Looking at your retirement options if you’re planning to emigrate
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Despite an uncharacteristically warm summer in the UK, many hard-working Brits see spending their later years chasing the sun abroad as the ultimate retirement dream.
Unsurprisingly, moving to another country with different tax laws, a different currency and different social security system isn’t without its complexities.
Layered on these complexities is Brexit uncertainty for anyone considering joining the estimated 1.3m UK citizens who according to the United Nations have already retired to the continent.
But what happens to your pensions when you move to another country?
SHOULD I KEEP MY PENSION WHERE IT IS OR TRANSFER TO A ‘QROPS’?
Private or workplace pensions can be paid to you wherever you decide to retire to. For simplicity - and potentially to benefit from lower charges - it’s worth considering getting all your pots in one place first.
You should also speak to your pension scheme or provider before you move 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.
There could also be extra charges to pay and, crucially, your pension income will be paid in pounds sterling – meaning you’ll be exposed to the vagaries of currency fluctuations.
If you want to protect your income from such volatility you could move your pension into a Qualifying Recognised Overseas Pension Scheme, or ‘QROPS’. If you transfer to an overseas scheme that is not a QROPS you’ll be hit with a 55% unauthorised payment charge by HMRC.
Because a QROPS is 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.
However, 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 – currently set at £1.03 million. Any pension savings above this level will be hit with a charge of 25%.
You should also be aware that if you try to set up a QROPS in a country you are not residing in HMRC could hit you with a 25% penalty.
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.