‘Brexit’ the UK and take your pension pot with you?

United Kingdom is a country where pension enrolment is compulsory. This means that every person over the age of 22 but below state pension age, employed, working within the country and earning above £10,000 per annum has a personal pension pot. A regulation making enrolment into workplace pension compulsory for everybody meeting these criteria took effect in February 2018.

I am not leaving the country anytime soon, but plenty of people in my circle are ‘brexiting’ the UK for one reason or another. What does it mean for their personal pension pots? These are not to be confused with state pension for which you pay National Insurance for.

To put it simply, there are three key options available to any individuals leaving the country.

Option 1: do nothing. You can literally just leave your pension pot as is, cease contributions and let it sit there until you reach retirement wherever you happen to live at the time. You can then start drawing your pension out. Tax may be applicable depending on where you happen to live and how long you have been there for.

Option 2: keep contributing. It is possible to keep your UK pension pot growing by choosing to contribute to it while you live abroad. This option is great especially for people who are intent on returning to the UK for retirement, such as expats, skilled workers and people on long-term secondments abroad. If you are not planning on moving back to the UK, you will be able to draw your pensions once you reach retirement age, again with taxes possibly applicable and based on where you happen to live and how long you have been there.

Option 3: move your pension pot to the country you are moving to. This is the option I am going to focus on today.

Moving pension abroad is complicated even if a Qualifying Recognised Overseas Pension Scheme (QROPS) operates in that country and is compatible. To explain what QROPS are, they are pension schemes which meet certain requirements set by the HMRC, mainly around double tax agreement. You can find the list of all QROPS here. If your contry does not operate one, your pension will be stuck in the UK until you reach the age at which you can start withdrawing it (currently 55).

How to move your pension

You will simply need to fill in APSS 263 form. If you are younger than 75 years old at the time of transfer, the transfer will count towards your Lifetime Allowance. Currently the Lifetime Allowance is £1.03 million – if your pension pots total is worth more than that, you will be subject to tax. The pension provider who you will be transferring form is obliged to calculate the amount of tax you should pay and then it will be your responsibility to file the tax though self-assessment tax return. Here is a handy link to where to find it on gov.uk website.

There is a difference between transferring to a QROPS within and outside of the EEA (European Economic Area). To sum it up briefly, if you are in EEA, you don’t pay tax. If you are living outside of the EEA or leave EEA within 5 years form making the transfer, you’ll be hit with 25% tax rate. On the flip side, if you were outside of EEA and move back within the 5 years form making the transfer, you’ll get tax refund.

The 25% penalty also applies if you are living in the EEA but fail to provide necessary information relating to your residency within 60 days from making the transfer.

In short, you can move your money out of the United Kingdom. However, unless you are inches away from retirement or desperate to keep this money close, why bother? Personally, and I mean personally, this is not a pensions advice, if I were to leave the UK, my pension pot would stay behind. The reason for it is that there is nothing wrong with having your pension coming from a variety of sources AND based on how much I like to travel, having various currency accounts available to me is actually desired. The main thing to do is to ensure the pension management company has all your details and you have your pension pot information somewhere safe and easy to retrieve once it is time to start preparing to retire. My situation however is my own, and you should carefully consider your own before making a decision which has a far-reaching impact on your golden years.

Next on the blog – is Birchbox, one of the most popular beauty subscription services in the UK, USA and few other countries worth the money?

 

 

 

2 thoughts on “‘Brexit’ the UK and take your pension pot with you?

  1. does the transfer work for US? I can’t find much information anywhere. There are suitable funds but there is some sort of issue on tax. Can you explain it?

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