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Expat Pension Advice

Expats often have more complex pension planning needs, and there is more to consider when planning for their future. Read our expat pension advice guide to learn more

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Planning for the future is vital. But things are not always straightforward for those living, working or retiring abroad.

According to the Expat Explorer Survey, 60% of expats said that saving for retirement is one of their top 3 goals. However, 52% said their finances are complex due to their tax situation.

It’s not just tax. As an expat, there is a lot to think about when it comes to retirement planning. Tailored expat pension advice plays a crucial role in helping overcome some of those challenging financial situations.

This article will cover essential pension advice for expats. We will explore some of the challenges they face as well as other key pension information.

The value of your pension

Why shouldn’t couples retire together?

The cost of retirement is increasing.

It is more important than ever to plan ahead to ensure you have the financial security you need when you stop working. Pensions allow you to do just that.

A pension is a long-term investment. The aim is for your pension pot to grow over time and provide a reliable source of income in retirement.

The main types of pensions are:

  • Workplace pension schemes – these are either:
    • Direct contribution pension schemes or;
    • Defined benefit pension schemes
  • Private pension schemes – these include:
    • Self-invested personal pensions (SIPPs)
    • Stakeholder pensions
  • State Pensions

There are international pension plans that also exist. These are specifically designed to meet expats’ needs and will be covered in more detail later in this guide.

Pension challenges facing expats

Two of the most common pension challenges facing expats include:

Tax on pensions

Expats often have to contend with complex tax rules directly impacting their pensions.

Your tax residency, double taxation agreements and local tax laws are some of the factors that determine your tax liability. Speaking to an expert can help you avoid some of the pitfalls and ensure you are as tax-efficient as possible.

Exchange rates

Expats planning to retire abroad may find their pension is in a different currency to the one used locally.

For example, British expats may have a pension in pounds but plan on retiring in a country that uses a different currency. This can cause problems if it’s not managed correctly.

Poor currency rates, fluctuations and bank charges are some of the currency risks that can have a negative impact on your pension. Speaking to a financial adviser can help you identify potential risks and the strategies to help mitigate them.

Offshore pension plans for expats

Saving for retirement can be challenging for expats. Offshore retirement plans offer an option for those who live, work or plan to retire abroad.

Offshore pensions are different to private pensions. While both are set up by individuals and allow them to contribute, the main difference is where the pension fund is located.

As the name suggests, they are held offshore. Meaning a jurisdiction outside of your home country.

These specialised pensions are tailored to meet the unique needs of expats, providing them with flexibility, portability, and potential tax advantages.

Offshore schemes are a popular choice for expats as they make it more straightforward to manage their retirement savings across different countries and regions.

Offshore retirement plans do have their drawbacks. You should speak to a financial adviser before setting up an offshore pension to ensure it is the best move based on your situation and retirement goals.

Expat pension advice

The UK State Pension for expats

The UK State Pension is based on your National Insurance Contributions (NICs).

You can claim your State Pension worldwide. It can be paid into a British bank or a local account.

However, only expats in certain countries benefit from the yearly pension increase. These include:

  • The European Economic Area (EEA) or Switzerland
  • A country that has a social security agreement with the UK

For a detailed list of the countries that benefit from this annual increase, visit the UK government’s page.

You will need at least 10 full ‘qualifying years’ on your National Insurance record to get any State Pension. To qualify for the maximum amount, you will need 35 qualifying years.

Most expats don’t pay National Insurance while they are abroad. This is why it’s common for them to have gaps, meaning they could get less State Pension or none at all. Voluntary contributions allow you to fill gaps and top up your State Pension.

Tax on pension income for expats

Pension income is typically taxed in the country where you are deemed a resident. And, if you leave the UK for good, your income tax liability moves with you.

UK residents pay tax on worldwide income. However, this is usually not the case if you’re a ‘non-domiciled’ resident. In other words, if the UK is no longer your permanent home.

Be aware that you may still pay tax on passive income sources in the UK that you plan to use to provide a retirement income. For example, investment returns or rental income from a UK property.

Regardless of your situation, British expats are unlikely to pay tax on their pension income in two different countries.

The UK has double tax agreements in place with an extensive list of countries globally. These prevent you from paying taxes in two different countries on the same source of income.

For a full breakdown of the UK’s tax treaties and other important information, visit the UK government’s tax treaties page.

Can expats get pension tax relief?

UK onshore pensions benefit from tax relief on pension contributions. The amount of tax relief you get depends on your tax bracket.

  • Basic-rate taxpayers – 20%
  • Higher-rate taxpayers – 40%
  • Additional rate taxpayers – 45%

You only get tax relief on pension contributions worth up to 100% of your annual earnings.

For expats to qualify for tax relief on pension contributions, they must meet the following criteria:

  • They must have been a UK tax resident during that tax year or at some time during the previous five tax years
  • They had earnings subject to UK income tax during the current tax year
Expat pension advice

Can I transfer my UK pension?

Pension transfers can help British expats who may have saved for retirement in the UK but plan to retire abroad.

While you can leave your pension savings in the UK, there may be some benefits to transferring your pension.

According to Moneyhelper, some of the reasons you might consider moving your UK pension include the following:

  • You want your pensions in the same currency as the one you plan to retire in to avoid potential exchange rate fluctuations
  • You may find it easier to keep track of tax and regulation changes
  • You work outside of the UK, and you like the benefits of the pension and benefits

To move your pension savings, may be able to transfer to a Qualified Recognised Overseas Pension Scheme (QROPS). A QROPS is an overseas pension scheme that meets specific criteria and rules set out by HMRC. You must also meet the UK Pension Regulators’ pensions rules and conditions for transfers.

Another option for expats who plan on retaining their UK tax residency is a Self-Invested Personal Pension (SIPP). A SIPP gives you greater control over your retirement savings, allowing you to manage your investments.

Be aware that while most direct benefit (DB) pension schemes can be transferred, there are additional steps you must take.

By law, you must seek advice from an FCA-regulated financial adviser if the value of your DB pension you wish to transfer is greater than £30,000. The adviser must have permission for the activity of ‘advising on pension transfers and pension opt-outs’.

Expat pension advice with Holborn Assets

As an expat, understanding your pension options and seeking professional advice can help you work towards a more secure financial future.

Remember, it’s also important to regularly review your pension strategy to make sure your retirement plans remain on track.

If you are ready to get started, we can help.

Holborn Assets is a leading global financial services company. We provide award-winning financial advice and wealth management solutions to the expat market.

Book a free, no-obligation meeting today and learn how we can help you reach your retirement goals.

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