UK Pension Consolidation For Non-UK Residents | Best Practice
In this article, we will run through pension consolidation as you prepare for your retirement overseas.
We will explain the benefits of consolidating your UK pensions, discuss any drawbacks, and offer our professional opinion as to whether it is right for you in your circumstances.
When we are talking about UK pension consolidation, we are referring to combining all of your existing pension schemes into one, manageable pot.
Understanding The Benefits Of Combining Your UK Pensions Overseas
There are various benefits associated with combining your UK pensions. Below, we run through the key advantages to be considered before making a decision.
01 Simplifying Administration & Financial Planning
Perhaps the most obvious advantage of merging your existing UK pensions as an expat is the simplification of your retirement accounts. Often, British expats have multiple pension schemes from their employment during their time in the UK. These may be with many different providers (Scottish Widows, Aviva etc.). Receiving multiple statements at different times of the year can be overwhelming and potentially confusing. What is held where, how much is in each pot, and how much money should I take from each pot to ensure comfort in retirement are a few of the questions retirees are faced with.
02 Streamlining Your Investment Strategy
Another matter which is equally as important is the management of your investments. For example, if you have 4 different UK pension schemes, they will likely all be invested in different funds, with no clear strategy or synergy between the pots. One pot may be heavily invested in global equity, whilst the other is a balanced, off the shelf fund range with no bespoke elements. By consolidating all of your schemes, you can have one simple to manage pension pot (or professionally managed with your regulated financial adviser). By having everything in one place, you can see clearly and instantly via your single online login what assets you held, your geographical exposure as well as your income options.
03 Access To The Best & Lowest Cost Fund Managers
Traditional UK pension providers (Aviva, Standard Life, Scottish Widows, Reassure) have expensive funds compared to the wider investment options available. As a very basic example, Aviva's balanced managed fund can cost upwards of 1% per annum just in fund fees. Compare that to a Vanguard S&P 500 (less than 0.10%) or a global developed equity tracker from Blackrock (0.22%) and you can see what other more cost-effective options are available for your UK pension assets.
Not only this, but by transferring your UK pensions and consolidating them to one, independent and whole of market pension provider, you can access specialist fund managers who can invest in assets such as precious metals, commodities, alternatives and other diversifying assets to protect your wealth over the long-term.
04 Benefiting From Professional & Regulated Financial Advice
To transfer your UK pension schemes as a non-UK resident, you will almost certainly need to engage with a regulated financial adviser to execute the transfers. This is due to UK pension legislation and FCA requirements. Whilst we appreciate that not everyone wants initial and ongoing retirement advice, naturally we believe our expert advisers can add a lot of value to our clients as they navigate retirement overseas.
Together our advisers have decades of experience advising international clients, meaning we have seen all the mistakes people make and can identify the best practises to ensure the most financially successful retirement possible. Our advice doesn't just relate to the initial pension transfer, but also to ongoing investment management, tax planning and strategies, along with cash-flow modelling and stress-testing.
Reasons Not To Transfer Your UK Pensions As An Expat
Generally speaking, pension consolidation has many benefits and is a worthwhile exercise. However there are draw-backs and considerations to be aware of.
01 Costs Associated With Pension Transfers & Financial Advisers
Pension transfers are a lengthy process, and can cost a lot of money. Some advisers charge up to 5%, which is significant enough to erode your pension value and make a transfer overseas unattractive. We feel any initial transfer fee over 3% is excessive. Not only that, but some advisers operate on a 'hidden commission' basis, meaning they do not explicitly tell you what they are charging you. Not only is this unethical, but it can also be incredibly expensive and detrimental to your retirement plans overseas.
We encourage clients to asses the following factors if they are engaging with any financial adviser to ensure they do not fall foul to overcharging and commission payments:
If you see the words 'exit penalties', 'early withdrawal charges' or if you are unable to take all of your money elsewhere if you are unhappy with the service, this means you are being charged commission and you should get a second opinion.
Check an adviser's regulations, as well as their individual qualifications to ensure they are appropriately experienced and qualified to provide specialist pension transfer advice
Make sure you get on with your adviser - client/adviser relationships are built on long-term trust and mutual respect, so make sure you feel like you have these in your working relationship.
At The Wealth Genesis, we charge all our clients the same one-off flat-fee for UK pension transfers and consolidation overseas. Our unique charging structure ensures zero conflicts of interests, or 'selling of products' and means are advisers only work in your best interests at all times.
02 Your Existing Pensions Can Do Everything You Need As A Non-UK Resident
Typically speaking, the vast majority of UK pension providers will not offer full-flexibility when you look to take an income as a non-UK resident. This means one of 2 things.
The first is that they will encourage you to take 100% of your pension in one lump sum payment - whilst this may seem attractive initially, it can trigger huge tax liabilities in your country of residence, as well as potentially exposing you to shortfalls in retirement as you age.
The second option is usually to purchase an annuity directly from them. An annuity means 'buying a guaranteed income' with your whole pension pot. So for example, if you have £500,000 with your pension provider, you might be able to trade this for a guaranteed income of £15,000 per annum (age, health and other factors will effect the actual values).
Normally, neither of these options are attractive. However, in certain instances, and depending on the age and type of your UK pension plan, your existing scheme may allow you to have access to full flexible access draw-down. This essentially means you can take your pension income as and when you please, whether that's a one off lump sum and nothing else, or a regular income payment each month.
If you have access to the above, and you're happy managing your pension investments, then there may be no need to consider transferring your UK pensions as an expat.
Pension Transfer Options For Non-UK Residents
There are 2 key types of pensions you can transfer your existing UK pension pots to. These are a QROPS (Qualifying Recognised Overseas Pension Scheme) and an International SIPP (UK pension scheme for non-UK residents).
01 Getting Your Pension Out Of The UK | QROPS Options
The only available option to physically get your money out of the UK is by transferring to another scheme that is recognised by HMRC, such as a QROPS. HMRC only allows UK pension transfers to schemes that operate under similar rules to UK pensions - so QROPS are generally quite similar to UK pensions in many ways. For a full breakdown of how a QROPS pension works, see our guide below:
QROPS - The Wealth Genesis
The majority of QROPS pensions are based in either Malta or Gibraltar, and in the past they have been a very popular scheme to transfer to (as well as being sold by adviser to clients who shouldn't have transferred).
However, with the recent Labour budget changes of 2024, unless you physically live in the same jurisdiction as the QROPS (Malta, Gibraltar), you will incur the overseas transfer charge which is a tax penalty of 25% upon transferring. Not only this, but QROPS accounts are very expensive compared to the option of an International SIPP, as well as being less regulated. For these reasons, we would very rarely recommend these accounts to our clients.
02 Consolidating Your UK Pensions In An International SIPP | SIPP For Non-UK Residents
The International SIPP is still a UK based, FCA regulated pension scheme, but it is tailor made for British expats. This means by consolidating your UK pensions into a SIPP, you can have full control of your retirement, no matter where you live. This type of SIPP will give you full-flexible access, control of your investment choice, as well as multi-currency options. For a full-breakdown of the International SIPP, see our product guide below:
