regime, your pension income may be excluded from taxation in both Portugal and the UK for the first 10 years of your new life in Portugal.
Please seek qualified advice about how to proceed before taking any action or making any assumptions.
Can I Retire and Pay Less Tax in Cyprus?
An alternative to tax-free Portugal is Cyprus where expat retirees need only pay 5% tax on pension income, and where lump sums can potentially be enjoyed tax-free.
Not only is regular annual pension income usually only taxed at 5%, but because of a special arrangement with the UK, British public sector pensions can also be taxed locally in Cyprus (they are usually subject to British tax), making the Mediterranean island very appealing for retiring public sector workers.
Can I Retire Abroad and Take my Pension in One Lump Sum and Reduce my Tax Liability?
In France there is theoretically the option of taking your entire pension out in one lump sum and only paying 7.5% tax on it.
For those for whom an entire pension withdrawal will mean they are pushed into the highest tax bracket this makes incredible sense.
In France lump sums from pensions are not taxed at marginal rates, they are only subject to a 7.5% income tax charge, no matter how big the withdrawal is.
Note: France is not a tax friendly country for regular pension income however – only for a lump sum withdrawal.
To qualify you would have to establish tax residency in France before taking your lump sum.
Could HMRC Apply a Retrospective Tax Charge if I Moved Back to the UK?
Specific qualification criteria for the tax advantageous receipt of pension monies exist on a country-by-country basis, also please don’t assume Britain’s pension and tax rules will remain as they are in the future.
What’s more, anyone seeking any of these routes to avoid taxation before bringing their untaxed/low taxed pension back into the UK runs the risk of a retrospective HMRC tax charge.
It’s critical that you seek qualified advice pertinent to your personal position before making any decisions about your pension.
Until recently for those retiring abroad the benefits of QROPS (or ROPS as they are called now) could be significant. They could include the following:
- Removed once and for all from the UK. Cannot be valued down like current public sector pensions
- Leave any unused pension funds to beneficiaries free of tax at source
- Much greater investment freedom
- Tax free lump sum of up to 30%
- Onshore/offshore funds, highest fixed deposit rates, total diversification
- Take income from your pension in a tax efficient way
- Take income and benefits in the currency of your choice with minimal FX costs or at commercial FX rates
- Protection against possible future creditors (depending on QROPS jurisdiction)
- Greater confidentiality
- Potential inheritance tax planning advantages
However, things have changed quite a bit. As of 9 March, 2017 transfers to QROPS are subjected to a 25% tax charge unless certain conditions apply – i.e. if the individual and the QROPS are in the same country after the transfer, the Qrops is in a EEA country or if the QROPS is an occupational pension sponsored by the individual’s employer.
Depending on your personal circumstances QROPS still might be an option for you. Seek qualified financial advice to understand whether you can benefit from QROPS
Do I Have Other Options?
Other options to consider are SIPP and overseas SIPP.
The best action concerning your pension when planning your retirement abroad is to seek qualified financial advice. Qualified expatriate pension advisers can look into your situation in detail and find the best solution for your personal needs and goals, maximising your retirement income.