Pensions

Options for Defined Contribution Pensions

Defined contribution plans (‘money purchase’), such as SIPPs, offers much more freedom than some other types of pensions. Examples of such freedoms include:

• A wider selection of investment managers and investment funds.
• The ability to tailor an investment portfolio.
• Leaving your money invested in your pension fund in the UK and drawing an income (‘income drawdown’) – provided the scheme rules allow.
• Taking ad hoc lump sum payments with no limit, whenever you like.
• Receive a secure regular retirement income through buying an annuity.
• If you’re an expatriate:
  • Withdrawing the whole amount as a lump sum and reinvesting in a more tax-efficient arrangement for your country of residence, potentially also helping with estate planning.
  • Transferring into a Qualifying Recognised Overseas Pension Scheme (QROPS) that may provide more benefits than your current scheme.

The right option will depend on your circumstances, objectives, risk tolerance and other retirement savings. You should also weigh the tax implications and benefits, especially since UK autumn 2024 budget reforms means that many more transfers to QROPS are subject to the Overseas Transfer Charge, and pensions will form part of your estate for UK inheritance tax from April 2027. Careful analysis ensures your approach best aligns with your situation and goals.

QROPS – Qualifying Recognised Overseas Pension Scheme

A Qualifying Recognised Overseas Pension Scheme enables expatriates to move their pension out of the UK. These schemes are similar to a UK SIPP, but with the advantages of being able to choose the currency of your income and for the payments to be made gross of taxation without the need to apply to the tax authority. Furthermore, they offer control over who will inherit the balance on your death and protect you from any future adverse UK pension reforms.

QROPS are not necessarily the right approach for everyone, especially now the UK Overseas Transfer Charge exclusion for transfers to EEA counties and Gibraltar has been removed. Unfortunately, this means that retired expatriates in Spain, France, Portugal and Cyprus will pay this 25% charge on overseas transfers, since there are no suitable QROPS available in their country.  Malta and Gibraltar residents have local QROPS and can continue to benefit from an exclusion from the 25% charge.

Spanish tax residents should also note that Spain applies a personal income tax charge to the fund value when a non-EU pension contract is transferred into an EEA pension scheme.

Talk to your Blevins Franks financial adviser before taking any decision.  We’ll navigate the complex tax and jurisdiction issues across the UK and your country of residence and outline your range of options to establish the best pension solution for you.  If the Overseas Transfer Charge rules out QROPS for you, we’ll discuss alternative approaches to help meet your objectives – although in some cases, and depending on your country of residence and circumstances, you may find that the future UK inheritance tax savings means that transferring may more than compensate for paying the tax charge!

Talk to your Blevins Franks financial adviser

QNUPS – Qualifying Non-UK Pension Schemes

Another option for UK nationals living abroad is to set up a Qualifying Non-UK Pension Scheme (QNUPS).  The difference to a QROPS is that you can increase the value of your retirement fund by transferring or contributing non-UK pension assets.

In the right circumstances, a QNUPS can offer a highly flexible and tax-efficient wealth planning structure. Much depends on your country of residence and personal situation, so professional advice is crucial.

Pensions consolidation

Many people have built up pension ‘pots’ in several different schemes over the course of their working life. The practicality of tracking, administering and investing money across multiple schemes is costly and time-consuming. It’s also difficult to maintain a strategic investment approach when the funds are fragmented.

If you hold funds in several companies, it is usually advantageous to consolidate them into a single larger pot, which can be administered more efficiently.

Taxation of pensions overseas

If you retire to Spain, France, Portugal, Cyprus or Malta, most pension income is taxed in your country of residence and no longer liable to UK tax. Income from UK government service pensions, however, remains taxable in the UK as well as your country of residence, with the double tax treaty ensuring you are not taxed twice on the same pension income.     If you take a lump sum as a resident of Spain, France and Portugal, it will be fully taxable there under the local rules, with no tax-free element.

The taxation of UK pension income in foreign countries can be complex, so seek advice sooner rather than later.  They all offer the potential to legally organise your affairs to pay the minimum amount of tax. For example, in some European countries, income from a pension scheme is taxed at only 5%, and in others it is possible to withdraw the entire fund and have the tax rate reduced to nil or low rates. In contrast, many countries will tax you at 40%+.

For some people, it may be more beneficial to generate income from investments held outside of a pension fund. This could mean taking your pension money out and paying a little tax before reinvesting it in a more tax-efficient structure for your country of residence.

Non-UK residents remain subject to the three UK allowances that replaced the Lifetime Allowance.   The Lump Sum Allowance, Lump Sum and Death Benefit Allowance and, where applicable, Overseas Transfer Allowance can impact those with pension funds exceeding £1,073,100 (unless Lifetime Allowance protection is held for a higher amount).

Our pension advice

Pension planning for expatriates can be highly complex, with potential pitfalls.  Before making any decisions, you must carefully assess all the available options to establish what’s most suitable for you.

Blevins Franks offers a range of solutions to suit UK nationals in Spain, France, Portugal, Cyprus, Malta and the UK.  With pension, investment and cross-border tax and estate planning services under one roof, we provide cohesive analysis and strategic recommendations.  Our    expertise is available through our locally based advisers and our specialist pension advisory service.

We start by establishing your personal circumstances and goals, then carefully analyse the pros and cons of each option available to you, including the tax and succession implications. We advise on how best to structure your pension arrangements to meet your specific needs.

Your circumstances may change significantly during retirement. Blevins Franks is committed to providing an ongoing, proactive service for as long as you need us, and our plans are flexible to suit your changing needs.   We review all aspects of your retirement planning at regular intervals to keep it on track, and with advisers in both the EU and UK, this service will seamlessly continue if you relocate in future.

Our Other Services

Alongside pension planning, we provide a range of services to offer a genuinely holistic approach to financial planning:

Tax planning – minimising the tax you pay on income, gains, pensions, wealth and inheritances

Investments – preserving your wealth through investment strategies tailored for you and your personal circumstances

Estate planning – organising your affairs so that your legacy can be passed to your chosen heirs as tax-efficiently as possible, in both the UK and your resident country

Trusts – advising on and administering trustee and corporate structures, where they suit your financial objectives