How your pensions pay out when you are overseas depends on if you belong to a defined benefit (DB) or defined contribution (DC) scheme.
Your State Pension payments are dealt with separately according to if the UK has a two-way social security agreement with the country where you intend to live.
Drawing A Defined Benefit Pension Overseas
A defined benefit or final salary pension gives retirement savers a guaranteed income for life that rises in line with the cost of living each year.
The DB pension may come with generous add-ons like an income for your spouse if you die or a guaranteed annuity rate that is much better than the open market rates currently available.
That income and benefits are protected wherever an expat lives.
DB retirement savers have two options:
- Leave the fund in the UK
- Transfer to an offshore defined contribution scheme
Talk to an expat financial adviser before committing to a pension transfer because you may lose valuable benefits and incur costs that are irreplaceable under the new scheme.
Drawing A Defined Contribution Pension Overseas
A defined contribution pension differs from a DB scheme because no guarantees are offered.
Income in retirement depends on the size of the fund, which can vary as stock markets and the value of investments rise and fall.
DC retirement savers have the same options as those with DB pensions:
- Leave the fund in the UK
- Transfer to an offshore defined contribution scheme
Unlike DB pensions, savers with a DC scheme are unlikely to lose any benefits but will incur transfer costs.
Paying Into A Pension From Overseas
Most pensions will let expats continue to make savings, but residency rules will exclude most from gaining tax relief on the money they pay in.
Expats who are not UK residents will lose their tax relief and may find an offshore pension, like an international SIPP or a Qualifying Recognised Overseas Pension Scheme (QROPS) more attractive.
Sterling Or Local Currency?
Pension providers in the UK don’t generally pay the money from a pension straight to a foreign bank account.
Ask your provider about their policy and expect to pay a fee.
Most people have their pension paid in Sterling to a UK bank account and either:
- Transfer the money to an overseas bank
- Draw the money overseas with a debit card
Whatever the arrangement, expats run the risk of losing money because of fluctuating exchange rates or fees charged by their bank.
Specialist money transfer services are much cheaper and more flexible than banks and can switch your cash into a local currency.
Always check exchange rates and charges. The best way is to compare how much local currency you will get for exchanging £100.
If you ask, the UK government will pay your State Pension into a local bank account wherever you are in the world.
State Pension payments are not index-linked in every country and are often frozen at the level of the first payment for life.
Find out more about frozen State Pension payments and claiming from overseas
This table outlines if your pension rises in line with UK inflation and pays a guaranteed income.
| Pension | Type | Index-linked? | Income guarantee? | Currency paid | Paid to local bank? |
|---|---|---|---|---|---|
| UK State Pension | – | Depends | Yes | £ | Yes |
| Public sector | – | Yes | Yes | £ | Yes |
| Civil Service | – | Yes | Yes | £ | Yes |
| Workplace | Defined benefit (DB) | Yes | Yes | £ | Yes |
| Workplace | Defined contribution (DC) | No | No | £ | Yes |
| Personal | Defined benefit (DB) | Yes | Yes | £ | Yes |
| Personal | Defined contribution (DC) | No | No | £ | Yes |
| QROPS | Defined contribution (DC) | No | No | Any major currency | Yes |
Drawing A Pension Overseas Explained For Expats FAQ
How to save enough money for retirement is one of the most momentous financial decisions most people will make – and another is how to access the money when you need it.
Taking a pension income is even more complicated for expats who have the problems of tax, timing, and distance to consider as well.
To help, here are some of the most asked questions about drawing a pension from overseas.
No one-size-fits-all solution applies to expats and their pensions. Speak to an IFA before making any transfer request to check if a transfer to a QROPS is the right move for you.
Yes. You need to make the arrangements with the Pension Service International Section who will pay the money into a bank account in the country where you are living or a UK bank or building society account.
Yes, you can still opt to take money from your pension under the free access rules while your pension is in the UK. If you switch to an offshore QROPS, some providers will apply pension freedoms as well.Do I Pay Tax On Pension Income While Abroad?
You may pay tax if you live overseas and receive a pension income. This depends on your residency status.
Generally, the UK State Pension is tax-free, but expats may pay UK tax on other pension income.
Expats may pay tax on their pension incomes in the country where they live if they do not have a double taxation agreement with the UK.
You can check a list of countries where the State Pension is automatically increased in line with the cost of living each year in our guide to claiming the State Pension for Expats
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