Moving abroad comes with its fair share of adventure, but it also brings financial complexities that many expats don’t anticipate. Chief among these is the question: What happens to my pension now that I live overseas?
Whether you’ve made the sunny vineyards of France your home, swapped rainy England for the wide-open spaces of South Africa, or have hopped around several countries in between, understanding how to manage your pension is crucial. It’s not just about making the most of your retirement savings—it’s about aligning them with your new life and avoiding costly mistakes.
Over the years, I’ve worked with expats from all over the world who find themselves grappling with these decisions. Let’s explore the key things you need to know about managing your pensions as an expat and some of the options available.
Understanding your UK pensions while living abroad
If you’ve contributed to a UK pension over the years and now find yourself living overseas, you might wonder what happens to those funds. First and foremost, you don’t lose access to your pension just because you’ve relocated. However, how you draw from it and how it’s taxed depends on your new country of residence.
For instance, in France, pension income is subject to French taxation, not UK tax. The UK’s tax-free 25% lump sum is an attractive perk, but France doesn’t recognise it, meaning you could be taxed on the full amount. In South Africa, UK pension withdrawals must also be declared locally and are taxed accordingly. It’s vital to understand the tax rules in your new country to avoid unpleasant surprises. (accurate at the time of writing this blog)
Tax implications of drawing your pension abroad
Tax residency plays a considerable role in how your pension is treated. Many expats are caught off guard by double taxation or unexpected tax liabilities. Thankfully, countries like France and South Africa have double taxation agreements (DTAs) with the UK. These agreements are designed to ensure you don’t pay tax twice on the same income, but navigating them can be complex.
For example, if you’re drawing from your UK pension while living in France, the DTA will likely mean you’re taxed only in France, not the UK. However, to take advantage of these agreements, you need to follow specific procedures, like submitting the right residency forms and ensuring your tax filings are up to date.
Should you transfer your pension internationally?
A common question for expats is whether to transfer their UK pension abroad. This is particularly appealing if you plan to remain in your new country long-term.
However, transferring pensions isn’t always the best move. It can involve high fees, tax charges, and the potential loss of valuable UK pension benefits, such as guaranteed income under defined benefit schemes. Deciding whether to transfer is a personal decision that should factor in your lifestyle goals, financial situation, and long-term plans.
Managing your pension as an expat is no small feat. Every decision—whether to leave your pension in the UK or transfer it abroad—has lasting implications. Consulting with a financial planner who understands both the UK pension system and the rules in your new country of residence is invaluable.
At Northern Cross Wealth Management, we specialise in helping expats make informed choices about their pensions and retirement savings. If you’re navigating these waters and need expert guidance, we’re here to help.
Stay tuned for Part 2, where we explore lifestyle considerations, forgotten pensions, and how to bring your global retirement plan into focus.
