WELCOME TOThe Expat Pensions Guide
We’re passionate about providing free, high quality and empowering education to Expats around the world.
In our Expat Pensions Guide, you’ll find questions and answers to all things relevant to the Expat Retirement, including:
01
Defined Contribution Pension
02
Defined Benefit Pensions
03
UK Pensions Transfers
04
International SIPP
05
QROPS
06
QNUPS
01 Defined Contribution Pensions
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Simply put, a defined contribution pension (or money purchase pension) is one that is invested in financial markets. This means that the value of your pension will fluctuate up and down in line with the investments held.
These are the most common types of pensions in the UK, and the vast majority of Expats will have several pots depending on their previous employment.
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This depends entirely on the provider and what they are invested in.
In the UK, you can have a traditional employer defined contribution pension, such as those usually held with Aviva, Standard Life, Aegon etc.
Alternatively, you may have arranged personally or with the help of a financial adviser a self-invested personal pension, or SIPP.
The main things we encourage our clients to look out for in a defined contribution pension are:
- the cost
- the investment choice
- flexibility options as an Expat
- multi-currency options
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The 25% pension commencement lump sum payment is your tax-free entitlement in the UK.
Note, this is not necessarily tax-free when you retire abroad as an Expat.
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Yes, defined contribution pension are the easiest type of pension to transfer because there are no guaranteed rights (which are a feature of defined benefit pensions).
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The whole process will likely take somewhere between 3-6 months to complete, given the new pension transfer guidelines introduced by the FCA in 2022.
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This will depend on your adviser.
If they charge a percentage, it can be anywhere from 1% to 5% initial fee.
At The Wealth Genesis, we charge the same flat-fee to all our clients - £3,000.
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Always speak to an independent expat financial adviser before transferring a pension.
The adviser should then weigh up the positives vs the negatives and give you a clear picture of the best route to proceed.
Make sure you conduct thorough due-diligence on any company you decide to work with.
02 Defined Benefit Pensions
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A defined benefit is very different to a defined contribution pension, and usually much more valuable.
A defined benefit pension will offer the policyholder a guaranteed income for life, that usually increases with inflation to a certain degree.
Because these pensions offer a guaranteed income, regardless of how long you live, it is usually advisable that you keep them.
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Generally speaking, yes.
Guaranteed income is a huge factor in retirement planning, and highly valuable - something that a DC pension cannot offer.
However, final salary pensions do have some drawbacks. Notably, only 50% is usually passed onto a spouse in the event of death.
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Most final salary schemes will offer you the choice to take a 25% PCLS payment.
However, taking this option will reduce the level of guaranteed income provided in the future - it’s a trade off.
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Yes, much harder than DC pensions.
Because you are losing guaranteed benefits by transferring out of a DB pension, the FCA has introduced strict and stringent regulations regarding these transfers.
That means they take a lot longer to complete, and they will likely cost more.
Note, your default position should always be not to transfer.
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The process from start to finish, including the FCA report writing, will likely take up to 6 months to complete.
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The advice costs will be broadly similar to those involved in a DC pension transfer. However there will be additional report writing costs.
These can be an extra £2,000-4,000 on top of the usual adviser fees depending on which report writing company is used.
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Unlike a defined contribution pension, you legally cannot transfer a DB pension without taking FCA regulated advice.
So, make sure you find an independent Expat financial adviser and take advice on the matter.
03 UK Pension Transfers
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Simply, a UK pension transfer is when you change the provider of your defined contribution or defined benefit pension.
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It just refers to combining the several pots that constitutes your retirement funds.
Consolidating can make your pension planning much more manageable, and streamline costs.
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The key benefits of transferring your pension abroad are:
- greater flexibility in drawdown
- multi-currency options
- wider investment choice
- professional management
- potential tax benefits
- consolidation
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The main issues are:
- costs involved in a transfer
- adviser commissions
- potential lock-ins or exit penalties
04 International SIPP
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An International SIPP, or non-resident SIPP is essentially a pension plan that is built for non-UK residents and expats.
Most UK pension providers will no longer allow full-flexible access draw-down for policyholders post Brexit.
The International SIPP was created to give expats control over their pensions as they navigate life abroad.
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No, the International SIPP is still based in the UK.
They are a HMRC approved and FCA regulated pension product.
ISIPPs are also fully covered by the Financial Services Compensation Scheme (FSCS).
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The exact benefits will depend on the ISIPP used, as well as your existing UK pension provisions.
However, more often than not, an International SIPP will grant an expat greater flexibility in income, multi-currency options, as well as the facility to access professional investment management.
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Yes, if your UK pension provider is prepared to offer you full-flexibility in draw-down as a non-UK resident and you are happy with them, then there may be no benefit to using an International SIPP.
The other potential issues involved with this product include:
- costs involved in a transfer
- adviser commissions
- potential lock-ins or exit penalties
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There are over a dozen specialist International SIPP offerings available to Expats.
Currently, we would recommend the Novia Global SIPP, as it is the lowest cost option on the market.
Not only this, but the investment platform is user-friendly and provides access to a wide range of funds and currencies.
05 QROPS
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A QROPS (qualifying recognised overseas pension scheme) is a type of offshore pension available to Expats. Unlike the ISIPP, the QROPS is by definition based outside of the UK.
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The vast majority of QROPS are based in Malta or Gibraltar, as these countries have dual-taxation agreements with many countries.
Malta is the preferred location for most QROPS providers.
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This depends on your views of the UK financial system and laws, as well as your future intentions.
The main benefit of a QROPS pension was removed when the UK government removed the Lifetime Allowance Charge in 2023.
Previously, QROPS pensions were not subject to the LTA (the main reason people used them).
We believe that unless you have serious concerns with having funds in the UK, or indeed ties to the UK, a QROPS is likely not the best choice.
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Yes, there are some unique features of QROPS that may provide benefits.
Notably, a QROPS should pay income out gross (i.e. no UK taxation at source). This is due to the double-taxation agreements in place.
QROPS also offer a wider investment choice than an ISIPP, given they are not UK domiciled or FCA regulated (not necessarily a good thing).
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Yes, there are far more QROPS providers than International SIPPs, as QROPS have been around for much longer.
We believe the QROPS offered by STM Malta to be the best, most competitive offering on the market.
06 QNUPS
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A QNUPS (qualifying non-recognised overseas pension scheme) is a type of international retirement account available to Expats.
Unlike both the QROPS and ISIPP, a QNUPS is technically not a pension.
A QNUPS is a product that is built to receive overseas pension schemes that are built up outside of the UK.
Some employers (Shell, BP etc) make these arrangements for senior staff as they can be incredibly tax-efficient.
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Most QNUPS schemes are based in Bermuda or Guernsey, due to the enhanced tax status of these jurisdictions.
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You can only look to utilise a QNUPS if you have built up overseas retirement funds through your employer, or have non-pension assets outside of the UK.
These are specialist, tax-specific pensions that are usually reserved for high earners and senior staff.
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QNUPS accounts have various tax-benefits, including inheritance tax advantages, as well as income.
They can also provide great flexibility in retirement, and provide a PCLS payment to policyholders.
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Again, this depends on your unique circumstances as well as your tax position.
There are various providers, including Sovereign, STM and The Pensioneer Trustee.
