If you are planning to retire overseas, you need to consider what to do with your pension once you leave the UK. There are a few options, including leaving your pension in the same UK pension fund, and just having the income paid to a sterling bank account, and then moving it to a local account wherever you have retired to. This method can incur charges, and you will also be subject to currency exchange fluctuations which can work in your favour if the pound is strong, or against you if it is weak.
One other option is to move your entire pension overseas, so it is being held and paid out in the currency that you are using in the country you have retired to. This removes the problems associated with currency exchange fluctuations, but you need to be sure that any pension you transfer your pension to is recognised by HMRC, otherwise it can prove costly.
How do I know if HMRC recognises my overseas pension scheme?
HMRC releases a list of Recognised Overseas Pension Schemes on the first and the 15th of the month, or the following workday if these days fall on a weekend, and it is important to check that any scheme you are looking to move your pension to is on this list. The list changes all the time though, so keep a close eye on these changes. You can set up an alert to make this easier.
If your UK pension is not moved to a Qualifying Recognised Overseas Pension Scheme (QROPS) then you could be liable to a tax charge of up to 40% of the money being moved. So, it is vital to take advice to ensure you don’t get this wrong because your entire retirement could be negatively impacted if you do.
