When you retire overseas, what happens to your pension?

To avoid higher taxes, thousands of affluent people are fleeing the UK

If you retire overseas, we examine what will happen to your pension.

For a long time, some British people have been drawn to retiring overseas in order to escape the harsh winters and enjoy sunny, sunny days.

It sounds wonderful to retire overseas, but what would happen to your pension savings, and would you still be eligible for the UK state pension if you did so?

Whether it's France, Spain, or Greece, or a more distant location like Canada or Australia, moving to the UK as an expat can be the beginning of an exciting journey.

However, there are many factors to consider when planning a move abroad, including how you will use your pension. Both employees and those retiring overseas are covered by this.

Approximately 500,000 people migrate abroad from Britain each year.

As per the Office for National Statistics, approximately 479,000 individuals departed the United Kingdom in 2024.

Approximately 44% (211,000) were citizens of the EU+, 39% (189,000) were citizens of non-EU+ countries, and 16% (79,000) were citizens of the United Kingdom.

"The cost-of-living crisis and the increase in remote work, which was exacerbated by the pandemic, have caused many people to think about relocating overseas," says Dean Butler, a managing director at Standard Life.

Additionally, the summer vacation season is quickly approaching, and some individuals may return with plans to relocate permanently overseas.

We go over what happens to your pension and whether you will receive a state pension when you retire if you are considering moving abroad.

When I move overseas, what happens to my UK pension funds?

Unless you make arrangements for them to be transferred abroad, any pension plans you have in the UK will not follow you when you relocate.

"Instead, they'll stay where they are, so you can start taking money from them even when you're abroad once you reach 55 (57 from 6 April 2028)," says Butler.

Can my pensions be transferred to the new country where I live?

As per Butler, it is generally possible to transfer your UK pension plan or plans to another pension plan overseas; however, you must ensure that you are joining a "Qualifying Recognised Overseas Pension Scheme," or QROPS for short.

In essence, this is a pension plan that adheres to regulations similar to those of UK plans; a list is available on gov.gov.uk.

"Depending on your unique circumstances, including where you live when you make that transfer," Butler says, "you may be able to make this transfer tax-free, or otherwise you might need to pay 25 percent tax on the amount you're transferring out of the UK."

The "overseas transfer allowance" is a cap on the amount of pension savings that can be transferred outside of the United Kingdom from the United Kingdom.

Typically, the overseas transfer allowance is 1,073,100, unless you have protection in place. If you move more than this, you will typically be required to pay a 25 percent tax charge.

"You risk a 55 percent tax charge and additional penalties if you attempt to move your UK plans to a scheme that isn't a QROPS. This is because it can be interpreted as using your plan to make an unauthorized payment. Additionally, switching to a scheme that isn't a QROPS is probably not going to be regulated, and you might not be eligible for any reimbursement in the event that the scheme has problems down the road," Butler says.

It's a big decision, and not everyone will find it ideal to move a pension plan abroad. Seeking financial advice is a smart way to properly weigh the advantages and disadvantages.

When transferring money to a QROPS is tax-free.

Transferring to a QROPS offered by your employer typically results in no tax being due. To find out, ask the scheme.

If you both reside in the same nation where your QROPS is based and the transfer does not exceed your allotted amount for overseas transfers, you are exempt from paying taxes.

When you move to a QROPS located in the EU, Norway, Iceland, Liechtenstein, or Gibraltar, you are also exempt from paying taxes if all of the following apply.

The transfer does not exceed your overseas transfer allowance if you move within five years of the transfer. You must complete form APSS 241 and give it to your scheme administrator if you reside in the UK, the EU, Norway, Iceland, Liechtenstein, or Gibraltar. You must request the transfer before October 30, 2024, and it must be completed by April 30, 2025.

If your QROPS is based in the country you have moved to, you will receive a refund; if you have moved out of the country, you will be required to pay 25% tax on your transfer.

If I live abroad, can I still contribute to a UK pension?

This is dependent on the regulations of your pension plan, so you should check with your provider. Butler cautions that the amount of tax relief you receive from your UK pension contributions may be restricted or you may not be eligible for any at all.

Your situation determines whether you qualify for pension tax relief and how much you receive. For example, if you have "relevant UK earnings" that may be taxable in the UK during that specific tax year, you may still be eligible for tax relief.

This covers items such as earnings from work, such as wages and overtime. MoneyHelper, a government website, provides additional examples.

If I relocate abroad, what will happen to my state pension?

As long as you have made enough National Insurance (NI) contributions to be eligible, you can still receive your UK state pension overseas.

To be eligible for a reduced payment, one must have contributed to National Insurance for at least ten years, and 35 years to receive the full new state pension. Nonetheless, you have to inform the Department of Work and Pensions of your relocation.

It's important to note that the state pension triple lock is only applicable in specific nations. Currently, these include all nations in the European Economic Area (EEA), Switzerland, and any other nation that has a social security agreement with the United Kingdom that permits it to increase state pensions.

This covers the USA and Jamaica. This is a complete list of nations where your state pension is increased annually.

The state pension will not be increased if you are moving to Canada, Australia, or a number of other countries, including Thailand, India, and South Africa.

It's important to keep in mind that frozen state pensions can cost you thousands of pounds over the course of a 20- or even 30-year retirement.

According to the All-Party Parliamentary Group on Frozen British Pensions, 450,000 British pensionersor half of all pensioners living abroaddo not receive the benefits of state pension increases.

If I retire abroad, how can I withdraw funds from my UK pension fund?

You can usually withdraw your money in the same ways that you would in the UK if you're traveling overseas. Some providers might, however, restrict the available payment methods.

Butler says: "If your current plan doesn't offer what you want, shop around. For more clarity, ask your current provider about the available payment options.

Your options, however, might still be restricted because some providers won't allow you to open a new plan if you reside overseas.

Is it possible for my pension funds to be transferred to a foreign bank account?

Although there may be additional fees, some pension providers might be open to making payments into an international bank account. Others might only fund accounts in the UK.

Be mindful that when your pension funds are converted into your local currency, the exchange rate will have an impact on how much you receive.

How will my UK pensions be taxed if I move overseas?

It can get tricky at this point. Although money from a UK pension plan may be subject to UK income tax since it is considered UK income, you may also be subject to taxes in your home country.

Because the UK has double-taxation agreements with many nations, you might be eligible for tax relief or a refund, preventing you from having to pay taxes on your pension funds twice. Butler says, "Gov.dot.uk has more information about taxes on your UK income when you live overseas.

In the United Kingdom, you are typically allowed to take up to 25% of your pension tax-free. This means that you can typically take 268,275 tax-free across all of your pension plans. It is crucial to research how this operates in the foreign country because you might not be able to take money tax-free in the one you have relocated to and it might be taxed as income.