UK Pensions

State pension payments abroad

Your State Pension can be paid into an account in the UK or your country of residence. You decide which country you want to receive your pension in. 

You will either be paid in local currency or you will need to change the funds into local currency when sending money from your UK account. As the exchange rate fluctuates, you will see the amount in the local currency change.

Final Salary Pensions (or Defined Benefits Schemes)

A defined benefit pension (also known as a final salary pension) is a type of workplace pension. A pension plan (hence the name) does not build up a pot over time, but provides you with a guaranteed annual income for life based on your final or average salary.

Government employers (health care, education, etc.) typically provide DB pensions. They are still offered by some private sector employers, however. These pensions have traditionally been considered to be very attractive.

Pensions based on final salaries: how do they work?

Employers pay into DB/final salary pension funds on behalf of their employees (unless the scheme is directly funded by taxpayers). You will be assigned a ‘normal retirement age’, and your pension will begin when you reach this age.

The amount you’re paid will depend on a number of factors.

Defined benefit pension disadvantages

Although DB pensions are attractive, they are not as flexible as DC pensions. You cannot vary the amount of income you take from it, nor can you make larger lump sum withdrawals (except for some final salary schemes that offer tax-free lump sums). Furthermore, this type of pension cannot be passed down to your beneficiaries. A widow’s pension may be available to your spouse if you die prematurely, but most of the benefits will be lost, and your children won’t receive anything.

In addition, if your pension scheme isn’t adequately funded (e.g. if your employer goes bankrupt), it may collapse at some point in the future. In most such cases, pension benefits will still be paid to members through the Pension Protection Fund (PPF), which safeguards defined benefit pension plans. PPF guarantees may be limited, however.

QROPS (Qualifying Recognised Overseas Pension Schemes)

QROPS, or Qualifying Recognised Overseas Pension Schemes, are overseas pension schemes that meet certain requirements set by Her Majesty’s Revenue and Customs (HMRC). QROPS are able to receive transfers from British pension plans. QROPS was part of British legislation launched on 6 April 2006 in response to EU human rights requirements for free movement of capital.

The QROPS should not incur an unauthorised payment nor a scheme sanction charge and should be considered either a trust or a contract-based offshore pension. Because some countries do not recognize trusts, the beneficial owner or beneficiaries may be subject to tax at source or upon receipt based on their tax residence. France and the United States are two examples.

It is possible to invest in a QROPS if you are a British citizen who has emigrated permanently and plans to retire abroad after building up a British pension fund. If a person is born outside the UK but has built up benefits in a UK-registered pension scheme, they may move their pension offshore. State pensions cannot be transferred overseas, but defined contribution, defined benefit, SIPPs and SSAS can. An individual does not need to establish a QROPS in the country where they retire; rather, they can move the pension to another jurisdiction and have the benefits transferred to their home country.