The pension basics you need to know if you’re dreaming of retiring abroad

Retiring abroad is a dream for many people nearing the milestone. Whether you’re picturing a sunnier climate or want to move closer to family, there are some implications you might need to consider when managing your pension.

According to a report in Moneyweek, more than three-quarters of pension savers would like the opportunity to leave the UK behind when they retire.

Perhaps unsurprisingly, seeking better weather was driving 46% of those aged over 55 to consider moving when they’re no longer working. More than a third also cited the rising cost of living in the UK as a reason, with some expecting their money to go further in other countries.

Understanding how to access your pension and ensure you can create a sustainable income can be challenging. If you’re hoping to retire abroad, it can add an extra layer of complexity.

Read on to discover the pension basics you need to know if you’ll be retiring abroad.

Essentially, you have two choices – to leave your pension with a UK provider or transfer it to a provider operating in your new home.

Leaving your pension with a UK pension provider

When moving abroad, you can choose to leave your pension where it is. Usually, that means you’d be subject to the same rules around accessing your pension as you would if you retired in the UK. So, you’ll be able to create an income from your pension from age 55 (rising to 57 in 2028).

Typically, you’ll be able to access your pension savings in the same way too. You might choose to:

• Purchase an annuity
• Withdraw your pension as lump sums
• Take a flexible income through drawdown
• Mix the three above options to suit your needs.

However, you should note that some pension providers might limit payment options. Similarly, some pension providers might not pay into an overseas bank account or charge a fee for doing so. As a result, it’s important to check your paperwork and understand your options before you move abroad.

Living abroad can also make your tax situation complex, including when you’re taking money from your pension. In some cases, you might need to pay tax in both the UK and the country where you’re residing.

In addition, you can normally take up to 25% of your pension tax-free (up to a maximum of £268,275 in 2024/25). This may not be the case if you’re withdrawing money while residing abroad.

Before you access your pension, taking specialist tax advice could help you understand how to create a retirement income efficiently both in the short and long term.

Transferring your pension to an overseas provider

Another option is to transfer your pension to an overseas provider.

In some cases, this could make your pension and retirement income easier to manage as you start your next chapter. It might even prove to be tax-efficient depending on where you move to.

You’ll usually need to transfer to a qualifying recognised overseas pension scheme (QROPS), which essentially means a pension scheme that follows similar rules to UK schemes. If you try to transfer to a pension that isn’t a QROPS, you could face a hefty tax charge and penalties.

In addition, a scheme outside of QROPS might not be regulated, which could mean you lose money if there’s an issue with the scheme in the future.

The government has a list of QROPS you can view online.

While transferring your pension can make sense in some situations, it’s important you consider your circumstances. For instance, you might need to pay tax when transferring your pension or you could lose any benefits your current pension offers if you transfer your funds.

Again, receiving tailored advice could help you assess if transferring to an overseas pension might be right for you.

Don’t forget to assess your State Pension income

While the State Pension often isn’t enough to secure the retirement you want alone, it might be an important part of your retirement plan.

The State Pension will pay you a regular income from when you reach State Pension Age. This certainty could provide a useful base income that you know you can rely on. You can use the government’s State Pension forecast to understand how much you could receive and when you’ll reach the State Pension Age.

If you retire in the UK, the amount you receive through the State Pension will also increase each tax year under the triple lock. As the cost of living rises, this could help preserve your spending power.

However, where you decide to retire might affect whether your State Pension income will rise.

In 2024/25, you’d receive State Pension increases if you retired in the European Economic Area, Gibraltar, Switzerland, and countries that have a social security agreement with the UK.

So, if you want to retire to Australia, which the Moneyweek survey found was the second-most popular destination, you’d have to plan for your State Pension income to remain static. As your retirement could span decades, not benefiting from the triple lock is likely to mean the income will buy less in real terms due to inflation over the long term.

You can use the government website to check which countries you could retire abroad to and receive State Pension increases.

Contact us to discuss your retirement dreams

Turning your dreams to retire abroad into a reality may require a lot of planning and we’re here to help you manage your finances.

As well as managing your pension, you might need to adjust your retirement plans in other ways too. For instance, the cost of moving abroad might mean you need access to a lump sum when you reach the milestone, or you may want to factor in regular trips home to see family when creating a retirement budget.

If you’d like to assess if you could retire abroad or have questions about how to manage your pensions, please get in touch to arrange a meeting.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate tax planning.