How to Safely Transfer a UK Pension to Brazil

UK Registered Pension Scheme

The first step in every case is determining what type of UK pension you currently have.

It is common to have more than one, especially if you have had a UK employer since 2012, when it became compulsory to auto-enrol employees in an occupational pension scheme. In many cases, an excellent way to start preparing for transferring your UK pension overseas can be to round up all your lost pensions. HM Revenue and Customs have a Pensions Tracing Service on their website, which can help you.

All UK pension schemes benefit from significant tax advantages. You will receive UK tax relief on your contributions to all pension plans at your marginal rate of UK income tax, meaning you only pay tax on these savings once you begin taking benefits.

An annual allowance stipulates how much an individual can contribute to their pension in any year. Currently, this is £60,000. You must pay tax on any contributions over and above this amount.

Workplace UK Pension Scheme

Your workplace pension scheme will be either a defined benefits (DB) or a defined contributions (DC) scheme. If you are a company director, senior executive, or relative, you may also have a small self-administered scheme (SSAS).

Some professionals, such as solicitors or accountants, may also hold a group self-invested personal pension (group SIPP).

Defined Benefit Pension Schemes

Defined benefit (DB) pension arrangements are common within the UK public sector, but a few private employers may offer them too. They are also known as ‘final salary’ plans and are unfunded, meaning there is no individual pension fund for you to transfer overseas. Instead, your pension benefits are paid for by the taxpayer or your employer.

Your pensionable service determines how much income you receive in pension benefits from a DB scheme. This guaranteed amount will often be a proportion of your salary.

It is difficult to replicate the many benefits of a DB scheme, which also often include a spouse or dependent pensions. For this reason, you must always speak with your local IFA or UK pension scheme administrator before attempting to transfer this pension abroad.

Generally speaking, attempting to transfer this kind of pension abroad is inadvisable. You can always ask your UK pension provider for more information if you need clarification on whether yours is a DB scheme. You can also check its suitability for transfer to overseas pension schemes.

Small Self-Administered Schemes, SSAS

Available for groups of up to 11 individuals, a small self-administered scheme is a type of pension held in trust for senior executives, company directors of private firms, and their family members.

Instead of a pension provider, the members become trustees of the SSAS and make all the decisions regarding its investment. The range of permitted investments is far broader than with other types of pensions, but otherwise, an SSAS works similarly.

HMRC applies tax relief on individual contributions for standard-rate payers of UK income tax. For higher-rate taxpayers, it is necessary to claim this on their self-assessment tax return.

Group Self-Invested Personal Pension Schemes, Workplace SIPPs

A group or workplace SIPP is an aggregation of separate pension schemes.

By joining forces with others in your work area, it is possible to combine purchasing power and access investments that might be out of reach at the individual level, for example, by clubbing together to buy commercial premises to rent back to your own business.

Your group SIPP provider will claim the tax relief on your behalf and add it to your individual pension.

I will explain SIPPs in a little more detail below.

Defined Contribution Pension Schemes

A defined contribution (DC) scheme is also known as a ‘money purchase’ plan and is the most common kind of UK pension scheme in the private sector workplace.

Tax relief is applied when your employer deducts your contributions from your pay before tax, and then they and the government top them up.

With this type of plan, you have your own pot of pension savings which the scheme provider invests. How much income you later receive depends very much upon the performance of those investments.

Some DC schemes compel you to purchase an annuity out of your pot in return for a guaranteed income during retirement.

Personal Pension Schemes

A personal or private pension is any you arrange away from the workplace. You may have done so through an insurance company, building society or bank. Look out for the annual statements from your private UK pension provider. They should summarise your retirement savings and tell you how well the investments perform.

Private pensions are always a type of defined contribution (DC) scheme. Your eventual pension income depends upon the investment growth of your contributions and any charges the scheme administrator applies. These fees can erode a considerable proportion of your retirement income.

Two of the most commonly held personal pension plans are stakeholder and self-invested personal pensions (SIPP).

Stakeholder

A simple and low-cost scheme, the stakeholder pension, was introduced to protect consumers and incentivise retirement savings after the late 1980s and early 1990s pensions misselling scandal.

There is a strict cap on charges of 1.5% of the fund value for the first ten years, dropping to 1% a year after that. While these low fees make a stakeholder a safe choice, they also restrict the range of funds the provider may invest in.

All transfers from a stakeholder pension are guaranteed to be free of charge.

Consider rounding up all your workplace and private pensions and consolidating them through transfer to a self-invested personal pension instead. Holding all your retirement savings in one SIPP can be an excellent way to prepare for retirement in Brazil.

Self-Invested Personal Pension, SIPP

A SIPP is another type of DC scheme that works similarly to all other standard pension plans but with a significant difference: it grants access to an almost limitless choice of funds and asset classes.

Here are just a few of the many permitted investments with a SIPP:

• Commercial property
• Investment trusts
• Depositary interests
• Unlisted shares
• Insurance company funds
• Exchange-traded funds
• Structured products
• Venture capital trusts

However, annual management charges for SIPPs can vary as widely as the permitted investment list suggests. You should research as much as possible to find the most cost-effective SIPP provider and ensure the benefits outweigh the fees.

Other factors to consider, preferably with professional and independent advice, before transferring your retirement savings into a SIPP:

• Exit penalties – your pension fund may be subject to market value adjustments or other reductions on transfer.
• Guarantees – you might lose guaranteed annuities or rates of return from some older pension plans and inadvertently deprive yourself of future retirement income.
• Tax-free lump sum – if your pension is from 1988 or before, you may be entitled to take a larger lump sum than the 25% permitted with a SIPP.

The main potential benefits of transferring your pensions into a SIPP are:

• Access to the broadest range of investments.
• Ability to consolidate all your retirement funds into one place.
• Highly flexible contributions and withdrawals.
• Ease of conversion to international SIPP, ready for when you move to Brazil.

UK State Pension

You may be entitled to other UK pension benefits via the state pension. You become eligible after paying ten or more years of qualifying national insurance contributions. These don’t have to be consecutive years.

There is a state pension forecaster on the government website which you can use to find out if and when you become entitled and even how to increase it in some circumstances.

You cannot transfer your UK state pension abroad, but you can still receive your pension income from it via the direct payment method into a bank account of your choice. Benefits paid to most banks can be withdrawn from ATMs worldwide, but you will pay an exchange rate commission.

Now we’ve covered most of the UK schemes you are likely to have, why should you consider a pension transfer to an overseas scheme?

Why Transfer to an Overseas Pension Scheme?

There is generally no obligation to transfer your pension overseas when you move to Brazil. You can ask your provider to pay it directly into your local account or to a bank account back in the UK and simply move it online into a Brazilian account, then withdraw it as reais via ATMs.

You may have to pay UK taxes on this income plus the currency conversion costs each time.

In contrast, if you transfer to an overseas scheme, you can denominate the relevant global currency of your choice and minimise the currency risk of costly fluctuations in exchange rates.

Here are a few more reasons, besides a reduction in currency risk, why you might find it more convenient to transfer your pension abroad:

• Access to a range of overseas investment opportunities
• Potential tax benefits
• Pension all in one ex-pat friendly pot

Tax-Free Pension Commencement Lump Sums

Please note that if you intend to take advantage of the 25% tax-free lump sum payment at the start of your pension, it is best to do so while you are still a UK resident; otherwise, there may be a tax charge to pay once you have moved.

Your options to transfer your pension overseas to Brazil

There are two main routes for you to consider: an international SIPP or a qualifying recognised overseas pension scheme (QROPS). Both confer significant advantages for tax purposes.

UK rules govern international SIPPs and QROPS, but the transfer process to a QROPS can be expensive, time-consuming and convoluted. Still, a QROPS may be the most suitable in some circumstances.

Read on to find out what effect the new rules on the lifetime allowance might have on your options for bringing your pension overseas and when this can trigger an extra tax charge.

International SIPP

International SIPPs share an identical structure with domestic UK SIPPs, and the Financial Conduct Authority regulates them for your security and peace of mind.

It is usually cheaper, quicker and easier to set up an international SIPP, particularly if you have already consolidated your pensions into a domestic SIPP, than transferring to qualifying recognised overseas pension schemes.

Your pension savings remain in the UK, with no overseas transfer charge.

Suppose you want to keep your options open regarding returning to live in the UK or plan to be internationally mobile during your retirement years. In that case, an international SIPP grants you the greatest flexibility.

But when might pension transfers to recognised overseas pension schemes be a more suitable route for moving your pension abroad?

Qualifying Recognised Overseas Pension Scheme, QROPS

A recognised overseas pension scheme, ROPS or QROPS for short, complies with the strict requirements of His Majesty’s Revenue and Customs to accept overseas pension transfers from a UK-registered pension scheme.

You can find a regularly updated list of overseas schemes on the HMRC website, and you are responsible for ensuring that any you are considering is on the list. Otherwise, your UK provider may refuse the transfer, or you could face painfully high unauthorised payment tax charges.

No overseas scheme manager is listed for Brazil, so you will have to pay the overseas transfer charge of 25% on a pension transfer to a QROPS scheme because you would likely base it in the European Economic Area. There is no overseas transfer charge when you live in the same country or jurisdiction where your QROPS is.

Before the UK government abolished the lifetime allowance, LTA, in the spring budget of 2023, a transfer to a QROPS in the preceding tax years was the preferred choice for anyone with savings approaching the limit of £1,073,100.

Because a pension transfer to a QROPS is a benefit crystallisation event, it gives rise to a test against the lifetime allowance, which can result in a tax charge. During the current tax year (April 2023 to April 204), this is still in force for transfers to a QROPS scheme.

There should be no tax charge for the next tax year. Yet a Labour government will repeal this rule and reinstate the lifetime allowance if they win the next general election. Therefore the overall size of your pension pot is still something to consider in future tax years. For guidance, pots exceeding £250,000.00 are near the lifetime allowance.

Tax Implications and Residency

Every case is unique, and if this generalised advice does not answer your questions, you can always ask me to look into the tax implications of all your options before or after moving to Brazil. I will ensure you do not incur unnecessary tax charges on a pension transfer.

If you are not a Brazilian national, eligibility for a permanent retirement visa is determined by providing evidence of income of around £1,600.00 a month. You must also demonstrate private health insurance and a clean criminal record. It can be wise to consult with specialist immigration lawyers for help with your visa application or speak with someone at a Brazilian consulate near you.

The Brazilian tax year runs from January to December, and you should file your tax return, known as Imposto de Renda Pessoa Física (IRPF), between March and April of the following year.

I can guide you on which transfer option will likely grant the most favourable tax treatment in your unique situation. You can also speak to me to learn more about the tax rules that will apply once you become a resident of Brazil.

How do I transfer my UK pension to Brazil 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.