Advice for UK Pension Transfers: Should You Transfer Your Pension?

Category: Pensions & QROPS

If you are thinking of moving, working, or retiring abroad then there is no obligation to transfer your pension. In some circumstances, for example, if you are part of a final salary scheme, it may be advantageous to have your pension paid out of a UK scheme, particularly if the benefits are guaranteed. If you are going to work abroad and then return to the UK, you may not wish to make any changes to your pension arrangements.

However, for many people there are clear advantages when considering whether you should transfer your pension when you move abroad and put it into a QROPS scheme. This is because you avoid many of the pitfalls of trying to administer or draw a UK pension scheme from outside the UK. A number of issues including taxation, currency fluctuations, local legislation and constantly changing pension rules mean that it can be beneficial to transfer your pension out of the UK into a QROPS.

For example, if you are thinking of moving to Australia or another jurisdiction where the UK government allows transfers (there is a list of schemes approved on the HMRC website), then it is worth looking at the benefits that come from making a transfer into a QROPS.

Having a UK pension income paid to you while you are abroad throws up a number of potential problems. Firstly, you will need to think about the factors surrounding currency exchange. If you are living and spending money in a country outside the UK, during retirement, then you will be buying goods and services in the local currency and having to plan ahead and perhaps try to hedge or mitigate the effects of the exchange rate and the value of the pound in relation to the currency of that particular country.

For peace of mind, therefore, it may be an advantage to have a pension paid in the currency of the country where you are living via a QROPS.

There are also differences between QROPS schemes in different countries. For example, different rules govern when you can access the tax-free lump sum, and how much you can take as income when you start to draw your money.

Therefore, it is important to take expert advice from a company who understands the market and the regulations. If you are considering whether to transfer your pension to Australia or into a QROPS, contact bdhSterling for more information.

If you do decide to transfer your pension, your UK pension fund manager will need to be sure that the scheme into which you plan to transfer the money is indeed a QROPS and is on the list of approved schemes. It will check first before it allows a transfer to begin.

If you are under 75 then there will also be a check to see whether your pension fund exceeds the lifetime allowance for pensions savings, which for the 2016-17 tax year is £1 million.

If the total amount of your pension to be transferred is more than the £1 million lifetime allowance permitted by the UK, then any amount in the fund that is more than that will be taxed at 25%.

When you are considering whether or not to transfer your pension, it is a good idea to consider your own needs, financial circumstances, and future plans. Do you plan to stay abroad for the long term? Is there a chance you could return the UK and want to draw an income there?

By making the transfer into a QROPS the benefits could include:

  • More flexibility
  • Greater investment choice
  • Taxation advantages
  • More freedom to use your fund in the way you wish
  • Protection from currency fluctuation
  • The ability to pass the remaining assets onto your heirs when you die
  • All your pension assets in one place – this is particularly true if you decide to consolidate all your pension schemes into a QROPS scheme.

Taking advice

Although there are significant financial and tax benefits to be had from the transfer of your pension, it is important to obtain professional advice. You will need to consider how your personal tax situation and that of the country to which you are moving will affect your finances.

It’s also important to investigate the safety and security of the regulatory regime into which you plan to transfer your pension. Your pension fund will probably be one of your biggest assets and you need to be sure that it is being transferred to a jurisdiction where it will be safe.