UK pension rule changes will have a big affect on expats retiring abroad, but not all is lost, as there are still options available.
As you know, pensions in underfunded public schemes, such as teachers, police, NHS, and the military are now prevented from transferring their pension pots overseas. This means that anyone retiring abroad with a defined benefit (DB) scheme will have to rely on favourable exchange rates to get the most out of their pension funds.
There are other types of pensions that remain unaffected, such as the defined contribution scheme, personal pension, or a self-invested personal pension (Sipp). These pension plans can still be transferred, as normal, using the QROPS process.
Since April, the rules have changed to allow those accessing their funds to take the entire pension pot as a lump sum. The first 25% of which will remain tax free, with the remainder taxed at your marginal rate. The thinking behind such a bold move was that there would be less of an appeal for expats to use the QROPS process to move their pensions out of the UK. However, it is thought, that if the higher rate tax relief on pension contributions is cut this July, it may actually boost the interest in QROPS still further.
This summer’s ‘bonus budget’ is likely to deliver bad news because it’s the right time of year and it allows the government lots of time to recover in the eyes of the electorate ahead of the next general election.
Those individuals with British pensions, who want to avoid such tax penalties, may want to explore the option of transferring their pensions overseas. Using a QROPS to move your pension out of the UK and into a secure, tax-efficient jurisdiction prevents the British taxman from getting his hands on your retirement fund.
There are other benefits to consider too if you are considering retiring abroad. Yes, there are tax benefits, especially if you move your fund into a lower tax environment, but you could also have your pension paid in the currency of your choice, which would eliminate the currency risk. Exchange rate volatility, as seen in Europe recently, can be a real concern for those who are considering retiring abroad on a fixed pension income. Of course, if the rate fluctuates in your favour you have more to spend, but should it go the other way, it can have a serious impact on your day to day life.
If you have UK based pension savings and are considering moving abroad in retirement, then you should start thinking about the most favourable way to deal with these funds.
It is essential to get the right advice before moving your pension, especially with so many governmental changes afoot. So start your research early, and speak to professional adviser to make sure that the move is right for you.
Please note: HMRC is going to make tax evasion a criminal offence, so if you decide to move your pension overseas or invest outside the UK, make sure that you are transparent with the taxman. Moving your money to a non-disclosure jurisdiction may make you a priority for criminal investigation.
Feb 2, 2015 ... How to claim. You can claim your State Pension abroad. You should be sent a claim form 4 months before you reach your State Pension age.