Pensions & retirement planning
For UK expats retiring to Spain, their pension income is usually their primary source of funds. Their pension defines the type of lifestyle they will be able to pursue. It is therefore of critical importance that it be handled correctly – in a tax-efficient and compliant manner that ensures the funds are preserved and have scope for growth.
The pension freedoms introduced in the UK during recent years have greatly increased your options when accessing your retirement savings. These options depend on the type of pension(s) you have – defined contribution or defined benefit.
Exploring your options
Defined contribution pensions
Defined contribution pensions are also known as “money purchase” pensions. Your savings entitlement is defined by the amount of the contributions (the money paid in by yourself and by your employer over the lifetime of the scheme) and the amount by which this amount has grown. If this is your pension type, you have the following options when accessing the funds:
- Withdraw 100% of the funds as a lump sum to reinvest in a more tax-efficient way (this is called an UFPLS)
- Select a flexible drawdown pension – this will allow you to withdraw income as and when you require it
- Purchase an annuity, and receive regular income throughout your retirement
- Transfer your UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS). These are pension schemes that allow expats to transfer their pension fund into an equivalent vehicle in Spain. UK expats that transfer a UK pension into a QROPS may find that this comes with important benefits.
Defined benefit pensions
Defined benefit pensions are also known as “final salary” pensions. Your entitlement is determined by your length of service with your employer, and either your final year’s salary during your employment or your average salary over a longer period. Your employer will pay your pension income throughout your retirement.
If your pension is a defined benefit scheme, you do have the option of transferring it into a defined contribution scheme (or a QROPS if you are moving abroad). However, care and attention must be applied as you may lose valuable benefits by doing so. Independent, professional advice should always be sought when transferring a defined benefit pension in this way. Whilst many people are better off retaining their defined benefit pensions, in some cases it may be preferable to transfer.
Please note that any transfer of a scheme that is worth over £30,000 requires advice from a pensions transer specialist. This person must be authorised and regulated by the Financial Conduct Authority in the UK.
Feel free to book a call with me to find out more about your pension options.
Qualifying Recognised Overseas Pension Scheme (QROPS)
A QROPS can be a practical and beneficial way for UK expats to bring their pension with them when moving to Spain. There are many options available to choose from, but it may not be the right choice for everyone. As with all pension transfers, thorough research should be conducted and professional advice should be sought.
If, after taking advice, you decide that a QROPS would be the best option for you, we will identify the most suitable product together and begin the process of moving your pension across from the UK to Spain.
Please note that other options exist that may be more suitable for your personal situation but that have not been discussed here. For a no-obligation assessment, you can book a free consultation with me.
For a more detailed look at the pension options for UK expats living in Spain, you can read my free guide by clicking the button below.
