Your Guide To UK Pensions As An Expat In Spain

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Your Guide To UK Pensions As An Expat In Spain

Whether you’ve already moved to Spain, or you plan to retire there, it is important to have a good understanding of your pension portfolio. It is likely that your UK pensions are the major contributor for your income in retirement. Therefore, it is important to have a good understanding to ensure they last as long as you do.

Written exclusively for Expat Network by Jason Swann of Holborn Assets

State Pension

The UK State Pension is paid to individuals at State Pension Age (currently age 66 for men and women). The amount of State Pension an individual receives is based on their National Insurance contribution history. To be eligible for the minimum State Pension, an individual will need to have contributed at least 10 years worth of National Insurance contributions. To be eligible for the maximum, an individual will need to have contributed at least 35 years worth of National Insurance contributions.

The current full State Pension (2021) is £179.60 per week.

The only reasons the amount can be higher are if:

you have over a certain amount of Additional State Pension
you defer (delay) taking your State Pension

You will still be able to claim your UK State Pension whilst living in Spain.

If you’ve not already done so, it is important to get an understanding of your National Insurance contribution history, to see whether you currently have a contribution shortfall.

Even if you have stopped working, you are able to make voluntary contributions to help increase the number of years National Insurance contributions you have. It is worth seeking advice to find out if this is financially beneficial to do so.

To request your State Pension forecast and find out how many years contributions you have, click below:

Check your State Pension forecast – GOV.UK (www.gov.uk)

UK Occupational & Private Pensions

There two main types of private pensions in the UK. These are called Defined Benefit schemes and Defined Contribution schemes.

Defined Benefit Schemes

A defined benefit scheme provides employees with guaranteed income for life starting at their normal retirement age (ie. 60, 65 etc).

The amount of income the employees receive in retirement is generally based on their length of service and salary.

The income can be indexed linked to increase with inflation each year to ensure the spending power of your retirement income isn’t reduced.

These types of pensions are extremely valuable and the decision to transfer these pensions should not be taken lightly. With defined benefit schemes, the retiree does not have exposure to the investment risk or the administration charges.

Having the security of guaranteed income in retirement is a major positive for many retirees.

Defined Contribution Schemes

Defined contribution plans are similar to savings pots. The pension plan holder will add funds to the ‘pot’ throughout their lifetime. If done through a workplace pension the contributions are normally a percentage of the employees salary and can sometimes be matched by the employer.

The value of these type of plans will have many factors effecting the overall value in at retirement, such as the amount contributed, investment performance, charges, to name a few.

These type of plans offer much greater flexibility in taking the funds at retirement. The retiree can choose to:

Purchase an annuity, which will pay the plan holder a guaranteed income for life.
Take the entire funds as a lump sum (taxed accordingly).
Move the funds to drawdown and set their desired income level.
Or if the income is not needed, their could essentially leave the funds invested and pass the pension to their beneficiaries.

The plan holder will generally be entitled to take 25% of the fund tax free as a Pension Commencement Lump Sum (PCLS). However, its important to note that this may not be the case if you take said lump sum as a non-UK resident. Therefore, it is important to seek advice if you are in the process of relocating.

There are certain benefits some of these plans will have that are important to look out for, such as guaranteed annuity rates or enhanced tax free cash.

Given the value of these type of plans can vary depending on certain factors, it is highly important these plans are regularly reviewed to ensure not only you meet your target value in retirement but the funds last as long as you do.

What are your options as an Expat in Spain?

You have several options to choose from depending on your individual circumstances. Broadly these are:

Do nothing – This option is as easy as it looks, you don’t do anything with the existing plans. This could be because the defined benefit scheme you have pays an income that meets your requirements and is of good value, so you do not need to take on the investment risk. This could also mean the defined contribution scheme you have is in a low cost plan that is invested well and is regularly reviewed.
Transfer the funds to a QROPS – A QROPS is a Qualifying Recognised Overseas Pension Scheme. Like defined contribution schemes these types of pensions have a plan value. Transferring to these schemes can be highly beneficial for tax purposes if you are approaching the UK’s Lifetime Allowance. These plans do not suit everyone so it’s important to seek advice before considering this option.
Transfer the funds to an International SIPP – An international SIPP is a Self-Investment Personal Pension. These kinds of plans offer great flexibility by way of investment choice and accessing the funds. Another great benefit of these type of plans is that they will allow you to hold the funds in a range of currencies so not exposing you to currency risk every month (or however often you take income). These plans are also UK based, so adhere to the strict regulations put in place by the FCA.

In Summary

It is highly important to have a good understanding of your pension portfolio to give you the best potential for a comfortable retirement.

Before considering your options, it is highly recommended you receive advice from an expert.

This guide should not be considered advice. If you would like to book a free financial review, please do not hesitate to contact us.

Holborn Assets are a global, award-winning financial services provider, who specialise working with international clients in over 100 different countries. Quality financial advice often comes at a cost but Holborn Assets are offering a free financial review with up to two hours professional consultation, for free!

Take advantage of this offer and the expertise of Holborn Assets, by clicking here www.holbornassets.com/the-expat-network/ to claim a free review.

Here are some related articles you may find useful:

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.