How to Transfer UK Pension to Portugal

What is a pension and how do you know if you have one?

Firstly it is important to verify which kind of pension scheme you have before you can think about transferring one to Portugal. Below follow details of some of the most common types of pension schemes which you may have.

Remember: it may be best to check with your employer, if you have one, and your financial advisor for details of any UK registered pension funds you might have. You can also find lost pensions with the Pensions Tracing Service.

Workplace pension

You may have a workplace pension scheme if you were ever employed in the UK. It has been compulsory since 2012 for employers to auto-enrol employees into a pension scheme. As such you may have accumulated a few pensions along the way.

Your workplace pension may be either a defined benefit (or “final salary”) or a defined contribution, or DC scheme, depending upon who you worked for and when.

You will receive tax relief on contributions at your marginal rate of Income Tax, and your money will be invested by the scheme provider.

Older schemes may have restrictions on where they can be invested and some will oblige you to buy an annuity in return for a guaranteed income at a specified age.

Regulated advice can enable you to convert or combine older style pensions into a more flexible and portable plan. This is especially relevant if you are considering early retirement and/or a move abroad.

Personal pension

A personal pension scheme is one you opened yourself, separately from your workplace. Generally, these are DC plans as above.

In the same way as with a workplace pension, you’ll receive tax relief on your contributions and your money will be invested by your pension provider.

Again, these could be older schemes with similar restrictions as above.

Small Self Administered Scheme

A small self-administered scheme, or SSAS, is usually set up by senior executives or company directors of a business, typically for no more than eleven people. SSAS receive the same tax relief as other pensions and the trustees have responsibility for investment decisions. SSAS are usually flexible and grant access to a wide array of various investment options.

Self Invested Personal Pension

A self-invested personal pension, or SIPP, is a defined contribution scheme pension.It is a modern and flexible way to save for your retirement, particularly if you are considering a move abroad.

Key benefits include:

• Flexible drawdown, meaning more freedom to access your pension how and when it suits you
• Ability to consolidate all existing pensions you may have accumulated during your working life
• No requirement to purchase an annuity
• Ability to denominate an international currency
• Better estate planning flexibility, that is the ability to pass on your full pension pot to a loved one

As with other schemes, you will receive tax relief on your contributions yet, crucially, you will be responsible for the investment decisions made with your retirement savings and can benefit from a well diversified investment approach.

SIPPs are typically based in your country of residence and may easily be converted to their international and most up-to-date version for expatriates, the iSIPP. All SIPPs are regulated by the Financial Conduct Authority in the UK.

Who can transfer their UK Pension?

Most UK pensions can be moved however there are a few which simply cannot. Most UK government, NHS and overseas service pensions, for example, might not be eligible for overseas pension transfers.

It is wise to have a conversation with your advisor if you think this may apply to you as some pension providers can’t or won’t administer transfers to other schemes.

Always seek personalised advice to determine your options and protect your long term financial security.

Why should I transfer my pension when moving to Portugal?

If you move to Portugal there is no obligation to take your pension wealth out of the UK, you can choose to leave it where it is and do nothing. You will still be able to receive income from it in the UK, but it will be paid in GBP.

However, with the more progressive income tax rates in Portugal

• It often makes sense to have your pension in the same country or financial jurisdiction to which you retire, so you receive income and spend it in the same currency which removes currency conversion costs.

• You will be exempt from changes to UK legislation as an EU tax resident.

How much tax do I pay on UK pension to Portugal?

If you have a governmental scheme your pension will remain in the UK and you will pay UK income tax on it.

The Non Habitual Resident or NHR Scheme

A Malta based QROPS or an international SIPP, however, means you can benefit from attractive tax relief under Portugal’s non habitual resident, or NHR, tax regime.

The NHR program is specifically designed for expats who become EU tax resident and it grants generous tax reductions for a term of up to ten years.

Generally, as an EEA or EU or Swiss citizen all you need to qualify for this is a Portuguese residential address with at least a twelve month contract if renting and to have not paid tax in Portugal for the past five years.

Once you pass the proof of residency check you can apply for NHR status and enjoy a full range of benefits as long as you meet the criteria for each year of the ten year term.

Under the NHR rules income from your pension will be taxed at a flat rate of 10%, while for any additional Portuguese sourced income you may pay tax at a capped rate of 20%, or 20% plus social security depending upon your profession.

Depending on your personal situation, it may be beneficial to reinvest your UK pension funds into alternative tax efficient options, depending on current taxation laws in Portugal.

Which overseas scheme is right for me?

There are two overseas pension options: either transfer to a qualifying recognised overseas pension scheme, QROPS, or to an international SIPP.

Qualifying Recognised Overseas Pension Schemes QROPS

When moving a UK pension overseas, many choose to do so through a qualifying recognised overseas pension scheme or QROPS.

This is an overseas pension scheme which meets certain requirements set out by His Majesty’s Revenue and Customs HMRC in order to receive transfers from the UK. If you don’t use an HMRC recognised scheme you could face tax charges of up to 55% on your transfer.

You can easily avoid pension scams and verify whether a scheme you are considering is a genuine QROPS by going to the HMRC website and searching by name.

The process of transferring UK pensions to a QROPS or SIPP can be highly complex. As such it is vital to ensure you are complying with all necessary rules and regulations. You can speak with me for personalised advice on how to avoid falling foul of red tape before you decide whether to transfer.

When you relocate into an EU jurisdiction, such as Portugal, there are several benefits to bringing your pension with you such as avoiding currency conversion costs, protecting your retirement funds from various UK taxes and escaping the obligation to buy an annuity. The QROPs is designed with all this in mind, which I explain in more depth in my complete guide to QROPS for expats.

Although there are no Portuguese QROPS providers it is possible when moving to Portugal to transfer your UK pension fund to a QROPS based in Malta.

Due to additional charges, among other factors, a QROPS may be the ideal choice for those with £150,000 or more in pension savings. It is possible to move smaller sums but generally speaking an international SIPP could be more cost effective in such cases.

International Self Invested Personal Pensions iSIPPS

While structurally all but identical to a domestic SIPP, the international version is designed for expats to keep their pension assets in the UK whilst spending their pension income in the relevant currency of their choice whilst living overseas.

How to transfer UK pension to Portugal 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.