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ASK TOM I want to retire abroad but what will it mean for my pension?
I want to retire abroad but what will it mean for my pension?
Our expert helps explain how a move overseas could impact retirement income
I am thinking about retiring abroad in the next few years and want to better understand how it will affect both my private pension and my state pension entitlement. What impacts are there of moving abroad, if any? And should I consider a QROPS?
Jeff
Tom Selby, AJ Bell Head of Retirement Policy, says:
Retiring abroad remains a dream for lots of people. If you are considering finding a place in the sun for your later years, it’s important to think carefully about the implications for your finances, including your pension.
Any potential impact will depend on several factors, including where you want to retire to. Let’s start with the state pension.
WHAT DOES IT MEAN FOR THE STATE PENSION?
Provided you have enough National Insurance contributions to qualify for the state pension, if you move abroad you can continue to receive the benefit. You can choose to have your state pension paid into a UK bank or a bank in the country you are living in.
Whether or not your state pension continues to increase in line with the triple-lock – which guarantees it rises by the highest of average earnings, inflation or 2.5% – will depend on the country you move to. This is a major consideration as over the course of someone’s retirement the impact of having your state pension frozen could be substantial.
The state pension will only increase each year if you retire to a country in the European Economic Area, Gibraltar, Switzerland and countries that have a social security agreement with the UK. For example, if you move to the US your state pension will increase, but if you retire across the border in Canada it won’t.
WHAT ABOUT A PRIVATE PENSION?
If you have a private pension, this can be paid to you wherever you are in the world. Anyone thinking about retiring abroad should speak to their pension scheme or provider first to check how they will pay your income. Some will only pay into a UK bank account, for example, while others might pay into an overseas account if you ask.
Some schemes may also charge you extra to pay your pension into an overseas account and your income could be paid in pounds sterling, exposing you to currency fluctuations.
A Qualifying Recognised Overseas Pension Scheme or ‘QROPS’ is a type of overseas pension plan recognised by HMRC that can receive pensions built up in the UK.
You do not have to join a QROPS if you want to retire overseas – as mentioned above, private or workplace pensions can be paid to you wherever in the world you decide to retire.
If you join a QROPS established in the country you reside in, you’ll get your pension in local currency and so avoid the uncertainty of exchange rate rises and falls. It may also be easier to keep track of the tax changes in the country you reside, rather than having to constantly monitor the UK’s rules and regulations.
HOW DOES IT WORK WITH QROPS?
Transfers to QROPS are subject to a 25% HMRC charge unless any one of the following conditions are met:
• You are resident in the country where the
QROPS receiving your transfer is based; • You are resident in a country in the European
Economic Area (EEA) and the QROPS you are transferring to is based in another EEA country; • The QROPS you are transferring to is an occupational pension scheme and you are an employee of a sponsoring employer under the scheme; • The QROPS you are transferring to is an overseas public service scheme and you are employed by an employer that participates in that scheme; • The QROPS you are transferring to is a pension scheme of an international organisation and you are employed by that international organisation.
You will likely need to go through a regulated adviser if you want to open a QROPS. If you do so, make sure you know exactly what you’ll be paying in costs and charges – both for the advice and investing through the new scheme.
It’s worth noting that if you are under age 75 and transfer to a QROPS your fund will be tested against the UK lifetime allowance. This is currently set at £1,073,100 and any pension savings above this level will be hit with a charge of 25%.
DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?
Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.
Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.
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