A workplace pension scheme is set up by your employer and is one way of saving for retirement. Read our guide to learn more about workplace pensions and accessing yours overseasSpeak to a pension expert
One of the core components of a financially secure retirement is a workplace pension.
Most of us will have a workplace pension. But how they work is often misunderstood, especially when it comes to accessing your pension pot if you move abroad.
This guide will provide an in-depth look at workplace pensions and other key information for people looking to access overseas.
What is a workplace pension?
Like other types of pensions, a workplace pension is a long-term investment in our future.
A workplace pension is a retirement savings scheme set up by your employer. They are sometimes known as company or occupational pension schemes.
Under the UK Automatic Enrolment rules, both you and your employer usually pay into the pension. Contributions are deducted directly from your salary and paid into your pension pot.
These contributions are then invested by the pension provider to grow over time. The funds built up in your pension fund are then used to provide a retirement income once you stop working.
Types of workplace pensions
Generally, two types of workplace pensions are defined contribution and defined benefit pension schemes.
Defined contribution pensions
Most workplace pensions today are defined contribution (DC) pensions.
With defined contribution pension schemes, the amount you have in your pension pot when you retire is largely determined by how much you have paid into your pension and the potential investment growth over time.
You often have some control over your investment choices. However, the amount of control you have will depend on the pension scheme provider and what they offer.
Those looking for extra investment flexibility may want to consider a SIPP. These provide more control over your retirement savings and a much wider range of investment options.
In most cases, you can access your pension savings in a defined contribution scheme from age 55 (57 from April 2028). However, you should check with your pension scheme provider to make sure.
There are various ways to access your pension savings. Some of these include:
- Taking a flexible retirement income
- Getting a guaranteed income for life (annuity)
- Take multiple lump sums
You can also mix these options and tailor things to your needs.
Defined benefit pensions
Defined benefit pension schemes, sometimes known as final salary schemes, pay out a guaranteed income for life.
The amount you receive is based on your average career earnings or the salary you earned when you retired. Unlike a DC pension, your employer is responsible for investment decisions.
You can usually access funds in a defined benefit scheme at the normal retirement age. This is usually 65 or your State Pension age, but make sure to check with your pension provider.
Tax on workplace pensions contributions
Contributions to a DC pension benefit from tax relief from the UK government. This makes them a tax-efficient way to save for retirement.
In the UK, the amount of tax relief you get depends on your Income Tax band.
- Basic-rate taxpayers – 20%
- Higher-rate taxpayers – 40%
- Additional rate taxpayers – 45%
There is no limit to how much you can save into a pension each year. However, there is a limit to how much you can save and still benefit from tax relief.
The current annual allowance is £60,000. This is the maximum amount you can save each tax year (6 April to 5 April) before you pay tax. If you go over this amount, you will not get tax relief and will need to pay an annual allowance charge.
There is a lot to cover when it comes to pension tax liability. To learn more, read our pension tax guide.
Accessing your workplace pension overseas
Just like personal pensions, you can access your workplace pension from another country if you retire overseas.
For those who retire abroad, you can access your pension in one of two ways:
- You can have your pension income paid into a UK bank account
- You can have it paid into a local bank account in your new country
Be aware that leaving your pension in the UK when you retire overseas can lead to additional costs and charges. For example, currency exchange rates can impact the overall value of your retirement savings.
This is why some expats may benefit from a pension transfer. A pension transfer simply means moving your retirement savings to the country where you wish to retire.
There are various ways of transferring a UK pension, including:
Always seek advice from a regulated pension specialist before transferring a pension. They can provide expert advice to help you understand your options.
Tax considerations for expats
Expats typically pay UK tax on their pension if they are classed as UK tax residents. The rate of tax will depend on their overall income.
Those not classed as UK tax residents may have to pay tax in the country where they currently reside. Expats could also be liable for tax in both countries unless a double taxation agreement (DTA) exists.
A DTA is a treaty that exists between two countries. They are designed to protect against the risk of being taxed on the same income twice. The UK has over 120 DTAs in place with countries worldwide.
DTAs may be able to provide certain tax advantages. Let’s say you live in a zero Income Tax country that has a DTA in place with the UK. It may be possible to access your pension without any tax penalties.
Remember, tax can be a complex topic, especially for expats. It is recommended that you seek independent, professional advice to better understand your pension choices and to help ensure you are as tax-efficient as possible.
Planning for the future with Holborn Assets
Workplace pensions are an integral component of retirement planning. They can be used alongside other sources of revenue to provide financial security when you stop working.
But remember, the earlier you start planning for retirement, the better. Whether you are just beginning your retirement planning journey or want to ensure you are on track to meet your goals, we can help.
At Holborn Assets, we do not take a one-size-fits-all approach to retirement planning. Instead, our retirement and pension specialists provide independent, expert advice tailored to your needs and goals.
Start planning your future with Holborn Assets. Book a free, no-obligation meeting today and learn how we can help you maximise your pension savings.
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