An Introduction To Offshore Pensions For Expats

Offshore pension plans in The Middle East

It can be a challenge to identify a suitable retirement solution as an expatriate. As with any financial product, there is no ‘one-size-fits-all’ answer.

If you have a pension in one country but plan to, or have already, moved elsewhere for retirement, you need to decide how to deal with the pension funds you’ve have built up:

  • You can leave the pension in the original country and have regular payments transferred to an account in the country where you’ve retired. Some pension providers might not transfer money to a foreign bank account or, if they do, may charge high fees.
  • You may be able to move the whole pension to your retirement country and either take a lump sum payment or invest it in a new pension scheme within that country. However, some countries will tax a pension payment, while others may tax based on how you decide to receive your pension ie as a lump-sum or an ongoing income (annuity).
  • If you have more than one source of retirement income, you may wish to transfer one as a lump sum while leaving the other as monthly payments.

What is an offshore pension?

Offshore pension plans are designed by international banks or insurance companies and tailored for the expat community. As a result, there are fundamental differences between offshore or expat pension plans and UK private schemes.

The benefits of offshore pensions

Planning your retirement using offshore schemes can allow you to access significant benefits:

  • Tax – a good quality wrapper will mean you can benefit from gross rollup (a term which means free of any tax) or zero tax. So, with an offshore scheme you can usually withdraw 100% tax-free, when you wish, with no penalties.
  • Freedom – you don’t receive any of the tax concessions on contributions to an offshore scheme, so it classes as a form of discretionary saving. However, there’s typically considerable flexibility in your use of the money once you reach retirement age.
  • Lifetime Allowance Charge – you can build up as large a retirement fund as you like, and with access to a diverse range of investment options it can be the only retirement plan you’ll ever need.
  • Currency – with a UK pension you are restricted to Sterling which means you run a currency risk if you retire abroad. With an offshore retirement plan you are able to invest in a wide range of alternative currencies.

Which pensions can an expat transfer into an offshore pension scheme?

It’s worth being aware that not all pensions can be transferred. And some can only be transferred to a ROPS. So, it’s always important to seek specific advice for your own circumstances. Generally, the following plans can be considered for transfer to a ROPS:

  • Personal Pension Plan – a UK tax-privileged individual investment vehicle, used to build a capital sum for retirement benefits. It will usually also provide death benefits.
  • Self-Invested Personal Pension Plan – also referred to as a SIPP, this is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It’s a type of personal pension and works in a similar way to a standard personal pension.
  • Employer Final Salary Scheme but specialist pension transfer advice required – Sometimes referred to as a Defined Benefit (or DB) pension, with a final salary pension. It enables your former employer to pay you a guaranteed fixed income from the day you retire, until the day you die. If your spouse survives you, they will receive a reduced pension for life.
  • Free Standing Additional Voluntary Contribution (AVC) – this is a scheme created by a private provider that enables an employee to ‘top up’ their retirement savings by contributing to a personal pension product alongside their occupational pension.
  • Additional Voluntary Scheme (AVC) – a plan set up by an employer for employees to make further contributions to potentially build up additional retirement benefits. It’s designed to sit alongside the main company pension scheme.
  • Retirement Annuity Contract (RAC) – this is a particular type of insurance contract approved by the UK tax authorities to allow tax relief on contributions made by an individual. An RAC is generally a contract between an individual and a life assurance company.
  • Recognised Overseas Pension Scheme (ROPS) – an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC). A ROPS must have a beneficial owner and trustees, and it can receive transfers of British pension benefits. The ROPS programme was part of British legislation launched on 6 April 2006 as a direct result of EU human rights requirements of the freedom of capital movement.
  • Small Self-Administered Pension Schemes (SSAS) – are generally set up to provide retirement benefits for a small number of a company’s directors and/or senior or key staff. They can be open to all employees and their family members, even if they don’t work for the employer.

Whatever your plans for the future, it’s useful to seek advice that can take account of your unique circumstances. For help and advice on finding the right pensions scheme, please contact us.

Would you like to find out more?

Download our guide to expat pensions

Your Guide to Expat Pensions