Expat and Foreign Nationals and Get UK Pensions Paid When Living Overseas

There are millions of British Expats and Foreign Nationals that have built up entitlement benefits to UK pensions that no longer live in the UK.  Reaching the point of drawing on your pensions at retirement needs some forward thinking and careful planning. 

Firstly, you need to understand the basic pension types in the UK:

• Government type pensions:  e.g.  civil service, military, emergency services.  Generally, these cannot be transferred to other schemes in the UK or overseas and tax treaties between the UK and respective countries usually means they are subject to income taxes in their country of origin.
• Non-Governmental Company Sponsored ‘Defined Benefit Schemes’ (DB) such as Final Salary and Career Average Salary schemes are usually guaranteed schemes with guaranteed income and tax-free lump sums.  As these are guaranteed schemes it is usually advisable that you keep these schemes and do not give up guaranteed benefits or transfer to a non-guaranteed UK pension or overseas to a HMRC approved QROPS pension scheme.  These will usually be taxed where you live.  HMRC will issue an NT (No Tax) code to the pension scheme, and they then pay your pension with no deduction of UK taxes and you then declare for taxes where you are tax resident.
• Defined Contribution Schemes (investment linked pensions) (DC) such as Company Money Purchase, Workplace Pensions, Private Pensions and SIPPs invest in funds that can go down as well as up in value.  These will usually be taxed where you live.  HMRC will issue an NT (No Tax) code to the pension scheme, and they then pay your pension with no deduction of UK taxes, and you then declare for taxes where you are tax resident.

UK Resident Taxation

• DB schemes for UK residents with usually offer you a guaranteed income at retirement or a lower guaranteed income at retirement and a tax-free lump sum.  Income from these schemes is subject to UK income taxes.
• DC schemes for UK residents have the option to take a tax-free lump sum at retirement (usually 25%) or you can choose not too.  The balance after any lump sum can be used to buy an ‘open market option’ annuity (usually a guaranteed income for life but there are other options) or use flexible access drawdown (where the pension fund remains invested to grow and you can drawdown as much or as little as you require either regularly or ad hoc).  After tax free lump sums, both annuity and flexible drawdown are subject to UK income taxes.

Non-UK Resident Taxation

• DB schemes for overseas residents with usually offer you a guaranteed income at retirement or a lower guaranteed income at retirement and a lump sum.  Lump sums may be taxable where you live as well as any income paid to you.  You may also have the option to transfer the pension to a HMRC approved overseas QROPS pension scheme but it may not be advisable to do so given you would be giving up guaranteed benefits as well as be subject to a 25% tax charge deducted from the value of your pension and paid to HMRC (technically as a refund of all the tax relief that HMRC has granted to you and your employee when paying in, as you are taking the pension scheme totally outside UK jurisdiction.
• DC schemes for overseas residents also have the option to take a lump sum at retirement (usually 25%) or you can choose not too.  The balance after any lump sum can legally be used to buy an ‘open market option’ annuity (usually a guaranteed income for life but there are other options) or use flexible access drawdown (where the pension fund remains invested to grow and you can drawdown as much or as little as you require either regularly or ad hoc).  Lump sums and both annuity income and/or flexible drawdown income will usually be subject to income taxes where you live.  You may also have the option to transfer the whole DC scheme overseas to an approved QROPS scheme, but you will again be subject to the 25% UK tax charge.

Availability of At Retirement Annuity and Flexible Drawdown to Non-UK Residents

UK annuity and flexible drawdown products have usually been approved for distribution and marketing to UK residents only.  This may present problems if you have a DC scheme and you wish to buy a UK annuity or UK flexible draw

• UK Annuity:  Most UK annuity providers have stopped offering pension annuities to non-UK residents.  We check all annuity providers every month and for some time, and particularly since Brexit, we have not found any UK annuity providers that offer terms to non-UK residents.  There is just one that we are aware of and this firm only offers terms to existing clients.
• UK Flexible Drawdown:  There are still a limited number of pension providers that offer UK flexible drawdown to non-UK residents.  Pension firms vary on terms and indeed the countries that they will accept.  For example, some may not accept residents of the US or Canada, others may not accept Australia and New Zealand residents.
• After Brexit:  Some countries within the EU will not even allow you to start a new UK flexible drawdown or pension annuity anyway.  France and Finland are proving particularly difficult.  Financial services were not included in the Brexit trade agreement hence it is proving difficult for UK firms to offer services to EU residents as we are no longer allowed to ‘passport’ services into Europe.
• Happily, we are spoken and sought permission from a number of both EU and non-EU regulators and gained permission to advise residents of their country on UK pension matters to enable us to arrange flexible drawdown retirement options.

UK State Pensions

Assuming you have a minimum 10 years UK national insurance credits, you qualify for a UK state pension and this can be paid to overseas bank accounts.  If you do noy have enough NIC credits to secure a UK state pension or you may be better off transferring your credits to your overseas state pension where you live, you may be able to do so if there is a reciprocal social security treaty between the UK and the country that you live in.

Getting Paid Overseas

• The government does have the capacity to pay government pensions and UK state pensions to overseas bank accounts but many pension providers struggle or do not have the systems in place to make payments to non-UK bank accounts.  Some can pay to non-UK bank accounts, but not many.
• Keep your UK bank account open, if you have one and the bank has not closed it.  You will struggle to open a new UK bank account if you no longer have one.
• You may need to open a special ‘multi-currency’ platform account that offers both UK bank accounts and sort codes as well as the same for the country that you live in.  This way you should have a smooth transition and facility for getting your UK pension paid to you and then transferred to you bank account where you live.  That said, even then some countries place restrictions on the maximum amounts you can hold in ‘multi-currency’ platform accounts.

If you live overseas as an Expat on Non-UK National with UK pension funds, you should start planning early, we suggest you contact us for independent financial advice at least 6-12 months before you reach your preferred retirement age as things can take time and, in some cases, can be complex.

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