UK pensions for expats guide

If you are an expat living overseas, it makes sense to get your financial future in order sooner rather than later and that starts with pensions.

Though, there’s a financial advice industry out there that does their best to make pensions sound complicated. They really don’t need to be.

When you look under the hood a pension is simply money that you use in retirement to fund your daily expenses.

Whether that money comes from a traditional pension plan, investment property or by taking the DIY approach doesn’t really matter as long as you have enough money to live the life you want.

In this guide, we’ll take a look at each approach in turn, show you how to determine how much you need in retirement and answer the most common expat pension related questions.

Let’s get into it.

Common types of UK pension

There are three common types of UK pension. Workplace, personal and the State Pension.

The workplace pension is set up by your employer while you are working in the UK. The advantage of this is both you and your employer contribute to your pension pot. You are essentially, forced to save.

Alternatively, you can set up your own personal pension. Typically, you do this if you want to save more or if you don’t have access to a work place pension.

Finally, there’s the state pension which is provided by the government providing you have made enough National Insurance contributions.

I know what you are thinking, with three pensions to go at, surely Brits don’t have to worry about pensions then.

Well, not quite. According to a recent study by the Resolution Foundation in partnership with the Aberdean Financial Fairness Trust it looks like that’s not the case:

(even) with auto-enrolment many are still not saving enough for an adequate income in retirement. Around two-in-five working age people (13 million in total) are currently not saving enough to meet the minimum target for an adequate retirement income (at least two-thirds of their pre-retirement income).

Of course, they are talking about UK residents here, but after all, we are all UK residents before we become British expats.

If we don’t save enough at home, do we when we go abroad? Anecdotal experience suggests some do, but others don’t. Don’t let yourself fall into the second group.

Even if you are reading this with nothing, rest assured you’ve got options and there’s no time like the present to get things moving.

What happens to my pension if I move abroad?

If you have a UK pension, the good news is, you should be able to receive income from your private or work place pension no matter where you live.

Additionally, your eligibility for annual increases shouldn’t change. You should receive them in exactly the same way you would do if you lived in the UK.

In some cases there are charges and extra admin to deal with. Some expats transfer their pension overseas to avoid this using a ROPS (more on this below).

It’s always best to get in touch with your provider to confirm your situation.

But here are a couple of things to bear in mind.

1. You still need to make sure you have enough to provide for the lifestyle you want in retirement (more on this below).
2. Some UK pensions will allow you to continue to make contributions when you move overseas

What happens to my state pension if I move abroad?

You can contribute, claim and receive a UK state pension when you live abroad.

I’m always surprised by the number of expats I meet that aren’t contributing to their pension. Its essentially free money. Sure, you have to make contributions, but those pale into significance when compared to how much you will receive if you reach the ripe old age of Mr or Mrs Average.

The key change to your state pension when you move abroad relates to Pension Credit.

When you become a permanent resident overseas and officially lose your UK resident status Pension Credit stops. Essentially, this means any means tested benefit used to top up regular income will no longer be available to you.

It also means, depending on where you live, you may not get any state pension increases.

Additionally, you need to ensure you continue your contributions if you haven’t yet made enough contributions.

Its 10 qualifying years to get something and 30 qualifying years to get maximum (currently £221.20/week).

To ensure you keep your state pension make sure you notify the International Pension Centre as soon as you move. You can find their contact details here.

Do I pay tax on my UK pension if I live abroad?

You may need to pay income tax on your pension income.

This will depend on where you live and how much you receive as non residents with British passports are still usually eligible for the personal allowance and the UK has double-taxation agreements with many countries which prevents you having to pay tax twice.

If you live in a country that has a UK double taxation agreement in place and have to pay tax in that country, you won’t have to pay again in the UK.

You can visit the UK governments website to see if the place you live has a tax agreement in place with the UK here.

It also makes sense to get a good understanding of your current tax status in your country of residence. Many popular expat destinations are considered low tax jurisdictions.

PwC have an excellent tool that provides a summary of the tax situation in different jurisdictions.

You choose your location, then choose the topic your are interested in. For example tax on personal income or residence and you are off.

You’ll be given a pretty comprehensive summary of the tax situation there.

As an example, though I don’t live there I had a quick look at the personal income tax situation in the UAE as that seems like a very popular destination for British expats at the moment.

It took me about ten seconds to see that you don’t pay income tax and VAT is only 5%.

As touched on above, some choose to move their pensions abroad using a ROPS to lower their tax liability (more on this below).

Do expats qualify for tax relief on contributions?

If you already have a UK pension and then move abroad it may be possible to continue to make contributions with tax relief.

In theory, you should be able to contribute up to £3,600 per year with tax relief for 5 years. After that, tax relief stops.

Not only that, but most UK pension providers only accept contributions with tax relief. In other words, after 5 years you probably won’t be able to make any contributions, but you should be able to leave your balance working for you in the background.

In some cases, that will provide enough for your future, but in many cases it might not.

Experience suggest this isn’t set in stone either way so do get in touch with your providers to see what they say.

Moving overseas before you start receiving your pension

If you plan on moving overseas, it makes sense to talk to your pension provider before you make your move.

Be aware of currency fluctuations. Currencies in different countries can rise and fall in value when compared to the pound.

Depending on the country you plan on moving to, it might make sense to have a contingency plan for if the pound weakens against your local currency.

Having some emergency cash in reserve or spending less that you receive are both simple options that could help you in times of need.

Can UK pension providers pay into a foreign bank account?

Some UK pension providers can pay into a foreign bank account, but others insist on paying into a UK bank account, but don’t worry if you don’t have a UK bank account. There are plenty of expat options available which we’ve gone over this in more detail here.

Steps to take if you have plans to return to the UK

There are a million and one things you can be doing to make a move back to the UK easier. We’ve gone into a lot more detail about it here.

However, when it comes to pension as a minimum, the following steps are advisable for anybody returning to the UK from overseas:

• Notify the International Pension Centre
• Contact HMRC and ask them if you need to pay any tax

While anybody who has left a pension in the UK, probably won’t have much more to do, anybody who transferred their pension abroad may want to look at bringing that back some time in the future.

As we’ll be coming to in a moment ROPS were designed for moving the other way so information on bringing them back in the UK is rarer than hen’s teeth.

But, in theory, there is no reason why you can’t. If you are interested and short on reading material, HMRC have a rather snappily titled PTM103500 – Transfers: transfers to a registered pension scheme from a QROPS or former QROPS which suggests it can be done.

For your information ROPS used to be called QROPS

Talking of QROPS & ROPS………

What is a ROPS / QROPS?

ROPS stands for Recognized Overseas Pension Scheme. It used to be called QROPS Qualified Recognized Overseas Pension Scheme. It is something similar to a Personal Pension but based outside the UK.

It is a simple idea. It is there to allow people to take their pension with them when they leave the UK without getting stung with a hefty tax bill.

You can read all about them here. However, if this is something you are considering, then its always recommended to get some good financial advice before pulling the trigger.

Though unusual, the possibility for your pension to be invested in risky investments is real, but worse than that you could be scammed. Loosing all your money is a real risk in either of those scenarios.

Though a ROPS is recognized by the HMRC that doens’t mean it is fully protected. All an overseas pension scheme needs to do to become a ROPS is meet HMRC criteria.

And rather than involving any HMRC oversight this is a self certification process and as such I’m sure it goes without saying that you must do your due diligence and speak to a good financial advisor if you are considering a ROPS.

What is an International SIPP?

SIPP stands for self invested personal pension. It’s a UK personal pension that gives you a certain amount of control over what you invest in. As with other personal pensions. It is aimed at people who don’t have work place pensions or have more money to put towards their pension.

An international version is aimed at people that live outside the UK. The key difference between this and a ROPS is that it is located onshore in the UK.

Again, do your due diligence and speak to a good financial advisor if you are considering an international SIPP.

What can an expat with no UK pension do?

There are a myriad of reasons why you might not have a pension. Most likely you moved abroad before 2012 so you don’t have a work place pension and never set up a personal pension. Let’s face it, many people don’t.

It’s also possible that you aren’t eligible for the state pension either. However, if that’s you, and you haven’t already done so, its worth getting in touch with International Pension Centre asap. Most British expats will be able to make contributions and receive their state pension from abroad.

But don’t worry. If you haven’t got anything in place or you have something but it isn’t enough you do have options.

First and foremost is taking a DIY approach.

At the end of the day, the majority of pension providers simply invest your money in stocks and bonds in a tax efficient way and charge you for the privilege.

And really why pay? Because all you really need to do is open an investment account and choose a couple of index tracking exchange traded funds (ETFs) and you are off to the races.

These days you really can put together a low cost, globally diversified, tax efficient, multi asset expat pension with just a couple of ETFs.

And this kind of investing gives the pros a run for their money and often beats UK pension providers!

And it’s worth bearing in mind, that HMRC is only interested in tax on shares if you come back to the UK within 5 years. Not only this but British expats are also eligible for the personal allowance and dividend allowance.

As mentioned above, many expats live in low tax destinations and even if you don’t, ETFs are very tax efficient anyway.

At the very least, its often worth crunching the numbers yourself. You may find any tax you do have to pay pales into insignificance when compared to the fees you’d have to pay a ROPs provider.

Another massive benefit with DIY investing is you have total control over your money. That means you can decide what you invest in, and most importantly, you can access your money at anytime rather than having to wait until 55 as with most pensions.

Did you know the biggest fund in the world is basically a pension fund invested in stocks and bonds with the proceeds of Norway’s oil money. You can read more about it here.

Can property investment fund my retirement?

Some expats do use property as a pension alternative. Using buy to let (BTL) to fund your lifestyle in retirement is actually a lot more common than it used to be.

There are three key downsides to using property as a pension, though:

• You’ll have work to do
• You really need to use mortgages to make it work
• Tax

And it’s worth going into each of these in a bit more detail.

Work is unavoidable with property investment. Even fully managed properties have forms to fill out, emails to reply to and decisions to make.

Some people get away with this and only this. Others aren’t so lucky. A bad tenant, a change of government housing policy or some kind of unforeseen disaster, natural or otherwise, can throw a spanner in the works and give even the most experienced landlord’s sleepless nights. You need to be at least prepared for the possibility of hassle coming your way from time to time.

Additionally, you need the power of leverage/gearing that you get with borrowing money and the rental income to pay off your mortgage interest to get the big returns. Even the best expat mortgage brokers aren’t guaranteed to get you as good a deal as you would have got in the UK. In all likihood you’ll pay a tad more in mortgage fees and interest.

And did I mention tax. You see property is taxed no matter how long you’ve lived outside the UK.

There are two ways to make money through property. You’ve got rental income and then you have capital gains.

The problem with rental income is that it does count as income and HMRC likes to tax that. However, if you are a British passport holder, you should qualify for the personal allowance. This means you can earn around £12.5K tax free or £25K for a couple. Only above that number do you pay income tax.

Not only that but you can also grow your wealth through capital gains without realizing those gains.

Say you pay £25K deposit and borrow £75K from the bank to buy a £100K property that doubles in value. Providing your financial standing hasn’t changed you should be able to remortgage at a similar loan to value ie 75% LTV.

That’s a £150K mortgage you should be able to get. In other words you’ve just made a decent chunk of money with no capital gains to pay. Only when you sell the property do you need to worry about that.

So simply put, yes there’s some things to think about, but that doesn’t mean property won’t work well as a pension for some.

If you let your property out and use a mortgage you have the potential for higher investment returns than you’d get with the DIY approach or any other type of pension for that matter. (We’ve compared them ETFs vs property here if you are interested).

How much do I need to retire?

There’s a general guide that people spend 20% less in retirement than they do whilst working. So if you spend £40K now, assume £32K in retirement.

Of course, that only works if you are planning on retiring where you currently live and work. If you are retiring elsewhere then you need to account for cost of living differences. Whist not perfect, I find Expatistan can come in handy here.

You can use it to compare the cost of living in two cities.

They break things down into food, housing, clothes, transportation, personal care and entertainment.

But also, they give you an overall idea of the price difference.

Here are a few examples:

Cost of living in Dubai is 196% more expensive than in Delhi
Cost of living in Denver, Colorado is 144% more expensive than in Cape Town
Cost of living in Barcelona is about the same as in Madrid
Cost of living in New York City is 15% more expensive than in London
Cost of living in London is 22% more expensive than in Sydney
Cost of living in Singapore is 64% more expensive than in Dubai
Cost of living in Singapore is 27% more expensive than in Hong Kong
Cost of living in Melbourne is 5% cheaper than in Sydney
Cost of living in Buenos Aires is 38% more expensive than in Bogotá
Cost of living in Buenos Aires is 52% cheaper than in Mexico City

Once you’ve established how much you are going to spend annually in retirement you can use this information to calculate how much you need in total using our handy pension calculator.

When can I retire?

Once you know how much you need, you can then estimate how long before you can retire.

Just bear in mind, you can’t begin receiving workplace & personal pensions until you are 55 (but increasing to 57 from 6 April 2028) and The State Pension until you are 66 years old ( but this is also gradually increasing again from 6 May 2026).

Now, that said, you can estimate your retirement date by entering a few numbers in the calculator below.

Whilst I’m sure most of it is pretty self explanatory, I think its worth saying a few words on investment returns.

If you have a pension provider ask them what investment returns they assume. If you are doing it yourself then you can take an educated guess.

For savings use the interest rate you receive. For stocks and bonds we’ve provided estimates based on some in-depth research by esteemed professors Elroy Dimson, Paul Marsh and Mike Staunton over at Credit Suisse (which you can find at Credit Suisse).

They use over a century of data to take a stab at what future returns might be.

The table below neatly summarises these.

Nominal returns include inflation. Real returns do not.

Entering nominal returns into the investment return box will give you a better idea of how much money you will have.

Alternatively, entering real returns will give you a better idea of what you buying power is likely to be.

Where can expats get free financial help?

There are some good sources of UK expat pension advice out there if you look hard enough.

If you want general free advice we always recommend starting with the Money Advice Service. In fact, we often refer back to them on this site.

In short, it’s a free UK government backed website full of information on everything finance related. The information isn’t specifically aimed at expatriates but there is a lot on there that is relevant.

And if you can’t find what you are looking for there, Money Helper is a reasonable alternative which again is backed by the UK government.

Professional advice

The key to finding good pension advice is finding a professional you trust.

I’m sure it goes without saying that bad ones could cost you a lot if not all your money so do put a little due diligence into your search.

The good news is there are a couple of great free tools available from trusted sources for finding financial advisors that can help you with pensions.

First up is Money Helper (as mentioned above). It has a great Financial Advisor Search Tool too. You can find it here.

And then the Personal Finance Society has another one here.

The Personal Finance Society is the leading professional body for the financial planning sector. You key in your location and they’ll provide a list of qualified financial professionals that should be able to provide UK expat pension advice.

The bottom line

Pensions don’t need to be complicated. And that’s true even for expats.

If you’ve already got one you should be able to continue to contribute and receive income no matter where you live.

You can also transfer a UK pension abroad via a ROPS.

If you don’t already have one in place you might want to take a DIY approach.