Retiring abroad Retiring abroad and your pension
Most people who retire abroad will have two sources of pension income: UK state pension; and a private pension from an employer’s scheme or personal fund. They may also have income from other savings and investments.
Retiring abroad and the State Pension
The basic state pension for 2016/17 is £119.30. To get this under the old system you need to have made a minimum of 30 years' National Insurance contributions during your working life. Those qualifying for the state pension on or after 6 April 2016 will be covered under the new state pension.
Once you qualify for the UK state pension, you can claim it no matter where you live. The money can be paid into a UK bank or directly into an overseas account in the local currency, cutting out transfer fees and bank charges. You can choose to be paid every four or 13 weeks, but if your State Pension is under £5 per week, you'll be paid once a year in December.
If you move abroad before retirement and work there for a number of years, it may be possible to receive the state pension from more than one country. However, you will not be entitled to any increases that people living in the UK receive, unless you are moving to a country in the European Economic Area (EEA) or one with which the UK has a social security agreement (commonly called a 'reciprocal agreement').
The UK has these agreements with some countries, including Barbados and Mauritius, but not Australia, New Zealand or Canada - so if you retire Down Under your state pension will not increase.
Retiring abroad and private pensions
Private pensions are normally paid in sterling into a UK bank account. You can transfer this to a foreign bank or arrange for a currency broker to convert it before the transfer. This is often cheaper than paying bank fees.
Another way of avoiding transfer charges is to set up an international account. If you have sterling and euro accounts with the same bank there should be no fee when you transfer from one to the other. By using a currency specialist it is possible to agree a fixed exchange rate, where rates are set up to a year in advance. This can be particularly useful if you want to avoid any sudden fluctuation in your purchasing power.
Unlike banks, currency brokers are not covered by the Financial Services Compensation Scheme, so it's important to make sure that any you use are fully authorised as a payment institution (rather than simply registered) by the FCA. Authorised institutions are obliged to ring-fence customers' money in a separate account, so it is safe even if they were to cease trading.
Retiring abroad and early retirement
If you have retired early, or have yet to start drawing a pension, there are two important issues to consider.The first is the possibility of moving your pension pot overseas. You can do this by transferring it to a Qualifying Recognised Overseas Pension Scheme (QROPS). These can be based in the new country you are moving to, or set up on an offshore basis.
They offer some flexibility and, once you have been a non-UK resident for five years, are outside the UK tax net. The income from QROPS may also be taxed favourably in your country of residence, although the pension changes have reduced the appeal of QROPS. Advice should be sought from a specialist IFA before doing this.
An issue faced by those about to retire is the tax status of any lump sum they might take from their pension scheme. In the UK, you are permitted to withdraw up to 25% of your retirement savings 'tax free'. If this occurs before you leave there should be no problem, but not all foreign tax regimes have the same rules.
In France and Spain, say, a lump sum of this sort will be treated as taxable income. Leaving the money invested could be advantageous in these circumstances.
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