Your short guide to taking your UK pension abroad

For many of us, our pensions are some of our most valuable nest eggs, built up by years of contributions – so it’s crucial to know the details about your access to them if you move abroad. Fortunately, the guidelines around taking your UK pension abroad are quite clear; here’s what to expect.

Can you receive or move your pension to another country?

Yes, you can normally both transfer or withdraw from your state and any private pensions out of the UK to another country.

Receiving your state pension abroad

For the state pension, the most important thing is to find out if you have made enough contributions to be eligible to receive it in the first place. The government has a dedicated state pension checker you can use for this purpose. If you’re planning on moving abroad soon and you haven’t made quite enough contributions, you can pay voluntary contributions before you go to fill the gaps.

Likewise, while many people think that if you move abroad, you are no longer able to contribute to your state pension, this isn’t quite true. Although your usual National Insurance contributions will cease when you move full-time, you can still choose to voluntarily pay additional contributions. The two main types are:

• Class 2 contributions: if you’re working abroad and worked in the UK before leaving, as well as living in the UK or paying contributions for at least three years.
• Class 3 contributions: if you’re living but not working abroad and have lived in the UK or paid contributions for three years.

A state pension can be paid into either a bank in the country you’ve now moved to or into a British bank or building society, on either a four- or 13-weekly cycle. If it goes straight into your overseas bank account, be aware that it will not increase in line with inflation.

Receiving a private pension abroad

Private pension will of course vary on when you can start withdrawing money; usually it’ll be after the age of 55.

However, although you don’t necessarily have a minimum threshold of contributions like for your state pension, it’s important to be aware that, in addition to your own pension provider’s age rules, some countries may also have their own for transferring pensions. For example, Australia’s superannuation charges mean you can’t transfer your UK pension ‘down under’ until you’re 55 or over.

As for how you can move your pension, you should make sure it’s in a QROPS, or qualifying recognised overseas pension scheme. Let’s look at that in more detail.

What are QROPS and how do they work?

QROPS are pension schemes that follow HMRC rules on receiving pension transfers. There’s a comprehensive online list of all qualifying schemes available from the UK government.

Taking your UK pension abroad with a QROPS means that it will be under that pension scheme’s management from then on – and not necessarily that you’ll be immediately withdrawing from it.

If you don’t transfer to a QROPS, then you run the risk of firstly placing your money into an unregulated scheme and secondly paying an authorised tax charge of 55% and possible further penalties.

On the plus side, if you do transfer into a QROPS, you won’t have to pay tax if you live in the country where you’re taking your pension abroad. If you’re moving your pension to Gibraltar or a European Economic Area (EEA) country, you just need to be resident anywhere in the UK, Gibraltar or the EEA.

On the other hand, if you’re moving your pension to a country that isn’t one of the ones above and you don’t live there, you’ll pay 25% tax. All is not lost, however, if you do plan to move! Simply fill in Form APSS 241 if your move happened within five years of transferring and you should get a refund.

Note as well that if you don’t give all the information your pension provider requests within 60 days of asking for a transfer, you will also be liable for a 25% tax.

You may still have to pay some UK tax while living abroad on lump pension sums; HMRC advises you to speak to your provider for individual cases.

How do you manage pension payments overseas?

Whether you keep drawing your pension into a UK bank account and then transfer it abroad when you need it or you move the entire sum into an overseas scheme, you will come face-to-face with the risks of the currency markets.

After contributing for decades and taking the inherent risk in any form of investment, the last thing you want is for that value to fluctuate – and especially to plummet – from one day to the next just because of currency exchange.

The markets are constantly moving and that means any sum of money on those live markets is constantly exposed.

Imagine you had a total pension pot of £100,000 and you were moving to a new life in an EU country like sunny Spain. You might have checked and seen that that pot was worth around €120,000 on 5th August 2022. By 23rd September, that would have fallen to €112,000.

For most people then, the safest solution is to put in place a hedging strategy with a forward contract. This means you can lock in a set exchange rate for a set period of time – knowing exactly how much your money would be worth even if the market moves.

In the context of pensions, this strategy could be used either for transferring large lump sums or for regular payments.

For large sums, if you know you’re planning to transfer in, say, six months’ time, you would lock in the current exchange rate for six months, pay a deposit and then simply pay the rest of your sum at that time. This way, you can plan ahead, knowing precisely how much you will get for taking your UK pension abroad.

If you’re making regular payments, you might choose to fix an exchange rate for twelve months for the sum total of that year’s transfers. You could then make those transfers as and when needed, such as monthly, again knowing how much your money would be worth.