If you want to retire abroad as an expat, one of the financial decisions you must make is what to do with your pension.
One option is leaving the cash tied up in the UK while any benefits are paid into a local bank wherever you are in the world.
Sometimes, expats can move their pension from their former home into a local scheme.
Another favourite is the Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS are supervised by HM Revenue & Customs in the UK and must follow a lot of complicated rules to make sure retirement savers are not flouting tax rules.
Choice of funds
Around 1,370 QROPS are available in 29 countries.
Every two weeks or so, HMRC publishes an updated list of QROPS pensions. If your scheme is not on the list at the time of transfer, your pension provider cannot switch any money to the new fund.
QROPS work in a similar way to self-invested personal pensions (SIPPs) in the UK.
Generally, the saver has a choice to manage the funds or to hand the job to a professional.
Most also offer a broader range of investments, although QROPS ‘lite’ designed to keep costs down on smaller funds tend to have limited funds to choose from.
Speaking to an experienced QROPS adviser is important to avoid expensive transfer mistakes.
Speak to an IFA
HMRC will make a charge of 55% of a fund’s transfer value for an unauthorised transfer to a non QROPS fund. The tax man will also want a 25% slice of a fund under Overseas Transfer Charge rules if you switch your UK pension to a QROPS that is not based in the country where you live if you are outside of the European Economic Area.
Other matters to consider include currency exchange rates when you are sending a large fund abroad and how UK and local taxes interact. Some countries, like the USA, do not recognise UK pension structures and treat them as taxable investments.
It’s a good idea to take advice from an independent financial adviser, as they can offer a bespoke QROPS service that matches your financial objectives, but make sure they are qualified to give QROPS and investment advice and are regulated in the country where you intend to live.