Types Of Drawdown Pensions For UK Expats
LEARNING OBJECTIVES
We’re passionate about providing high quality, relevant and up-to-date retirement advice to British Expats around the world.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
The different types of draw-down pensions available
How UK pensions work abroad
The best options for British Expats
The importance of full flexible access draw-down in retirement
Currently, two main types of draw-down options are available for expats with UK pensions. Depending on your existing plan, you may need to transfer to a new arrangement to gain the access you require.
This guide aims to clarify the different forms of draw-down and the options available should you need to change.
Capped Draw-down
Capped pension draw-down, also known as capped income draw-down, allows members to draw an income from their pension pot while leaving the rest invested. This option was phased out in April 2015 with the introduction of pension freedoms.
Under capped drawdown, there is a limit on the amount of income you can withdraw each year which is set by the Government Actuary's Department (GAD).
The maximum amount you can withdraw is 150% of the GAD rates. Reviewed every 3 years for those under 75 and annually thereafter, it can increase, decrease or, stay the same.
Capped drawdown is not available for new pension investors. Nonetheless, if you are currently in drawdown, you can continue to use it.
Capped Draw-down Calculator
You can work out the maximum amount available if in capped drawdown here.
Flexi Access Draw-down
Flexi-access drawdown is a pension option introduced in the UK following pension reforms in April 2015. If you are age 55 and above, you can access your pension however you please.
25% of your pension can be taken tax-free (UK) known as the PCLS Pension Commencement Lump Sum. Thereafter you can withdraw your pension however you need, be it regular income, ad hoc lump sum withdrawals or, a combination of the two.
Unlike capped drawdown where the maximum income available is limited, or buying an annuity where the income is guaranteed, flexible access gives you total control of your pension and how you take it.
Note you're required to pay income tax according to the tax brackets in your country of domicile.
Flexible Access Draw-down Pension Providers
Two types of pension schemes enable expats to gain flexible access draw-down.
QROPS
QROPS stands for Qualifying Recognised Overseas Pension Scheme. A pension scheme outside the UK that meets certain criteria set by HM Revenue and Customs (HMRC). It allows individuals who are residents within the European Economic Area EEA to transfer their UK pension funds abroad without incurring tax penalties.
A Maltese solution is usually the most suitable and by having tax treaties with over 70 countries, you can receive your pension income gross of tax and subsequently declare in your new home country.
With the removal of lifetime allowance LTA in the Chancellors budget in April 2023, the key reason to use a QROPS is death benefits regarding UK inheritance tax.
International SIPP
A UK pension specifically created for non-UK residents. An international SIPP offers the majority benefits of a QROPS whilst retaining the robust regulation and protection of the UK regulators. At a fraction of the cost they provide an alternate option and by obtaining an NT code expats are still able to not be double taxed subject to your country having a DTA with the UK.
Note all pension income needs to be declared in your country of residence in the applicable tax year.
Best Draw-down Pension Providers
Determining the "best" drawdown pension provider can depend on various factors, including your individual needs, preferences, and circumstances.
Here are some of the top drawdown pension providers for expats.
When choosing a draw-down pension provider, it's important to take into account aspects like fees, investment options, customer service, reputation, and any additional features or benefits offered by the provider.
Expat Financial Advice
The Wealth Genesis provides specialist cross-boarder financial planning to expats globally. We help you select the most suitable pension provider and put together a bespoke portfolio to meet your objectives. By tailoring your retirement plans to your requirements, we can ensure that you are well-prepared for life post-employment.
Contact us using the button below to speak to an independent financial adviser about your expat pension options.
FAQs
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We charge a flat fee of £3000 for the initial advice provided and 0.85% ongoing management charge.
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The 4% rule states you can withdraw 4% of your pension value per year, adjusted for inflation and your pension pot should last 30 years. Whilst the theory was created back in 1994, and based on market conditions of the day, it does stand true in a several ways.
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The 70% rule states you can expect to require 70% of your current income after tax, in retirement. This factors in areas of mortgages being paid, kids no longer financially dependent, and so forth. It can be a useful tool when assessing any potential income shortfalls in retirement.
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If the income available meets your income requirements then there is no need to transfer and incur the costs for doing so.
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Whilst countries will differ, in general, income payments are taxed in line with the countrys' income tax bands. i.e for the UK, up to £12,570 is tax free, thereafter basic rate and so on. Some countries have additional costs such as social charges in France.
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Yes, subject to your country of residence having a double tax treaty with the UK, you can obtain an NT code and receive pension income gross.
For a QROPS, subject to a tax treaty being in place, no additional tax code is required and pension withdrawals will be paid to you gross of Maltese tax.
