The Expat Guide to UK Pensions Abroad: Understand Your Options

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If you consider moving overseas in retirement, one of the most important considerations is what to do with all your UK pension pots:

  • Do you leave them in the UK?
  • Do you take them abroad with you?
  • How can you move your pension abroad?
  • How will your pension income be taxed abroad?
  • What about your state pension?
  • And the most urgent one: how will Brexit affect your UK pension abroad?

This guide will help you understand what options you have regarding your UK pensions, their advantages and disadvantages, what happens to your state pension and what you need to do to continue receiving your pension income without interruption when you move abroad.

For updates on Brexit impact on your UK pensions abroad, check our ‘Retiring to Europe after Brexit‘ page, Post-Brexit finances for UK expats in Europe section.

Brexit impact on UK private pensions abroad

One of the biggest fears relating to a no-deal Brexit for financial services is that UK pension providers that pay income to overseas retirees will no longer be able to do so.

A UK insurance company, for example, paying an annuity to a UK expat in the EU would no longer hold passporting rights to do so.

Passporting enables companies that are authorised in one EU country to do business freely in all the EU with minimal additional authorisation.

With Brexit UK financial companies will have no right to deal with their EU clients without being properly authorised by the country the client resides in.

Providing financial services without passporting rights means risking fines and penalties.

Some UK financial firms are planning on setting up a subsidiary in the EU, which will mean they are still able to pay money into European bank accounts.

If you are retired in the EU or in the process of retirement and have a UK-based financial services company looking after your pension pots, it makes sense to ask them whether they have their Brexit solutions ready.

The UK government said it would give temporary permission for financial firms in the European Economic Area to pay people in the UK. This means that a Spanish pensioner living in the UK, or someone who has worked in Europe but returned to retire in the UK, would not have the same problem in the short-term.

There are big question marks over the protections in place if any of these firms go bust.

Pension freedom – what it means for you

As of April 6th, 2015, the government introduced some significant changes in the UK pension system. The day is now known as Pension Freedom Day.

Pension Freedom reform means that anyone aged 55 and over can take the whole amount of their pension pot as a lump sum, paying no tax on the first 25%, with the rest taxed as if it were their salary at their normal income tax rate.

Only private pensions, where you and/or your employer saved up a pot of cash for retirement, qualify for this. They are ‘defined contribution’ or ‘money purchase’ pensions and Self-Invested Personal Pensions (SIPPs).

Leaving your pension pot in the UK

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. You could close your pension pot and take the whole amount as cash in one go if you wish.

Normally, for UK residents, the first 25% (quarter) will be tax-free and the rest will be taxed at your highest tax rate – by adding it to the rest of your income. 

Retiring abroad means you become a tax resident of your new country of residence. In many cases, if you retire to an EEA country under the Double Taxation Agreements, your pension will be taxable in your new country of residence, not in the UK. 

To take advantage of the 25% tax-free lump sum, you would want to take this before moving abroad while you are still UK tax resident. Otherwise, you will be taxed according to local taxation rules in your new country of residence, where the 25% tax-free pension rule might not be applicable. 

The rest of your pension income will be taxed according to your new country’s taxation rules. Some countries, such as Portugal, Malta, Italy and Cyprus, have very lenient tax policies when it comes to expats and their foreign-sourced income. Make sure you are in a good position to take advantage of this.

Here are a few examples of how it works:

Can I take my UK pension abroad in one lump sum and reduce my tax liability?

If you retire to France, there is theoretically the option of taking out your entire pension in one lump sum and only paying 7.5% tax on it.

By taking out an entire pension withdrawal, some will be pushed into the highest tax bracket. For them, this makes incredible sense.

In France, lump sums from pensions are not taxed at marginal rates. Instead, they are only subject to a 7.5% income tax charge, no matter how big the withdrawal is.

Note: To qualify you would have to establish tax residency in France before taking your lump sum.

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.

This is all possible thanks to a Non-Habitual Residency Regime that was introduced in 2009.

The Portuguese government attempted to encourage those of independent financial means to come and live in Portugal and spend their wealth locally.

They did succeed: for the past few years, the number of expats retiring to Portugal to take advantage of the NHR has grown significantly.

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 also meet the criteria to be a 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. For this you will need to spend more than 183 days a year in Portugal.

How Does It Work?

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 income sourced in Portugal under domestic legislation.

According to the double taxation treaty between Portugal and the UK, the pension income of citizens from either country is taxed in the country of residence.

This means that if you are a UK citizen and live in Portugal, your pension income is taxed in Portugal, not in the UK.

Hence, if you qualify for the Non-Habitual Resident Regime, under which pension incomes are exempt for the first 10 years, 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.

Can I retire to Cyprus and reduce my tax burden?

An alternative to 10 years of tax-free living in Portugal is Cyprus, where expat retirees need only pay 5% tax on pension income, and where lump sums can potentially be enjoyed tax-free.

Cyprus can be also very attractive to British public sector retirees.

Usually British public sector pensions are subject to British tax. However, there is a special arrangement with the UK in place, which makes it possible for British public sector pensions to be taxed locally in Cyprus.

Expat retirees in Cyprus can choose to be taxed at the normal tax rates if they wish to do so. In this case, the first €19,500 is tax-free, and after that the normal rates apply.

The best thing is that you can opt either for the flat rate of 5% or for the normal rates on an annual basis.

For example, in a year when you want to withdraw a bigger income, it will be beneficial to choose a flat rate. Choosing a flat rate will save you tax if your income is over €25,000. If you withdraw anything below €25,000, a normal rate taxation will be more beneficial for you.

Another thing worth considering when leaving your pension pots in the UK is that your UK-based pension will be subject to the 45% lump-sum tax under UK inheritance tax. 

If this is your preferred option, you need to contact your pension provider to enquire as to whether they can pay your pension into an overseas account. 

If not (which is most often the case), you will need to make sure you can keep your UK bank account open, and then arrange for your money to be transferred from the UK bank account into your local bank account based in your new country of residence. 

Beware of transfer fees and currency exchange rates. You might want to look at such companies as TransferWise to make sure you don’t pay an arm and a leg when transferring your money.

Transferring your UK pension abroad

You can transfer your UK pension pots abroad by using QROPS or ROPS as it is called now. ROPS is a pension scheme specifically for UK citizens who no longer live in the UK.

It stands for Qualifying Recognised Overseas Pension Scheme.  However, the HMRC insisted on dropping the word “qualifying” from the name. So strictly speaking it is now the Recognised Overseas Pension Scheme (ROPS), although the abbreviation QROPS is still in use.

The advantages of transferring your UK pension abroad

If you are retiring abroad, you could potentially benefit from transferring your pension into a ROPS. The advantages of ROPS can be significant, including the following:

  • Your pension is removed once and for all from the UK.  It cannot be valued down like current public sector pensions;
  • You can leave any unused pension funds to beneficiaries free of tax at source;
  • You could enjoy much greater investment freedom, including access to offshore investments and savings;
  • You can have a tax-free lump sum of up to 30%;
  • You can potentially get access to onshore/offshore funds and the highest fixed deposit rates;
  • You can diversify your investments in a way that suits you;
  • You can take an income from your pension in a tax efficient way;
  • You can take income in the currency of your choice with minimal FX costs or at commercial FX rates;
  • You can have protection against possible future creditors (depending on ROPS jurisdiction);
  • You can potentially protect your estate by inheritance tax planning, and pass on your wealth to your family with less of a tax burden.


The ROPS option might not be suitable for everyone. Also, a pension provider needs to comply with strict regulations to be qualified as ROPS.

As of 9th March 2017, transfers to ROPS are subjected to a 25% tax charge unless certain conditions apply. To avoid the 25% tax, the individual and the ROPS must be in the same country after the transfer, or the ROPS must be in one EEA country and the individual in another EEA country after the transfer.

If the ROPS is an occupational pension sponsored by the individual’s employer, the 25% tax charge doesn’t apply either.

Depending on your personal circumstances and whether you comply with conditions stated above, ROPS might be a perfect option for you. To understand whether this is the case, and whether you can benefit from transferring your pension to a ROPS, seek qualified advice.

UK state pension paid abroad

If you are eligible for a UK state pension, it will be paid to you no matter where in the world you choose to live. 

Brexit impact on state pensions paid overseas

Brexit is certainly a serious point to consider when planning your overseas retirement.

If you’re entitled to a UK state pension and retired abroad (as currently over 220,000 Britons are) or are planning to retire overseas, – you will get your state pension paid no matter whether there is a deal or no-deal.

UK pensioners retired in the EU and some other countries have their state pension increased every year to match the rising cost of living. 

This might change depending on the Brexit outcome and EU – UK future arrangements.

For now if you are planning on retiring to the EU, or are in the process of retiring, your pension rights are still very much the same as they were before the Brexit vote.

Annual increase in the UK state pensions paid abroad

The annual inflation-linked increase depends on the country you are retiring to.

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, provided Brexit doesn’t disrupt it.

The same applies to countries that 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, and the USA.

So, a retired Briton living in one of these countries will get their state pension increased by the triple-lock – the highest of earnings, prices, or 2.5%.

Those who are retired or planning to retire to a country not listed above will get their state pensions paid, but the level would be frozen.

Receiving your UK state pension abroad

When you retire abroad, you are entitled to your state pension, provided you have paid enough NI contributions to qualify.

The basic state pension for 2019/2020 is £129.20. To get this under the old system, you need to have made a minimum of 30 years’ National Insurance contributions during your working life.

Those qualifying for their state pension on or after 6 April 2016 will be covered under the new state pension.

Once you qualify for the UK state pension, you can claim it no matter where you live. The money can be paid into a UK bank or directly into an overseas account in the local currency, cutting out transfer fees and bank charges.

You can choose to be paid every four or 13 weeks, but if your State Pension is under £5 a week, you’ll be paid once a year in December.

When you settle down in your new country of residence, you can open a bank account in a local bank to receive the payments, or you can still use your UK bank account for this.

If you opt for a local bank, you will receive the pension in a local currency, so the amount will vary according to the exchange rates.

In conclusion: Making your pension last

Planning your money management in retirement isn’t an easy task. There are many options available for investing your savings. There’s no doubt that when it comes to retirement, we all want the best income and investment solutions for our hard-earned pensions.

Yes, pension freedom means you can withdraw or transfer your pension. However, it’s not always the best solution for you. It depends on your future plans, the size of your pension pots, your country of residence, and many other factors.  

What you need in the first place is a reliable plan to fund your long-term future that matches your personal circumstances and goals. 

Beware of pension scams.  Make sure you get advice from a professional and reputable international financial advisory.

Your adviser should always consider your personal needs, objectives, personal circumstances and risk appetite to find the best solution for you and your family. Getting it wrong could have serious and unexpected consequences. 

Secure A Better Retirement Income Abroad

Understand your overseas pension options and find a solution that works best for you.
Order Your FREE Expat Pension Review Today!

About the author: Ola Degteva is research director of Expatra. Coming from a teaching and research background, she has been working in online publishing since 2010 when she became an expat. Having done 3 major international moves herself, Ola knows exactly what relocation and settling down in a new country involves and how important it is to plan ahead to make your move abroad less stressful.