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Updated 22 Nov 2012

A range of exciting destinations is open to those who wish to retire or work abroad. Before taking the plunge, it’s important to plan for the financial implications of moving overseas. One of the most important of these is the effect of emigrating on your UK pension.

Private pensions

If you’re not yet at retirement age and are contributing to a UK-based private pension scheme when you move abroad, you can continue to do this for five years.

If you’re already retired there is no reason why you shouldn’t continue to draw your pension abroad, provided that the pension provider permits this. Your pension remains subject to income tax in the UK as well as potentially under the tax rules of your destination country. However, the UK has double taxation agreements with many countries to prevent you from being taxed in both places.

It’s also possible to convert your existing pension pot into an overseas fund, provided that it has been vetted by HMRC (mainly to check that it is secure and is not being used for tax abuse) and is approved as a “Qualifying Recognised Overseas Pension Scheme”. The pension provider must do this on your behalf if you request.

The main reason for transferring your pension is so that it is paid in the overseas currency. This protects your spending power against drops in the value of sterling against the currency of your new home.

The other impact of moving your pension abroad is that, subject to some restrictions in the first five years, it will be governed by the laws of that country. This will affect the tax you pay, investments you are allowed to make with the pension funds, lump sum you can withdraw and pension protection. This could be advantageous or otherwise, depending on the country you move to and your own circumstances.

State pension

Living abroad does not affect your eligibility to claim the UK state pension, whether you are already retired when you move or reach the state pension age after moving. You can also continue to build up your state pension by making voluntary national insurance contributions, if you are still of working age.

There is a major sticking point, however. In certain countries your state pension will be “locked in” at the figure that applied when you first become entitled to it, meaning that over the years its value will diminish significantly. Your pension will only be subject to the normal annual increases if you move to a country that has an agreement to this effect with the UK. Countries that have such an agreement with the UK include the entire EU, the USA and Ireland, while those that do not include Canada, Australia and New Zealand.

As with private pensions, state pensions are subject to UK income tax as well as potentially that of the overseas country, but in many cases double taxation agreements will ensure you are not taxed twice.

Moving overseas can be an opportunity to boost your pension entitlement and spending power but it can also have a damaging effect on your pension. The impact is very complex and depends on a number of factors. When preparing for your move there is no substitute for consulting qualified financial advisers with knowledge both of the UK and your destination country. 

Dominic Higgins Our Expat Expert

Dominic Higgins graduated from University College London with a Law degree with French Law in 2005. This included a diploma in French legal studies awarded by the University of Aix-Marseille. His academic background covers a number of areas of law including contract, property, criminal law and international/EU law. Dominic has worked as a legal adviser in the UK, Spain and South Africa and has a particular expertise in immigration and nationality law. He writes for the Contact Law on a range of legal issues.

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