How to transfer a UK pension to Bahrain?

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

Before deciding how to transfer your UK pension to Bahrain, you must determine its form. Anyone who has lived or worked in the UK is likely to have at least one of the three following pensions:

• Workplace
• Personal
• State

Every workplace and personal UK pension scheme attracts generous tax relief on your contributions at your marginal UK income tax rate. When invested, your pension funds may grow free of capital gains tax.

Workplace Pensions

As it has been compulsory since 2012 for British employers to enrol their employees on an occupational pension scheme, it is common to have retirement funds scattered across a few such plans. You can find help to reclaim any you have lost track of via the UK government’s Pensions Tracing Service. It is generally possible to consolidate these pension savings through a transfer to an arrangement that enables you to access your pension overseas but beware of exit penalties. I can help you with this.

Your workplace plans will either be defined benefit, also known as ‘final salary’ or defined contribution, often called ‘money purchase’ schemes. If you are unsure about your type, speak with the pensions manager at work.

Final Salary Schemes

Defined benefit (DB) schemes are frequently called ‘final salary’ arrangements as they provide an annuity, that is, a guaranteed retirement income, rather than a transfer value. If you have worked in the UK public sector, you are most likely to have one, but some private sector employers also offer them.

Final salary schemes accrue through your years of pensionable service rather than by investment, and most come with valuable benefits such as spousal or dependent pensions, which are not readily reproducible with any other plan.

Extra caution is needed when transferring your pension if it is a defined benefit scheme. You may need to demonstrate that you have made ample alternative provisions for your retirement before your pension provider will agree to make the transfer. Speak with your UK provider in the first instance, as your future financial security is at considerable risk when transferring out of a DB scheme to a defined contribution arrangement.

Defined Contribution, or Money Purchase Schemes

All other workplace plans and every personal pension will be in the form of a defined contribution (DC) scheme.

Some older-style DC plans force you to purchase an annuity out of your pension funds, reducing the size of your pot in return for a guaranteed retirement income. The pension provider invests your contributions on your behalf, and their investment performance determines how much money will be available to you upon retirement.

Notable exceptions to this general rule are group SIPPs and small self-administered schemes (SSAS), which enjoy the same tax benefits as any other UK pension whilst granting greater investing flexibility and control.

Group SIPP (Workplace Self-Invested Personal Pension)

A group or workplace SIPP is an occupational plan that combines individual self-invested personal pensions. In this way, group SIPPs can significantly increase purchasing power, allowing the holders to invest in commercial property from which to offer professional services such as dentistry or accountancy.

Small Self-Administered Schemes

Meanwhile, a small self-administered scheme (SSAS) is available for company directors and senior executives of private businesses. Up to eleven people, including relatives, can form a trust, and there may be no traditional pension provider. Instead, participants make all investing decisions, frequently including commercial real estate.

Personal Pensions

All personal UK pension plans are DC schemes of one kind or another. You are most likely to have a personal arrangement if you are self-employed. Initially offered by insurance companies, you may have opened yours with a specialist provider, building society or bank.

Your eventual pension income is determined by the investment performance of your contributions, and management fees, particularly with older schemes, can often hold back investment growth, which is bad news for your retirement.

Two of the most popular personal plans are stakeholder and self-invested personal pensions (SIPPs). Look for the annual statement summarising your pension savings for more information about your specific scheme. The amount of information about your investment returns will vary, depending on your provider and the type of pension funds you hold.

Stakeholder

This low-risk personal plan is accessible to virtually everyone, with minimal monthly contributions from as little as £20, which you may stop and start at will.

Every stakeholder pension is guaranteed free of exit penalties, and its fund management charges may never exceed 1.5 per cent of your fund value. The downside to this affordability is a disappointingly narrow range of funds for the pension provider to invest in. By contrast, a self-invested personal pension, SIPP, permits virtually limitless investment opportunities.

Self-Invested Personal Pension, SIPP

SIPPs are a type of pension ‘wrapper’ that can facilitate access to a broad range of asset classes, giving you the widest imaginable choice of investment funds for a UK pension. They are an excellent choice for anyone moving abroad when they retire, as a UK SIPP allows you to transfer your pension to an international SIPP comparatively quickly and affordably.

However, the management fees can be far higher with a SIPP than with other forms of UK pension such as a stakeholder. The costs reflect the extraordinary expertise needed to manage the funds. Therefore, a SIPP will only be in your best interests when you fully use certain features, such as putting directly held shares or exchange-traded funds into your retirement savings. Generally speaking, the bigger your pension pot, the more negotiable the annual charges are. I can help you there.

It is also worth noting when researching SIPP providers that a few will not work directly with members of the public, and you can only access their products via a specialist financial adviser or stockbroker. I’m happy to answer any questions you may have about whether or how to transfer your pension to an international SIPP and how this could help you retire abroad, so do get in touch.

UK State Pension

If you have made ten or more years of qualifying National Insurance (NI) contributions, you may be entitled to some UK state pension benefits. This pension becomes payable when you reach state retirement age, which regularly changes and depends on your date of birth.

You can learn more by visiting the UK government’s Pension Forecasting site. Once logged in, you can also view your NI payment history to date and determine whether you can increase your pension by making further voluntary contributions.

You can claim your UK state pension from Bahrain, but it will be frozen, meaning it does not increase in line with inflation in the same way as it will for UK residents. More information is available on the International Pension Centre section of the UK government’s website.

Overseas Pension Scheme Options for Bahrain

There are two pension transfer options and a third possibility: to do nothing. Your provider may agree to pay your pension income to a bank account directly, and you simply make withdrawals in Bahraini dinar (BHD) or transfer the money using online banking. Still, you will incur considerable currency conversion costs with fluctuating exchange rates each time.

I recommend looking into a pension transfer to a qualifying recognised overseas pension scheme or an international SIPP. Not only does this dramatically reduce currency risk by allowing you to accrue and spend wealth in a robust global currency, but both options also share several critical ex-pat-friendly characteristics, including, among others:

• Consolidate retirement savings into one pension fund
• Flexible drawdown with the choice but no compulsion to purchase an annuity
• Access to hundreds of worldwide investment funds
• Better estate planning flexibility

However, essential differences distinguish international SIPPs from recognised overseas pension schemes. Read on to find out which one could be the best way to access your UK pension in Bahrain.

Qualifying Recognised Overseas Pension Schemes, QROPS/ROPS

QROPS or ROPS are offshore arrangements that adhere to a strict set of conditions set by His Majesty’s Revenue and Customs (HMRC) to make them broadly similar to British schemes regarding contributions, withdrawals and taxes so they can accept transfers from UK pension providers.

HMRC maintain a list of QROPS and ROPS providers on their website, which they update on the first and fifteenth of every month. It is your responsibility to ensure any overseas scheme you are considering is on the list; otherwise, you could be vulnerable to unauthorised withdrawal penalties of up to 55% of your pension fund. In such cases, your provider should refuse pension transfers, yet people still fall victim to scams.

As there are no QROPS/ROPS providers listed for the Kingdom of Bahrain at the time of writing, you could base your pension overseas in an EEA country such as Malta. However, as you will not reside in the same country or financial jurisdiction, you must forfeit a quarter of your pot to the overseas transfer charge. Should the lifetime allowance be reinstated by a change of UK administration in the 2024 general election, you might still bear a QROPS in mind if your pension pot is around £1,000,000 or more.

Those of you with smaller pots should consider an international SIPP instead.

International SIPP

Despite the name, your international SIPP will remain in the UK, where the Financial Conduct Authority regulates it along with every SIPP provider. Therefore, there is never any overseas transfer charge, making it perfect for retirees who want to remain internationally mobile.

If you are already living abroad or in the early stages of moving overseas for retirement, please ask me about transferring your UK pension to an international SIPP.

Pension Tax and Residency in the Kingdom of Bahrain

Bahrain does not tax personal income; however, if you are not a national, you must apply for permission to retire there.

Visit the Kingdom of Bahrain’s National Portal to access information about the Golden Residency Visa from the Nationality, Passports and Residence Affairs.

How to transfer UK pension to Bahrain 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.