The Expat Guide to Pensions and Retirement

Expat Pension & Retirement guide
The Expat Guide to Pensions and Retirement

Make the best of your pension pot when retiring overseas

Your pension options abroad: how to make your retirement pot work for you as hard as you worked for it.

If you consider moving overseas in retirement, your first question must be what to do with all your pension pots.

This guide will help you understand what options are available for you in terms of money management. It will also identify the most important points you need to take into account when planning to retire overseas.

1. Will Brexit Affect My Overseas Pension?

Brexit is certainly a serious point to consider when planning your overseas retirement.

However, so far, the Brexit negotiations haven’t produced a single change to the legal rights and status of Britons in the EU.

It means that if you are planning on retiring to the EU, or in the process of retiring, your pension rights are still very much the same as they were before Brexit vote.

2. Will I Be Able to Receive My State Pension Abroad?

Yes, you are definitely entitled to your state pension abroad provided you have paid enough NI contributions to qualify.

When you settle down in your new country of residence, you can open a bank account in a local bank to receive the payments, or you can still use your UK bank account for this.
If you opt for a local bank, you will receive the pension in a local currency, so the amount will vary according to the exchange rates.

3. Will My Pension Get Annual Inflation Linked Increase?

It depends on a country you are retiring to. If you retire to one of the EEA countries, Gibraltar or Switzerland, your pension will be annually indexed in line with inflation – which means you will get a year-on-year pension increase.

The same applies to the countries which have bilateral agreements with the UK to protect their citizens’ social security rights: Barbados, Bermuda, Bosnia-Herzegovina, Jersey, Guernsey, the Isle of Man, Israel, Jamaica, Kosovo, Macedonia, Mauritius, Montenegro, the Philippines, Serbia, Turkey, the USA.

4. How Can I Benefit from Pension Freedom if I Retire Abroad?

As of April 6th, 2015, the government introduced significant changes in the UK pension system. The day is known now as Pension Freedom Day.

Pension Freedom reform means that anyone aged 55 and over can take the whole amount of their pension pot as a lump sum, paying no tax on the first 25%, with the rest taxed as if it were a salary at their income tax rate.

Now all those with personal pensions invested in the UK have freedom of choice as to how they access their pension, reinvest their pension for growth or income, or take their pension abroad.

What does it mean for those of us who are retiring overseas? If you have a British pension pot and you’re retiring abroad, you can enjoy greater investment freedom and in some cases even save on income tax.

5. How Can I Save on Tax When Taking My Pension Abroad?

If you have a British pension and you are over the age of 55, Pension Freedom Day reform enables you to take the entire pension and do with it whatever you want. Yes, you can take it abroad as well.

If planned well, you may be able to retire overseas and spend your golden years in a better climate enjoying your British pension at a significantly reduced rate of tax.
The key is to choose the right country and make sure you qualify for tax reductions.

It is important to understand where there are double taxation agreements in place, and where retirement income specifically, or foreign sourced income in general, is taxed at a favourable rate.

There are some incredibly attractive countries on the list including Portugal, Cyprus, Malta, France (only for lump sum withdrawals), etc.

5.1. Can I Take My Pension Abroad in One Lump Sum and Reduce My Tax Liability?

If you retire to France, there is theoretically the option of taking your entire pension out in one lump sum and only paying 7.5% tax on it.

For those for whom an entire pension withdrawal will mean they are pushed into the highest tax bracket this makes incredible sense.

In France lump sums from pensions are not taxed at marginal rates, they are only subject to a 7.5% income tax charge, no matter how big the withdrawal is.
Note: France is not a tax friendly country for regular pension income, only for a lump sum withdrawal.

To qualify you would have to establish tax residency in France before taking your lump sum.

5.2. Can I Retire Tax Free to Portugal?

In Portugal qualifying expats can take their UK pension and pay absolutely no tax on it for the first 10 years.
This would apply even if you were to withdraw large lump sums.

Whereas in the UK if you withdraw anything over the first 25% of your pot it is taxed as income at your highest rate.

It is all possible thanks to a Non-Habitual Residency Regime that was introduced in 2009.

The Portugal government attempted to encourage those of independent financial means to come and live in Portugal and spend their wealth locally.
They did succeed: for the past few years the number of expats retiring to Portugal to take advantage of the NHR has grown significantly.

To qualify for the benefits of the regime you must not have been tax resident in Portugal for any of the previous five tax (calendar) years.

You must also meet the criteria to be tax resident in Portugal in the year of application, as well as in every year for the 10-year period you wish to claim qualification. For this you will need to spend more than 183 days a year in Portugal.

How Does It Work?

Foreign pension income is exempt from Portuguese tax provided it is taxed in another country under the terms of the tax treaty, or is not regarded as Portuguese source income under domestic legislation.

According to the double taxation treaty between Portugal and the UK, pension income of the citizens of both countries is taxed in the country of residence.
It means that if you are a UK citizen and live in Portugal, your pension income is taxed in Portugal, not in the UK.

Hence, if you qualify for the Non-Habitual Resident Regime, under which pension incomes are exempt for the first 10 years, your pension income may be excluded from taxation in both Portugal and the UK for the first 10 years of your new life in Portugal.

Read in more detail why Portugal can be a great choice as a retirement destination

5.3. Can I Retire to Cyprus and Reduce My Tax Burden?

An alternative to 10 year tax-free Portugal is Cyprus, where expat retirees need only pay 5% tax on pension income, and where lump sums can potentially be enjoyed tax-free.

Expat retirees in Cyprus can choose to be taxed at the normal Cyprus’ tax rates if they wish to do so. In this case, the first €19,500 is tax-free, and after that the normal rates apply.
The best thing about it is that you can opt either for the flat rate of 5% or for the normal rates on an annual basis.

For example, in a year when you want to withdraw a bigger income, it will pay to choose a flat rate. Choosing a flat rate will save you tax if your income is over €25,000. If you withdraw anything below €25,000, a normal rate taxation will be more beneficial for you.

6. As an Expat Retiree, Can I Get a Better Interest Rate on My Savings Abroad?

Expats used to get better rates just by going offshore. Sadly, that is seldom the case nowadays.

As interest rates are so low, and have been for so long, it may seem impossible to get anywhere near a decent rate on your savings.

However, there may be ways for you to increase the amount of interest you’re earning on your savings.

You might be able to benefit from institutional rates on your savings or you can chase headline rates.

International investment funds or recognised overseas pension schemes ROPS (formerly known as QROPS) could also potentially provide you with better returns on your savings and investments.

One thing is for sure, there are better ways to manage your money when you retire abroad rather than just placing your entire pension pot into a saving account in the UK.

6.1. What Are Institutional Rates and How Can I Access Them?

Financial institutions and banks are in hard competition against one another trying to win new customers.

In order to attract new customers, financial institutions can do one of two things. They can either invest heavily in advertising, client acquisition and due diligence on their newly acquired customers as anti-money laundering laws require. This way is really costly. To compensate, they offer as low interest rates as possible.

The other way such institutions can acquire more clients is by only accepting new business from large financial advisories, wealth management companies, life assurance companies, pension funds, etc. In this case the financial institutions don’t have to advertise for clients or do due diligence, as it has been done for them already. Gaining new customers this way doesn’t cost them much.

As a result, they can offer better interest rates to the companies that bring them clients – so-called institutional rates.

As you can see, institutional rates are offered only to the clients of an advisory, a wealth management company or a life assurance company or pension fund, etc. Thus, a wealth manager can potentially get you better interest rates for your savings than if you go directly to any bank or building society.

6.2. Pursuing Top Headline Rates, Is It Worth It?

Another alternative is to follow top headline rates that different banks offer and move your savings accordingly.

Offers of top headline rates from banks and other financial institutions are another way for them to attract new clients.

Often these headline rates only last for a maximum of 12 months. Other restrictions may include the number of times you can withdraw, or the minimum amount you must save each month.

Searching for the headline rates can benefit you in the short term if you can abide by all the rules and criteria to remain qualifying. It can be a way for you to ensure you get the best rates on a regular basis.

The clear downsides are:

– you do have to satisfy the conditions stated by your provider
-as soon as the headline rate comes to an end, such accounts tend to offer nothing but the base rate. As a result, once a year you have to move your savings to a different account.

It is a hard work. It also means that for a few weeks while you’re searching for another headline rate and moving your savings, your money is earning next to nothing in a low interest account.

Remember, that every time you want to open a new account and move significant sums of money, you’re required to prove who you are and where the money came from to meet anti-money laundering legislation.

Therefore, although chasing headline rates remains a valid option, if you want to avoid the hard work that it involves, it might be worth pursuing institutional rates through a fund or a wealth management company.


ROPS (formerly known as QROPS) is a pension scheme specifically for UK citizens who no longer live in the UK.

It stands for Qualifying Recognised Overseas Pension Scheme. However, the HMRC recently insisted on dropping the word “qualifying” from the name. So strictly speaking it is a Recognised Overseas Pension Scheme now (ROPS), although the abbreviation QROPS is still in use.

Those retiring abroad could potentially benefit from transferring their pension into a ROPS. The advantages of ROPS could be significant including the following:

1. Your pension is removed once and for all from the UK. Cannot be valued down like current public sector pensions;

2. You can leave any unused pension funds to beneficiaries free of tax at source;

3. You could enjoy much greater investment freedom including access to offshore investments and savings;

4. You can have a tax-free lump sum of up to 30%;

5. You can potentially get access to onshore/offshore funds, highest fixed deposit rates;

6. You can diversify your investments in a way that suits you;

7. You can take income from your pension in a tax efficient way;

8. You can take income in the currency of your choice with minimal FX costs or at commercial FX rates;

9. You can have protection against possible future creditors (depending on ROPS jurisdiction);

10. You can potentially protect your estate by inheritance tax planning, and pass on your wealth to your family with less tax burden.

The ROPS option might not be suitable for everyone. Also, the pension provider needs to comply to strict regulations to be qualified as ROPS.

As of 9 March 2017, transfers to ROPS are subjected to a 25% tax charge unless certain conditions apply. To avoid the 25% tax, the individual and the ROPS must be in the same country after the transfer, or the ROPS must be in one EEA country and the individual in another EEA country after the transfer.

If the ROPS is an occupational pension sponsored by the individual’s employer, the 25% tax charge doesn’t apply either.

Depending on your personal circumstances and whether you comply with conditions stated above, ROPS might be a perfect option for you. To understand whether it is so and whether you can benefit from transferring your pension to a ROPS, seek qualified advice.

In Conclusion

Planning your money management in retirement isn’t an easy task – there are so many options available for investing your savings. No doubt, when retiring we all want the best income and investment solution for our hard-earned pensions, so making a decision might be a difficult task.

If you don’t feel confident enough to take an investment decision on your own, a good place to start might be to request your own copy of Abbey Wealth Financial Review.
Your Review will do exactly what it says – it will show you the investment choices that are available for you as an expat retiree.

Your Review will take into consideration every aspect of your overseas retirement, your personal circumstances and financial goals, and the need for a stable income while protecting your wealth.