How to Transfer UK Pension to Hong Kong

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

If you’ve lived or worked in the UK for any time, you will likely have at least one UK pension scheme. Although there is considerable variation between the various pension schemes, each with its advantages and disadvantages, UK pension plans always have the following characteristics in common.

Tax-free contributions, investment growth and lump sums

There are many ways for a UK resident to save for retirement, from tax-free savings accounts such as Individual Saving Accounts (ISAs) to investing in residential property to rent out. Still, none are as tax-advantaged as a pension. 

UK tax relief on pensions begins with your contributions at your marginal income tax rate and is then greatly exacerbated when you or the scheme administrator invests them. The growth of your pot is always free of capital gains tax, and from ten years below state retirement age, you can usually take 25% of it as a pension commencement lump sum tax-free. If you withdraw the lump sum while considered a resident, for tax purposes, of any other country than the UK, you could have to pay tax on it.

An annual allowance restricts your total pension contributions to £60,000 per tax year when you are a taxpayer with relevant earnings of up to £200,000. The allowance tapers incrementally for higher earners, while non-taxpayers may contribute a maximum of £2,880 annually. Breaches of your annual allowance will trigger tax charges on the excess amount. 

These contribution limits are far higher than ISAs, and if you become insolvent, your pension assets are usually safe from creditors. Unlike ISAs, your pension savings also do not count towards means-tested benefit calculations. 

Due to be entirely abolished by the tax year of 2023 to 2024, a lifetime allowance limit of £1,073,100 affects any benefit crystallisation event, such as a transfer to an overseas scheme. 

Note, there is every reason to believe the opposition’s promise to reinstate the lifetime allowance should they win the next general election in 2024. If your pension funds are approaching this limit, it could influence your transfer options for Hong Kong.

You can always ask me if you’d like to know more about how the changing lifetime allowance might affect pension transfers to an overseas pension scheme in your personal situation. 

Still, not every UK pension is suitable for transfer to an overseas pension scheme.

Workplace Plans

Unless you consciously decided to opt out, your employer will have automatically provided an occupational retirement savings plan if you started working for them after 2012. It is usual to hold pension savings across a few such schemes if you occasionally change employers. You can locate these at the Pensions Tracing Service on the UK government website. Generally, it makes sense to round up all your pension plans for consolidation into a single pot when you retire to Hong Kong.

Two types of pension schemes within the workplace are defined benefit and defined contribution. If you need further help determining which form yours takes, you can always ask the pension manager at work or speak with someone in Human Resources.

Defined Benefit Schemes

Also known as ‘final salary’ plans, this highly desirable form of UK pension scheme is the gold standard because it guarantees, for life, a proportion of your former salary. 

Anyone looking to transfer £30,000 or more in this type of pension scheme is legally obligated to obtain appropriate advice first, but this advice is not free. Suppose your final salary pension scheme is valued at only a little over the limit and is your sole retirement plan. In that case, it will categorically not be cost-efficient for you to attempt a transfer overseas or even within the UK. 

You are most likely to have a final salary arrangement if you have worked within the public sector, in which case the British taxpayer will pay your pension benefits, which can also include spousal and dependent allowances. Your pension scheme may be ‘unfunded’, providing an annuity rather than a transfer value. 

A handful of private sector employers also offer final salary arrangements. In the event of their insolvency, the Pension Protection Fund will pay up to 90% of your lost pension, although you must wait until your state retirement date to claim.

Separate protection in the form of the Crown Guarantee exists against the insolvency of the privatised former public sector employer BT, which means the UK government will continue to pay your BT pension.

It could take many years to reproduce the pension benefits of a final salary scheme in any other plan, and there will be no guarantees. Your UK pension provider should only agree to a transfer request of safeguarded benefits if you have made more than ample alternative provisions for your retirement plans. Even then, whether you are depending on those pension benefits or not, consider how you might feel if the value of your pot suddenly plummets due to market volatility.

If you’re researching UK pension transfers from final salary schemes to offshore plans, I can help you identify what is in your best interests. Get in touch if you’d like individualised advice on this.

Workplace and Personal Defined Contribution Schemes

Every other occupational plan will be some form of defined contribution arrangement, also known as ‘money purchase’. You may also have a defined contribution personal pension, especially if you are self-employed.

For further information about a personal pension, look for the annual statement from your provider, which may be, among others, an insurance company, bank or building society. This statement summarises your savings and forecasts the pension income you can expect. 

Your money purchase pension could be an older style scheme, with the administrator investing your contributions on your behalf or a pension ‘wrapper’ which grants you more control over what you put your money into. Unlike final salary plans, which accrue through years of pensionable service, pension income from any defined contribution arrangement depends wholly upon the investment performance of your contributions.

All money purchase plans in whichever form are suitable for overseas transfer – subject to your circumstances.

Pension Transfer Options for Hong Kong

Your transfer options are between an overseas pension scheme or an international SIPP (self-invested personal pension). Both achieve precisely the same ends:

• You can consolidate all existing UK pensions into one expat-friendly pot
• They allow you to denominate a relevant currency, reducing both risk and commission on exchange rates 
• You will have access to and control over far broader investing opportunities

Yet significant differences distinguish an overseas pension from an international SIPP. Here’s how to choose between them.

Qualifying Recognised Overseas Pension Scheme, QROPS/ROPS

A qualifying recognised overseas pension scheme, QROPS or ROPS, meets the requirements of His Majesty’s Revenue and Customs, HMRC, to receive UK pension transfers.

To find a Hong Kong pension with ROPS status in the UK, check the list on the HMRC website; updates are on the first and fifteenth of every month. While the inclusion of the twelve currently on this list does not equate to approval, it does mean that HMRC considers each overseas pension scheme to be similar to UK plans regarding taxes, contributions and withdrawals. 

Attempts to transfer to a scheme not on the list will be considered an unauthorised payment, potentially costing you up to 55% of your retirement savings. 

Transferring a UK pension scheme to a ROPS or QROPS based in the same country you intend to remain resident in for at least five years could protect your pot from the return of the lifetime allowance if it approaches £1,073,100. 

An international SIPP could be more appropriate for smaller pots and anyone considering changing countries during retirement.

International SIPP

An international SIPP is generally easier and less costly to set up than a transfer to a qualifying recognised overseas pension scheme, whether your pot is nearing the lifetime allowance or not. It is structurally identical to a domestic SIPP and remains in the UK under the protection of the Financial Conduct Authority, yet you can still denominate a relevant global currency. However, fund management fees can be high without expert assistance to negotiate these.

I can help you set up an international SIPP and ensure you are not charged for products you don’t need.

What if you can’t transfer your pension or are still undecided? 

If transferring your pension to an overseas scheme or an international SIPP is impossible or undesirable, you can still receive your UK benefits in Hong Kong. 

Direct Credit

Simply supply your UK scheme administrator with your international bank account number (IBAN) and bank identification code (BIC), and you can withdraw your UK benefits overseas in Hong Kong dollars. 

You will incur currency conversion costs each time.

UK State Pension

Despite non-UK residence, you may receive payments under the direct credit method above if you are eligible for the UK state pension. 

The UK state pension is frozen in Hong Kong, meaning payments will not increase annually in line with inflation, unlike other overseas territories with a reciprocal social security arrangement with the UK, such as the European Economic Area.

How to transfer UK pension to Hong Kong 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.