Pension Questions Answered for Expats

Questions

There’s a lot going on under the bonnet with pensions. Retirement savers have plenty of options about investing and how and when to draw their money. Expats all over the world have pension questions they need answering to help them make the best decision.

Pension jargon doesn’t always make these choices easy, so here are some answers to the most asked questions from savers about pensions.

Can a saver have two or more pensions?

Yes – Retirement savers can have as many pensions as they wish but must remember that the £40,000 annual contribution limit and £1,073,100 lifetime allowance apply to all the products, not to each.

What’s the minimum age for starting a pension?

Don’t worry, pensions do not come with a minimum age and there are special products out there for children. They are called Junior SIPPs. However, the money is locked away to the named saver’s retirement age and contributions are capped at £3,600 a year with tax relief.

Can someone without a job save into a pension?

Yes. Junior SIPPs are for children, while someone without earnings can start a SIPP but can only pay in £2,880 a year attracting £720 a year tax relief adding up to £3,600. This rule generally applies to personal and stakeholder pensions, but few workplace schemes.

How much can someone pay into a pension?

Assuming you mean in a lifetime, the lifetime allowance applies, which is currently capped at £1,073,100 for the 2020-21 tax year. Chancellor Rishi Sunak has frozen the lifetime allowance (LTA) at the current level until 2025.

Find out how much LTA you have used by totting up the fund amounts in each scheme.

Does the lifetime allowance apply to a QROPS?

No. Pension savings will be checked against the lifetime allowance on transfer out of a UK onshore pension to the offshore pension for expats. Once the funds have reached the QROPS they can grow unfettered as the LTA does not apply to a QROPS.

How do retirement savers claim UK tax relief?

The UK pension provider has an arrangement with HM Revenue & Customs to pay the basic 20% relief automatically, but higher and additional rate taxpayers must claim by filing a Self-Assessment tax return.

What is pension consolidation?

Pension consolidation is when a retirement saver transfers several small funds into a single fund.

What happens to my fund if I die before I retire?

What happens to your retirement savings depends on your age if you die:

InheritanceYour age when you dieTax they pay
Unused cash taken from your potAny ageInheritance Tax based on the size of your estate
Money still in your potUnder 75Zero, if they take it within 2 years
Money still in your pot75 or olderIncome Tax
Adjustable income – a regular income that can change in amount or is drawn as a lump sumUnder 75Zero
Adjustable income75 or olderIncome Tax
Joint, guaranteed period or capital protected annuityUnder 75Zero
Joint, guaranteed period or capital protected annuity75 or olderIncome Tax
Source: Pension Wise

Do I have to buy an annuity with my pension?

No.  Buying an annuity is an option, but not compulsory. Instead, savers can access their cash by mixing and matching six options:

  • Leaving a pension fund untouched
  • Buying an annuity
  • Taking a tax-free lump sum and drawing the rest as income
  • Taking cash lump-sums
  • Cashing in the pension fund in one go
  • A mix of two or more of the other options

Can I retire before the age of 55 years old?

No. The minimum retirement age for a pension other than the state pension is 55 years old unless special circumstances apply, like the retirement saver has a terminal illness.

What’s a QROPS pension for expats?

QROPS stands for Qualifying Recognised Overseas Pension Scheme.

A QROPS is a pension offered by an offshore provider to British non-resident expats or foreign workers who have pension savings in the UK.

Am I guaranteed a full State Pension?

No. The new State Pension payment is a maximum of £179.60 a week.

The pension is paid pro rate to everyone who has between 10 and 35 years of social security contributions is:

£179.60 (Current maximum pension payment) x Years of social security history
35 (Maximum number of qualifying years)

For example, someone with a 20 year social security history works out their State Pension payment like this:

£179.60 (Current maximum pension payment) x 20 = £102.62
35 (Maximum number of qualifying years)

Is my State Pension increased each year if I live overseas?

Most years, the State Pension is increased in line with the cost of living in the UK. In recent years, the triple lock has applied that guarantees a minimum increase of 2.5% or the highest of the percentage rise in average wages or inflation.

Expats in the European Economic Area (EEA) plus a handful of countries around the world have the cost of living increase applied to their State Pensions .

For the rest, the State Pension is frozen at the level of the first payment.

Do I pay tax on my pension savings when I retire?

The first 25% of your fund is tax free, but the rest is liable to tax if you have exhausted your personal allowance of £12,750, income tax on pension drawings is paid at the same rate as income tax on other earnings.

Can I collect the State Pension overseas?

Yes, but the State Pension can only be paid in one country each year. The Department of Work & Pensions will pay the money directly into a foreign bank account.

What happens to a QROPS if I return to the UK?

Money taken from a QROPS in the UK is tax-treated in the same way as any other UK pension.

Speak to your IFA before becoming UK resident to discuss other options for your pension cash.

I want an expat pension, but I’m a UK tax resident – what can I do?

If you live and work overseas temporarily and remain UK tax resident, you can start an onshore SIPP or other pension and enjoy the same tax benefits as anyone else in the UK.

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