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Ask the experts. Rachel Vahey is here to answer questions on pensions. If you’d like a question considered for a future edition send it in now.
Or alternatively leave a rating for the article and include your question in the comment box.
I have a stakeholder defined contributions pension with a big provider built up when I was employed in the UK by my previous employer. I have not yet draw down any income from it.
I now live and work and pay tax in Ireland. The pension provider offers various options, but it won’t pay a drawdown income to my Irish bank account. I am 57 and have no plans on moving back to the UK.
Would an Investment SIPP help?
Richard
Rachel Vahey, AJ Bell Head of Public Policy, says:
In a global environment it’s easy to see how some people can build up pension benefits in one country but take retirement income when they are living in another country. But as pensions are often backed by government tax advantages to encourage citizens to save, and pay an income that is subject to tax, it can be difficult for these savings plans to straddle international borders.
Most UK pension scheme generally find it difficult to deal with non-UK residents because of practical challenges of paying money overseas. This is particularly pertinent when considering how the pension can pay benefits.
Ideally, you would like the pension scheme to pay drawdown income into an overseas bank account, but it sounds as if you have already asked your provider and they have declined. One solution would be for the pension scheme to pay in UK sterling into a UK bank account if you still have one. However, you would have to bear the risk and cost of converting the sterling into euros.
What are the alternatives?
If paying into a UK bank account is not possible, or if you want to explore alternatives that, importantly, remove this currency risk, then you could transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS). This is an overseas pension scheme that operates in a similar way to UK schemes and is registered with HMRC. Transfers to a QROPS could be subject to an ‘Overseas Tax Charge’ of 25% of the transfer value. However, you might be able to avoid this if the QROPS is based in the same country as you are.
When checking HMRC’s recognised overseas pension schemes notification list there are over 25 QROPS based in Ireland. However, any individual thinking about transferring to a QROPS should, before they transfer, check how the QROPS works to understand the tax implications, investment potential, and the charges involved.
Speak to the QROPS providers to gather more information on the scheme to make sure it aligns with your goals and financial plans. Generally, individuals should also check whether their current pension provider will allow a transfer to an Irish QROPS (AJ Bell will).
Is an international SIPP another potential solution?
Another option is to transfer to an international SIPP. This is a UK-registered pension scheme designed specifically for non-UK residents or those planning to move abroad. It offers more options to overseas residents; whether that is regarding payment or managing funds whilst you are not in the UK. The key advantage of an international SIPP is that it will pay an income in, say, euros directly into an overseas bank account, but there is still currency risk to manage.
If you remain in an UK based pension scheme then, usually, the pension scheme deducts any UK income tax before paying out the pension income. However, if you are resident overseas for tax purposes, the taxation of the payment will be determined by the double taxation agreement in force between the two countries. You would have to complete a DT-Individual form to arrange the correct taxation.
Rachel Vahey: Head of Public Policy
Rachel is AJ Bell's Head of Public Policy. She helps financial advisers and planners understand the changing pensions and savings environment, as well as how new legislation and regulation affects them and their clients.
Rachel...
