Accessing UK Pension From Abroad
As an Expat, organising and arranging your finances and retirement plans can become a headache. You’ll likely have several bank accounts (locally and in the UK), as well as several different pension pots that you have accumulated over years of working in the UK and maybe abroad. Factoring in UK state pension eligibility, and things can become even more confusing. How do I access my UK pension? When can I access my UK pension? Should I leave my pension in the UK, or maybe look to transfer? These are all common questions that most Expats will ask, and it’s important to make sure you know your options.
How and when can I access my UK pension from abroad?
As a rule, you can only access your UK pension from the age of 55, except in extenuating circumstances (terminal illness, permanent disability). From this age you are entitled to your Tax Free Cash, or Pension Commencement Lump Sum (PCLS). This means you can take up to 25% of the total value of your UK Pension, without any tax liability.
From this point on, you can choose how to draw your income down for most standard schemes, known as defined contribution pensions. This is called Flexi-access Drawdown. The remainder of your pension remains invested, and you can choose to encash certain or variable amounts each month of year.
For Defined Benefit schemes, these work slightly differently. The scheme will pay you a set amount per year from a certain age, and may not offer the option to take your 25% Tax Free cash payment. Generally speaking, these schemes are great, as they offer a guaranteed income for life. However, for they may not be the best option for all individuals so it’s important to get advice on the matter.
Should I leave my pension in the UK or look to transfer it elsewhere?
Whilst you can still access your UK Pension even when living abroad, there are several things to consider when doing so. It’s important to realise that UK Pensions are exactly that – pensions designed under UK regulation and to be taken and drawn down in the UK. They are not necessarily tailored for those living abroad. The factors that need to be taken into account are taxation, currency, management, and portability.
Fortunately, the UK has double-taxation agreements in place with plenty of popular Expat retirement destinations. However, dual-taxation and receiving payments from abroad can get complicated very quickly, and a lot of the time will have to involve a tax specialist. The majority of the time tax will be paid in the UK with subsequently no more income tax due in your local jurisdiction. However, let’s consider if you moved your UK Pension to an International version, such as a QROPS or an International SIPP. You could then look to apply for an NT Code. This is short for ‘No Tax’, and simply put, means that no tax will be taken at source from your UK Pension. These codes can be issued if you have a non-resident status.
Let’s take a look at the following example to see how this works in practice:
John has built up a sizeable UK Private Pension from his years of work at IBM. He’s coming up to his 60th Birthday, and is ready to retire in Singapore. He’s moving in a few months and wants to consider his options. His pension is worth £600,000 and he decides to take his tax free cash in the UK, leaving £450,000 invested in his UK Pension.
He wishes to draw an income of £60,000 per annum. If he kept his pension in the UK, without an NT Code, John would be paying up to 40% at his highest marginal rate of taxation. This would be taken and deducted from the pension.
Alternatively, John could move his pension to an International version, such as an International SIPP. With this, he could apply for a Nil Tax Code on a non-resident basis. His pension income would then be paid out gross, and subject to only local taxation. In Singapore, his highest marginal rate of income tax would be 11.5%
Currency Risk and the Exchange Rate
Another factor to consider when accessing your UK Pension is currency and the ever-fluctuating exchange rates. As we have seen with Brexit, Trade Wars between the US and China, and now the Coronavirus pandemic – currencies can be incredibly volatile. If you live in the UK and plan to retire and access your pension in the UK, this would only affect you when going abroad on holidays and exploring.
However, as an Expat living in a different country, this can have a huge impact. A UK Personal Pension will be invested in Pound Sterling. Let’s say you have accumulated all of your pensions in the UK and move to the South of France for your dream retirement. You plan on taking your tax free cash and income here in France, but you turn on the news to find out that Brexit developments have caused Sterling to drop by 10% against the Euro. In the long term you’d hope things would equalise and balance out, but in the short term you need to access your pension. This 10% drop will reduce your disposable income and spending and subsequently the quality of your retirement. It’s always important to consider these risks, and ask yourself the very important question – should I be holding my life’s savings in a currency that I’m not using here?
What Should I Do?
Everyone’s situation is different, and everyone has different priorities when it comes to their finances. We’ve discussed a few issues in this article that you should consider when accessing your UK Pension from abroad, but there are more questions to ask, such as who is looking after my pension? Or what happens if I move country, is my pension still portable?
If you’d like to discuss your options with us, please do not hesitate to get in touch for a free consultation to assess your options