skip to main content

Pensions Freedom: The information every expat with a UK pension needs to know

Find out how the new pension freedoms will affect expats living abroad with a UK pension

Written by E4E Editor on 2 April 2015

If you have a UK pension, unless you’ve been living under a rock for the past twelve months, you’ll have been acutely aware of the imminent pension freedoms with come into force on the 6th April 2015.

With these new pension freedoms just days away and with much of the attention being directed towards Pension Wise, scams and general financial advice, we’ve collated some of the key information which is designed specifically for expats and non-residents who have pensions in the UK.

Don’t rush any decisions, take your time

First, and probably most importantly, the pension changes come into play on the 6th April. That doesn’t mean that you have to make any decisions by then, or even as soon as the date passes. This date represents that start, ensure that you take your time, seek independent advice and certainly do not rush into making any decisions.

How to avoid scams

Pension pots can range from a few thousand pounds to millions, making them very attractive to fraudsters who intend to rob people of their pension funds.

With the increase in options and confusion created as a result of the pension reforms, the number of scams are on the rise. These may include offering “pension loans”, “early pension release”, “pension liberation” among others.

In many cases, the scammers may try to take money up front before trying to get you to sign documents quickly to avoid missing the “fantastic, limited time investment opportunity”.

As non-residents of the UK, expats are usually not covered by the FCA or any global financial regulatory body and are therefore typically more exposed to fraud and scams than other people.

The best thing to do if you either have any doubts or are unsure is to get a second opinion before parting with any money or signing any documents. Always remember that if something sounds too good to be true, all too often it will be – and the last thing you want to be losing is the money you have been saving for your retirement.

How QROPS are affected by the new pension freedom

If you are an expat with a pension it is highly likely that you have, at some stage at least, considered a QROPS even if you have not transferred your pension overseas.

QROPS themselves have been relatively unaffected by the announcement of the pension reforms, and the subsequent pension freedoms. While some QROPS jurisdictions have changed their conditions to fall in line with the UK such as Malta but others like Gibraltar do not allow this type of flexibility.

Whether a QROPS is right for an expat with a UK pension has, and always will be, down to the individual circumstances of that individual and QROPS are most certainly not for everybody (despite what some ‘advisers’ will lead you to believe). Remember, advice should always be sought from an independent adviser with full knowledge of both offshore and UK based pension schemes before making any decision.

Know your tax liability

The news that you can take some or all of your entire pension pot has obviously caused quite a stir. For many people, this could constitute a significant windfall. While pensioners are being urged not to splurge, it is also important to remember that claiming your pension could attract tax – not just in the UK, but also in your country of residence.

While the HMRC currently provides a personal allowance for non-residents, any income you receive from the UK will erode your allowance and an income taken could attract additional tax.

Similarly, while you may be able to take a tax-free amount from the UK on a lump sum, as well as use your personal allowance, some countries may charge tax on your pension income.

Always be sure to get advice about the tax rules in your country of residence before making a decision which could end up costing you more than you thought.

Understand the benefits and limitations of Pension Wise

Pension Wise is the scheme which was set up by the UK government to help those aged over 55 get independent guidance and information about pensions in line with the new pension reforms.

This is a great service if you have been given information about your pension which you are unsure and unclear about – whether from your pension provider or an adviser. Please remember that while Pension Wise will be able to answer questions about your UK situation and give you an overview of your options as an expat, they will not be able to provide you with fully qualified information about all the aspects and options which could affect you.

Finally, Pension Wise is not an alternative to receiving independent financial advice. The advisers who work at Pension Wise are not allowed to give advice about what you should do, including the suitability of each option. Neither are they allowed to provide you with technical information. It is there as an information providing service only.

Consider potential future changes

One change which we already know about is that if you have already purchased an annuity to receive an income from your pension, you will potentially be able to sell this to exit the annuity from April 2016.

This does not mean that annuities should be avoided, for people in certain situations annuities are great investment options. However you should always consider all the options and what these will mean. If you decide you want to exit your annuity, you will have to pay for the privilege, so it will always be best to make the right decision initially when it comes to taking an income from your pension.

In the future it’s also likely that there will also be changes around the way the overseas pensions, such as QROPS and QNUPS, are regulated and managed as the government tries to ensure that suitable flexibility is offered to all investors, regardless of where they live.

Finally there may be other future tax changes. One prominent rumour which refuses to go away is that the personal allowance for non-residents could be abolished at some point. While this is pure speculation, you may wish to factor in how this significant change might affect you in the future.

Frozen state pensions aren’t thawing yet

For those people living with State Pensions which are frozen, there are no updates or changes included in any of the reforms. For now at least, it looks as if the pension freeze is set to continue for a large number of expats.

Need assistance?

If you are unclear on your options, or would like a second opinion on some advice you’ve already received, enter your details using the form and we will arrange for an independent financial adviser to contact you for a free consultation.

Request free introduction to a pensions and retirement planning expert

Our free introduction service will connect you with a hand-picked independent financial advisor that can assist you with pensions and retirement planning for expats.