Discover how your state pension is paid and how your other retirement savings are affected when you retire abroad

Retiring abroad and private pensions

Private pensions are normally paid in sterling into a UK bank account. You can transfer this to a foreign bank or arrange for a currency broker to convert it before the transfer. This is often cheaper than paying bank fees.

Another way of avoiding transfer charges is to set up an international account. If you have sterling and euro accounts with the same bank, there should be no fee when you transfer from one to the other.

By using a currency specialist, it is possible to agree a fixed exchange rate, where rates are set up to a year in advance. This can be particularly useful if you want to avoid any sudden fluctuation in your purchasing power.

Unlike banks, currency brokers are not covered by the Financial Services Compensation Scheme, so it’s important to make sure that any you use are fully authorised as a payment institution (rather than simply registered) by the FCA.

Authorised institutions are obliged to ring-fence customers’ money in a separate account, so it is safe even if they were to cease trading.

Retiring abroad and early retirement

If you have retired early, or have yet to start drawing a pension, there are two important issues to consider. The first is the possibility of moving your pension pot overseas.

You can do this by transferring it to a Qualifying Recognised Overseas Pension Scheme (QROPS). These can be based in the new country you are moving to, or set up on an offshore basis.

They offer some flexibility and, once you have been a non-UK resident for five years, are outside the UK tax net.

The income from QROPS may also be taxed favourably in your country of residence, although the pension changes have reduced the appeal of QROPS. Advice should be sought from a specialist IFA before doing this.

An issue faced by those about to retire is the tax status of any lump sum they might take from their pension scheme.

In the UK, you are permitted to withdraw up to 25% of your retirement savings ‘tax-free’. If this occurs before you leave, there should be no problem, but not all foreign tax regimes have the same rules.

In France and Spain, for example, a lump sum of this sort will be treated as taxable income. Leaving the money invested could be advantageous in these circumstances.