Are you wondering how to transfer your pension fund, or whether you should move your pension abroad?
Perhaps you want to transfer your pension benefits to another person or you want to transfer your pension to another provider?
Maybe you've heard about the changes that the 2017 Spring Budget introduced for QROPS, and you're worried they affect you?
This guide to international pension transfers includes country-by-country retirement information, and useful facts about expat pension transfers and pension advisory services.
If you have any concerns about your pension situation, our Chartered Financial Planners are Financial Conduct Authority Retirement Planning and Pension Transfer Specialists - they will answer any questions you have, with pleasure.
There are many factors to think about when transferring your pension offshore.
One of them is where you want to retire.
The choice of country you plan to retire to may have an impact on your pension choices now, and affect elements such as tax and currency choice, for example.
Many expats have the right to transfer their pension abroad, but only some will benefit from doing so.
If you’re a British expat with a pension in the UK you can continue to benefit from tax relief on your contributions until you’ve been tax resident abroad for five consecutive years.
There are certain exceptions to this right, and to the subsequent loss of this benefit after five tax years, but for the majority of expats, the considerations of making an international pension transfer and how to transfer your pension fund arise eventually.
If you’re considering your options, the most critical information to keep in mind is the following:
A transfer to a qualifying scheme can deliver benefits including potential tax mitigation for some people.
These people tend to be the exception rather than the norm.
Benefits of a pension transfer are often exaggerated by financial salespersons because they can generate large commission payments for these salespeople.
Their commission always comes from your pension.
If you’re badly advised by a financially incentivised salesperson, you may ultimately derive no benefits at all from your international pension transfer, or you may even lose benefits substantially without even being aware of this until it's too late. You will therefore not have been enabled to make an informed choice, and the pension advisory service you used will have failed you.
Worse, if you’re badly advised by someone other than a reputable, Financial Conduct Authority pension transfer specialist, you could face a loss of up to 55% of your pension in tax charges. You may also incur other penalties and financial losses.
Many countries will tax foreign pension payments, lump-sums or annuities (or all three).
It’s always wise to review your financial position when you face changes in your life. For example, when you move overseas, or when you lose the right to benefit from tax relief on pension contributions.
It’s also sensible to seek professional expat pension advice if you’re unsure about any aspect of the financial considerations you need to think about.
However, when it comes to your pension and how to transfer your pension fund, you cannot err heavily enough on the side of caution, and you should always seek expert expat pension advice from reputable pension advisory services.
Best advice is unbiased advice, because if you’re encouraged to make an unsafe decision by a financially incentivised adviser, you may discover you have made what is called an unauthorised transfer, on which HM Revenue and Customs can take a 55% tax charge.
If you’re badly advised by someone other than a pension transfer specialist, you also risk losing any safeguarded benefits (essentially: final salary type benefits) without being aware of it (if you are aware and still proceed, it may or may not be a bad choice, but at least it is your choice).
We believe professional, best advice about how to transfer a pension should not be conflicted by any potential commission payment, which is why our pension advisory services are given on a fee-only basis.
The gold standard of professional financial advice giving is Chartered status from the Chartered Insurance Institute (CII).
This is a gauge of competency and expertise in financial planning, and ensures ethical practice, expert advice and a transparent service.
When seeking international pension transfer advice, this is the minimum requirement you should look for in a financial planning organisation or pension advisory service.
We are the only Chartered financial planning firm in the international financial marketplace. We encourage you to check our status on the CII’s own website as part of your due diligence.
Many of our expat pension advisory services experts also each have individual Chartered status from the CII. This means our advisers have integrity, your interests at the heart of all advice they offer, the highest level of qualifications, and extensive professional experience in financial planning.
This is the minimum standard you should seek when choosing an adviser to help you with expat pension advice.
Finally, it is a legal requirement that a pension transfer specialist advises anyone contemplating a pension transfer if they have safeguarded benefits from a UK pension scheme worth in excess of £30,000.
Many people with benefits in a UK pension scheme can transfer to another UK scheme. Most expats have similar options to transfer pensions overseas into a qualifying recognised overseas pension scheme, or QROPS.
QROPS are sometimes referred to as ROPS, which simply stands for recognised overseas pension schemes.
Such transfers, if done correctly, are not taxed at the point of transfer.
It’s important to note that not all qualifying overseas pension schemes accept transfers in, and not all expats are eligible to transfer their pension to a qualifying recognised overseas pension scheme.
Whether you’re able to transfer your pension needs to be determined with professional advice.
In order to qualify for international pension transfers, an overseas scheme has to meet specific criteria determined by UK tax law.
The scheme also has to tell HM Revenue and Customs (HMRC) that it qualifies.
However, HMRC does not "approve" any schemes, even though it provides a list of QROPS on its website, and HMRC does not carry out any checks that a recognised overseas pension scheme qualifies.
If an overseas scheme meets all UK tax law requirements, and you are either:
...then a transfer to it should not incur UK taxation on the transfer itself.
However, as these rules have newly come into effect, accompanied by other changes to QROPS, including the application of a 25% Overseas Transfer Charge for other transfers, we strongly recommend you refer to our technical note on this point, and contact us to discuss how these changes may affect your choices.
If at any point in time HMRC discovers a recognised overseas pension scheme does not actually meet the qualification requirements, transfers that have been made to that scheme may incur up to a 55% unauthorised transfer tax charge.
Because at least 55% of your international pension transfer will rely on you knowing what makes an overseas pension scheme qualifying and recognised, here are the UK tax law qualification criteria:
The qualifying recognised overseas pension scheme must be recognised for tax purposes in the jurisdiction where it’s established.
It must also meet the following conditions:
If there is a pensions regulatory body in the jurisdiction where the scheme is set up, the pension scheme must be regulated by that body.
If there is no regulatory body, the scheme must either:
The same tax rules on benefits have to be applicable to tax residents and non-residents.
The scheme must meet at least one of the following conditions:
HM Revenue and Customs has a list of some recognised overseas pension schemes on its website, about which it writes:
“HMRC can’t guarantee these are ROPS [recognised overseas pension schemes] or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings.”
In other words, the list is of little or no value. Don’t rely on it as evidence that your proposed scheme will qualify.
The following benefits can be really good…but not for everybody
If you’ve been told any different, you’ve been told wrong. Overseas transfers are not for everybody. Whether an overseas transfer is beneficial is very much dependent on your circumstances:
They are paid large commissions when you move your pension overseas.
Such individuals are acting in their own best interests instead of yours.
And their commission payment comes from your pension.
One of the only ways to avoid this risk is to take advice or a second opinion from a Chartered financial planner, certified by the Chartered Insurance Institute (CII).
Such an individual will be bound by the CII’s code of ethics, which means they have to:
The CII maintains a list of Chartered financial planning firms.
It can do this if it determines a scheme doesn’t comply with UK tax regulations, or because of tax or pension regulation changes in the overseas jurisdiction.
Any transfers already made could be treated unauthorised payments, which could incur a 55% tax charge. Other charges may also apply.
You have to understand the detailed qualification criteria set by UK tax law referred to above, and ensure any scheme and jurisdiction you’re considering complies.
The onus is on you to do your due diligence.
If you look to your adviser for assistance, and that adviser is actually one of the afore-referenced financially incentivised salespersons, you may be recommended funds that bring the best returns for them, not the best results for your pension.
If you make a transfer and then seek investment advice for your pension assets, the foregoing advice about choosing an adviser stands.
Furthermore, make sure your chosen adviser is authorised by a proper financial authority, and that redress procedures are available if anything goes wrong.
As a result, there is a risk that your new pension may not provide at least the overall financial benefits that the UK safeguarded benefits would have delivered.
Ensure you are transparently informed of everything that you will lose if you transfer, and how that will impact upon you.
So, there is a risk that even if you think a transfer will give you greater benefits, the reality is you or your partner may outlive the benefits. I.e., you may run out of funds.
With this in mind, take another long hard look at your options and potential benefits.
It may come down to you having to work out how long you might realistically live for, and then working out, on an equally realistic basis, how much you can take from your QROPS if it is to last.
Transfers of safeguarded benefits, if valued at over £30,000, have to be signed off by a pension transfer specialist: the trustees of a safeguarded scheme will not permit the transfer without the sign-off.
These pension transfer professionals will be able to tell you whether you will lose benefits by transferring, and what benefits you would forgo.
Many expats are sold a pension transfer on false promises about legitimate tax avoidance.
It is true that depending on where you move your pension to, where you’re tax resident now and where you’re tax resident when you retire, you may be able to reduce your tax liabilities on your pension or pension income.
But you have to remember that the scheme your pension is transferred to has to comply with the UK tax law as mentioned above.
Theoretically it is possible for a scheme to comply with these rules and be in a low or even no tax jurisdiction, but also remember that where you’re tax resident will have a bearing on whether you pay tax when you receive your lump sum and/or pension income.
Don’t automatically believe the tax reduction or deferral hype…seek personalised advice to be properly informed.
Any jurisdiction that fulfils the above UK tax law criteria relating to QROPS and pensions could conceivably be considered for a pension transfer to a scheme in that jurisdiction. However, there are other considerations you need to think about too.
The jurisdiction most appropriate for your transfer, if you decide to transfer, will depend on many things including your jurisdiction of tax residence, where you plan to retire and any relevant double tax agreements (DTA).
Popular jurisdictions for pension transfer business currently include Malta and Gibraltar, but there are many other jurisdictions to choose from as well.
Malta, and to a lesser extent Gibraltar are popular largely because of their highly regulated, low tax environments, and in the case of Malta their many DTAs.
However, neither may be appropriate for you, and there are many other choices.
If you just want to know what you should do, and you don’t want to read the foregoing information at full length, get professional advice.
You need a comprehensive and specialist appraisal of your pension, your personal financial and tax position, and your retirement plans.
With comprehensive and accessible information and advice from a chartered financial planner, who is a pension transfer specialist, you can make the right decision.
Access that help and advice now – you will gain access to pension advisory services, and Financial Conduct Authority retirement planning and pension transfer specialists.
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