It is essential to understand and carefully weigh up all your overseas pension options whether you are still only thinking about moving to Spain or are already resident here in this beautiful part of the world.
There are two principal ways for a British national to transfer their pension overseas when relocating to an EU country such as Spain: either through a qualifying overseas pension scheme, QROPS, or an international self-invested personal pension.
I explain what you need to know about these in more detail below and discuss some of the most tax efficient opportunities.
Your pension planning choices will largely depend upon the type of UK pension you currently have, the size of your pot and your individual circumstances and long term plans.
Also consider: How to transfer a UK pension to Argentina as an expat
Where do I begin in moving my UK pension to Spain?
First and foremost you will need to have your existing pension information to hand. I can then collate this for you, handling all the paperwork. I will also take care of all of the following requirements I’ve outlined in the checklist below:
Checklist for transferring a UK pension to Spain
- Collate existing UK pensions
- Request a CETV (Cash Equivalent Transfer Value)
- Conduct a cost and performance comparison
- Identify the best solution in Spain – I can help you with this
- Submit transfer request documentation to existing and new provider
Your UK advisor will not be able to advise you unless they are licensed and qualified in Europe, which is unlikely. Nor will they be familiar with expat financial planning, taxation issues and the range of products and services you can choose from overseas.
Talk to me, Dan Ward. I can help you protect your UK pension income, and give you advice on a foreign pension income.
Additionally, the UK pension company may not allow you to keep your pension in the UK. My regulated advice can help you protect your pension benefits and enjoy long term financial security.
What kind of UK pension do you have?
Firstly it is important to find out exactly which kind of scheme you have before you can decide whether or not it is possible, and desirable, to transfer your UK pension savings to an overseas pension scheme in Spain.
Below follow details of some of the most common types of pension plans 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 and claim all your lost pensions with the Pensions Tracing Service. I can help you take back control of these funds.
You may have a workplace pension scheme if you were ever employed in the UK. In fact since 2012 it has been compulsory for employers to auto-enrol employees into a pension scheme. As such you may well have accumulated quite a few pensions during the course of your working life.
Your workplace pension may be either a defined benefit (also known as “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 frequently have restrictions on where they can be invested and some might oblige you to purchase an annuity out of your funds in return for a guaranteed income which you can only take 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.
A personal pension scheme is one you opened yourself, separately from your workplace. Typically, these tend to be DC plans as described above.
In exactly the same way as with a workplace pension, you’ll receive tax relief on your contributions while your money is invested by your pension provider.
Again, these could be older schemes subject to the same sort of restrictions as above.
Small Self-Administered Scheme
Small self-administered schemes, or SSAS, are usually set up by company directors or senior executives of a business, generally for up to eleven individuals.
An SSAS enjoys the same tax relief as other pensions with the trustees taking responsibility for the investment decisions. SSAS are usually flexible, allowing access to a broad range of investment opportunities.
Self-Invested Personal Pension
A self-invested personal pension, or SIPP, is a defined contribution scheme pension. It is the modern and flexible way to save for your retirement, especially if you are considering a move abroad in due course.
Key benefits of SIPPs include but are not limited to:
- Flexible drawdown, this allows much greater freedom to access your pension how and when it suits you
- Ability to consolidate all the existing pensions you may have accumulated during your working life
- No requirement to purchase an annuity
- Ability to denominate the international currency that is relevant to where you choose to live and spend your pension income
- 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 as such can reap the rewards of 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?
Many UK pensions can be moved however some simply cannot. With most UK government, NHS and overseas service pensions, for example, such a transfer might not be possible overseas or even within the UK.
It is always wise to have a conversation with your advisor if you think this may apply to you as some UK pension providers either can’t or won’t administer transfers to other schemes.
Always seek personalised, professional advice to determine your options, minimise risk and protect your long term financial security.
Your UK advisor will not be able to help you unless they are licensed and qualified in Europe and have the appropriate qualifications, which is unlikely. Nor will they be familiar with expat financial planning for UK Spanish residents, local taxation issues and the range of products and services you can choose from overseas.
Why should I transfer my UK pension overseas?
In certain circumstances there is no requirement to move your pension to any of the overseas pension schemes at all. You may be free to choose to do nothing and simply leave it where it is when you move to Spain.
You will still be able to receive an income from it in the UK, however this will be paid in GBP and you will likely want to spend your pension benefits in Euros.
However it is important to note that providers of some UK registered pension schemes will not allow you to keep your pension in the UK if you move to Spain.
This is why it is essential to seek regulated advice regarding a pension transfer, not only to broaden your options but also in order to protect your long term financial security.
- Remove currency conversion costs. It makes sense to receive your pension benefits in the same currency you will be spending them.
- Free you from worrying about future changes to UK legislation.
Which overseas scheme is best for me?
There are two options: either transfer to a qualifying recognised overseas pension scheme, QROPS, or to an international SIPP.
Recognised Overseas Pension Scheme
When moving a UK registered pension scheme 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 regime by going to the HMRC website and searching by name.
The process of QROPS transfers can be highly complex. As such it is vital to ensure you are complying with all necessary rules and regulations. You can always speak with me for personalised advice on how to avoid falling foul of red tape and avoid unnecessarily high costs before you decide whether to transfer.
When you relocate into an EU jurisdiction, such as Spain, there are several benefits to bringing your pension with you such as avoiding currency conversion costs, protecting your retirement funds from UK tax 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.
Due to certain 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.
You will not be able to make any further contributions to your pot, however you can withdraw from it as you please.
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.
As with the QROPS, an international SIPP will reduce currency risk so you will not be at the mercy of fluctuating exchange rates.
You will have the same flexibility to access your money when you choose, exactly as you would with a QROPS.
The charges and fees are lower than those incurred by transferring under the QROPS scheme and as such iSIPPS are ideally suited to smaller pots.
Additionally you are free to continue making contributions to further boost your pension assets should you so wish. This can be helpful if you are considering taking a phased approach to retirement.
Qualifying Non-UK Pension Scheme, QNUPS
While it’s not technically a pension, the QNUPS is a set of rules which provide a highly tax efficient way to transfer retirement funds abroad along with a whole range of monies and assets.
With no cap on the overall size of the fund and an exemption from UK inheritance tax you may want to consider a QNUPS.
I explain all the considerable tax advantages of this scheme in my comprehensive guide to QNUPS for expats.
As the process of setting one up causes significant alterations to your overall wealth management you must get expert advice before you can make a fully informed decision on whether this is the right option for you.
Tax in Spain for expat UK retirees
Under the Dual Tax Agreement between Spain and the UK, expats who are Spanish residents will normally pay tax on their pension income in Spain and not the UK.
However, there are some Government Service plans which are exceptions to this general rule and these are subject to UK tax.
As a UK tax resident it is possible to take out a lump sum of 25% tax free from your pension savings. However, as soon as you become a Spanish resident you must pay tax at your prevailing local income tax rate.
So, if you are planning to relocate to Spain soon it could be beneficial to withdraw your tax free lump sum whilst you remain a UK tax resident, depending on what part of the tax year you are in at the time.
You can always speak to me to find out more about the 183 day rule to help you decide your most tax efficient course of action.
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.