How to Transfer UK Pension to India

Choosing a Pensions and Investment Adviser

A UK pension transfer overseas can be risky and complex, so seeking advice from an independent financial adviser is essential. They must be licensed internationally and knowledgeable about tax laws, overseas pension schemes and global investment funds, but only some UK advisers are.

I specialise in international pension transfers and have years of experience helping people with the tax efficiency of other long-term investment products worldwide. I know all the relevant tax rules and can ensure you do not unnecessarily pay tax.

Feel free to contact me if you’d like to safely transfer your UK pension fund to India with my expert assistance.

What is a UK-registered pension scheme, and how do you know if you have one?

Most people who have lived or worked in the UK will have at least one of the following three types of pension:

• Workplace
• Private
• State

You are highly likely to have a workplace pension if you are or have been an employee in the UK, as it has been obligatory since 2012 for employers to enrol employees in a company pension scheme unless you opted out.

Tracing Lost Pensions

It is usual to have more than one such pension, and you can use the government’s pension tracing service on their website to find any pension savings you may have lost track of. It is generally possible to consolidate these into one by transferring them to a self-invested pension plan (SIPP), easily convertible into an international plan when you leave the UK for India.

Pension Savings and UK Income Tax Relief

Every type of UK-registered pension scheme is eligible for UK tax relief on contributions and investment growth. The maximum tax-free annual allowance for pension contributions is £60,000.00 when you earn £200,000.00 per year or less. The limit is tapered and adjusted accordingly for higher earners.

Tax-free Lump Sum

If you plan to take your tax-free lump sum at pension commencement, it can be best to do so whilst you are still considered a UK resident by the tax authorities. Otherwise, it could be treated as an unauthorised payment leading to a tax charge of up to 40% if you do so once becoming a resident abroad in India.

Capital Gains Tax

There is no capital gains tax to pay on the growth of your pension funds. Once you begin receiving your pension income as a UK resident, UK income tax is only triggered when your total income exceeds your tax allowance.

However, not all workplace plans suit overseas pension transfers to India.

UK Workplace Pension Schemes

There are two categories of company retirement plans: defined benefit, also called ‘final salary’ and defined contribution, sometimes known as ‘money purchase’.

To determine which type your employer offers, speak with the employer’s pensions manager or ask someone in the HR department.

Defined Benefit

This type of UK-registered pension scheme is most common within the public sector, but occasionally, a few private sector employers may offer them too. They are sometimes known as ‘unfunded’ arrangements because your pension income is guaranteed, which the taxpayer or your employer pays.

A defined benefit plan accrues through pensionable service, that is, your years spent working, rather than through investment performance which is the case with all other pensions.

Concerning private sector defined benefit plans, the Pensions Protection Fund safeguards your pension should your employer become insolvent. Up to 90% of your pension will be available in this case, but you must wait until your state retirement age to receive it.

Many defined-benefit plans are inappropriate for transfer to an overseas pension scheme in India or elsewhere. If you have worked as a teacher or in the NHS or civil or armed services, you must consult your current pension provider in the first instance.

Defined Contribution

All other workplace and private pension plans will be a defined contribution scheme (DC) and highly likely suitable for transfer to an overseas pension scheme in India.

A tax-free lump sum is available at pension commencement, usually at least ten years below your state retirement age unless you are severely ill.

Small Self-Administered Scheme

If you are a senior executive or company director of a small private business, your retirement savings could be a small self-administered scheme (SSAS). There may be no pension provider. Instead, the participants become trustees of the fund and manage all investment decisions, which may include commercial property.

Group SIPP

Meanwhile, a group SIPP is an option for professionals such as dentists, lawyers or accountants. You may hold an individual SIPP within the scheme, but as long as you share a provider with the others, it still counts as a group SIPP.

Unlike defined benefit plans, with DC arrangements, the investment performance of your contributions decides how much money you will receive in retirement from your pension fund. Unless you manage your SSAS or SIPP yourself, your UK pension provider makes these decisions, and they will have a very narrow range of funds to invest in.

Private Pension Schemes

Private or personal registered pension schemes are those arranged directly by individuals separately from the workplace. It is usual to do so through insurance companies, banks and building societies or others.

You may have opted for this type of UK pension scheme if you are self-employed, have taken time out of the workplace to care for dependents or wanted to make additional provisions for your retirement.

Look out for the annual statement from your provider detailing how much your pension fund is worth and how well it performs through investment.

Two popular personal pensions are stakeholder and self-invested personal pensions (SIPPs).

Stakeholder Pension

The UK government set up this low-cost, low-risk scheme to encourage more people to save for retirement after the pensions mis-selling scandal of the late 1980s and early 1990s.

Annual fees are capped at 1.5% of the fund value for the first ten years, dropping to 1% after that. These charges are so low because the range of funds the provider can invest in is exceptionally restrictive. However, they are correspondingly safe from exposure to the risks of market volatility that other plans face and, as such, can be an excellent choice.

All stakeholder plans are guaranteed free of transfer charges, making them eminently suitable for transfer to a SIPP.

SIPP

SIPPs, self-invested personal pensions, are pension ‘wrappers’ which differ from most standard pension schemes in that they give you the choice of where to invest your savings rather than relying on your UK pension provider to make all investing decisions.

You can often consolidate all your existing pensions by transferring them to a single SIPP for ease of fund management. Always research as much as possible to find the best SIPP provider, and consider working with a financial adviser if you are inexperienced in this area.

Some providers do not work directly with members of the public. Certain funds require more extraordinary technical expertise, which the higher annual charges may reflect. Such fees are sometimes negotiable if you have a large pension pot. Ask me if you would like any help with this.

With a SIPP, the range of available investments is almost unlimited. You may invest in the broadest possible range of funds except for residential property.

A UK SIPP is an excellent starting point in preparing to bring your UK pension overseas to India, as we may easily convert it into an international SIPP.

UK State Pension

You may be entitled to a UK state pension if you have made ten or more years of qualifying National Insurance contributions when living in the UK. The UK government has a pension forecaster site where you can check your eligibility, find your state retirement age and, in some cases, even learn how to increase the amount of state pension income available upon retirement by purchasing additional contributions.

Direct Payment Method

You cannot transfer the UK state pension to India but may still access it via direct payment into the bank account of your choice. You can withdraw it in India from ATMS in rupees but must pay any currency conversion costs each time as you cannot denominate any other currency than GBP.

Why Transfer To An Overseas Pension Scheme?

Even when you have a UK pension fund suitable for transfer overseas, you may not necessarily have to move it when you live in India. Speak with your UK pension provider if you are still determining whether they will authorise a transfer to overseas schemes.

As with the UK state pension, accessing your benefits through direct payment is often possible, but currency conversion costs could erode your income.

Generally, you will find it much more convenient to transfer your pension for several reasons, including without limitation:

• Potential tax benefits, subject to your residential status, for example, avoidance of death tax or any other tax charge on a death benefit
• Easier fund management by holding your savings in one pot
• Reduce currency risk by accruing and spending your pension in rupees.
• Access a broader range of overseas investment opportunities.

Because every case is unique, I recommend you contact me, or a similarly qualified international pensions and investment adviser, to discuss your circumstances and plans in detail before making any decisions.

The transfer process can often become complicated and costly. If you do not take advice, you will have no recourse should something go wrong, and, in a worst-case scenario, you could even lose your pension benefits entirely.

Overseas Pension Schemes for India

If you want to take advantage of an overseas scheme, your next choice is an international SIPP or a recognised overseas pension scheme. Technically, an international SIPP is not an overseas scheme as it remains in the UK, but it shares the following benefits with any recognised overseas pension scheme:

• Reduce currency risk; your pension benefits won’t fluctuate in line with the ups and downs of the exchange rate as you do not have to convert from GBP to rupees each time.
• You can consolidate all your existing pension funds in one easy-to-manage pot.
• A far broader range of international investment opportunities is open to you.
• Potential tax benefits, depending on your residential status in India, such as freedom from UK tax charges.
• Flexible drawdown.

As both options offer similar advantages for retirement life in India, how do we choose the most suitable for your pension funds, and how do you avoid a tax charge such as the overseas transfer charge?

Qualifying Recognised Overseas Pension Scheme, QROPS or ROPS

ROPS, or QROPS, is an offshore pension scheme established by His Majesty’s Revenue and Customs (HMRC) to allow the transfer of UK pensions to an overseas scheme manager or other international organisation in India, such as HDFC Life.

When moving outside the European Economic Area, basing your QROPS scheme in the same country where you have residency is helpful. Otherwise, an overseas transfer charge of 25% of the fund transfer value becomes payable.

On the HM Revenue and Customs website, you can find a list of every receiving scheme in India.

There are several providers currently listed for India, with most offering more than one retirement plan:

• Bajaj Allianz
• HDFC Life
• ICICI
• Kotak
• LIC
• SBI
• Tata AIA

HMRC update this list on the first and fifteenth of every month, and you are responsible for ensuring that any scheme administrator you are considering is on the list. If you do so, you protect yourself from pension scams, your provider refusing to make the transfer, and high tax charges on an unauthorised withdrawal.

If you are still yet to be retired and have a sponsoring employer in India, check to see if their pension provider participates in the QROPS scheme.

Suppose you are already post-retirement. Before transferring to a QROPS, consider how many tax years have elapsed since you were last resident in the UK. I can advise you on the regulations concerning residential status over the tax years before you can withdraw benefits from a QROPS without penalty.

Lifetime Allowance

Under earlier UK rules concerning the lifetime allowance, a QROPS was the preferential way to bring your pension overseas if you had a larger pot because the transfer process was a benefit crystallisation event. The government changed the UK regulations in April 2023, but a new administration could reinstate the lifetime allowance. If your pot is over £250,000.00 in value, then this is still something to bear in mind.

You will likely find the international SIPP more suitable for smaller pots far from the lifetime allowance than a QROPS scheme.

International SIPP

An international SIPP is identical in structure to any other SIPP. There is no overseas transfer because it remains in the UK, where the Financial Conduct Authority regulates it for your security and peace of mind. Therefore, unlike the qualifying recognised overseas pension scheme, there will never be an overseas transfer charge to pay, no matter where you live.

In this way, international SIPPs are ideal for people who intend to be internationally mobile during retirement, keeping their options open about returning from India to live in the UK at some point or to live in other countries without triggering a tax charge.

International SIPPs are also the ultimate choice for anyone considering a phased approach to retirement. They are the most flexible solution and give you as much or as little control over your pension plan as possible. You can manage the funds if you have the confidence and experience or work with an adviser.

How to transfer UK pension to India FAQs

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

Overseas pension transfers can be complex. Make sure you take financial advice before you transfer your funds.