What Happens to My UK Pension If I Move Abroad?

In today’s increasingly global world, many people consider moving abroad for work, lifestyle, or retirement. But if you’ve built up savings in a UK pension, one of the first questions you may ask is, what happens to my UK pension if I move abroad?

The good news is that leaving the UK doesn’t mean losing your pension. However, the way you access it, and the tax you may pay, can vary depending on where you move and the type of pension you hold. Let’s explore the key points you need to know.

If you have a workplace pension or a personal pension, you don’t have to transfer it just because you’re leaving the UK. Your pension pot will remain invested with your provider until you decide to access it, usually from the age of 55 (rising to 57 in 2028).

You can still draw income from these pensions while living abroad. Many providers will pay directly into your overseas bank account, though some may only pay into a UK bank account. If that’s the case, you’ll need to arrange transfers to your new country.

The UK State Pension is also payable if you live abroad, but there are some important conditions. You will receive your pension if you’ve built up enough qualifying National Insurance contributions. However, whether your State Pension increases each year depends on where you live.

• If you move to a country within the European Economic Area (EEA), Switzerland, or a country with a reciprocal social security agreement with the UK, you’ll continue to receive annual increases.
• If you move elsewhere, your State Pension will be “frozen” at the rate your first receive it, meaning it won’t rise in line with UK inflation. Over time, this can significantly reduce your spending power.

One of the most important things to consider when moving abroad is how your pension will be taxed.

In many cases, tax depends on where you are a resident for tax purposes. For example, if you move to Spain and become a tax resident there, your pension is usually taxed under Spanish rules, not UK rules. However, in some cases, the UK may also claim tax on your pension income which could lead to the risk of being taxed twice.

To help prevent this, the UK has signed double taxation agreements (DTAs) with many countries. These agreements determine which country has the primary right to tax your pension, and in some cases, allow you to offset tax paid in one country again tax due in the other. The details vary depending on the country, so it’s essential to check how your destination is covered.

It’s also worth remembering that different types of pensions may be treated differently. For example, workplace or private pensions are often taxed differently from government pensions or the UK State Pension. Local rules may also affect whether lump sums are taxable.

Currency is another important factor. If your pension is paid in sterling but your living costs are in another currency, exchange rate fluctuations could affect the actual income you receive. Some choose to have their payments converted directly into their local currency to reduce this risk, though fees can apply.

Given how complex tax residency rules can be, getting professional advice before moving is vital to avoid unexpected bills.

For some people. transferring a UK pension overseas may seem appealing, particularly if you plan to settle permanently outside the UK. This is possible through a Qualifying Recognised Overseas Pension Scheme (QROPS).

A QROPS is a pension scheme based overseas that meets criteria set by HMRC. Transferring into one can offer certain benefits such as:

• Holding your pension in the same currency you’ll spend in, reducing exchange rate risks.
• Potentially simplifying your finances if you intend to stay abroad long-term.
• Offering more flexible investment choices, depending on the scheme.

However, a QROPS is not always the best option. Transfers can involve significant charges, and moving money out of the UK can trigger an overseas transfer charge, depending on your residency and where the scheme is based. In addition, QROPS may not always provide the same protections as UK-regulated pensions, and benefits can differ widely from one scheme to another.

It’s also important to note that once your pension is transferred abroad, it cannot usually be transferred back into a UK scheme. This makes the decision a permanent and potentially irreversible step.

Because of these risks, the Financial Conduct Authority (FCA) strongly recommends seeking independent financial advice before considering a transfer. In many circumstances, keeping your pension in the UK and drawing it down while abroad may be the safer and more cost-effective option.

Deciding what to do with your UK pension when moving abroad can be overwhelming, from understanding tax rules to weighing the benefits of a transfer. At My Pension Expert, our financial advisers specialise in helping people make informed choices.

We don’t just explain the rules, we provide clear, personalised recommendations based on your goals, whether that’s leaving your pension in the UK, accessing it tax-efficiently from overseas or exploring the pros and cons or a QROPS transfer. Most importantly, we support you through the entire process, giving you the confidence that your pension is working for you, wherever in the world you decide to call home.