Getting the most from your pension in Spain
March 2008
Many Britons wait until they retire before moving to Spain so that they do not have to worry about earning a living, relying instead on their pension to provide a regular income. If you have contributed to a pension scheme during your working life you will want to get the most from it that can be taken.
Until recently, UK pensions have had to remain under UK rules, even if you retired to Spain. However, thanks to new legislation in the UK, it is now possible for British expatriates to export their pension fund out of the UK, thereby avoiding the various restrictions that the UK imposes on how you take your pension benefits. There is also the possibility that you will pay less tax in Spain.
UK pension schemes can be very inflexible. There are restrictions on how and when you draw down your benefits and in most cases you are forced to buy an annuity at age 75. At that point you then cannot leave any balance of your pension fund to your heirs on death.
Overall, therefore, transferring your pension out of the UK and avoiding such restrictions could help you improve your retirement years in Spain. It could also mean that you leave your heirs a larger inheritance.
The new legislation has created international pension products called QROPS – Qualifying Recognised Overseas Pensions Schemes. They are non-UK pensions which meet the rules of, and are authorised as pensions in, the jurisdiction where they are located.
HM Revenue & Customs (HMRC) now allows UK pension rights to be transferred out of the UK into a QROPS. In order to obtain QROPS status, the provider must meet a number of HMRC rules relating to how and when benefits can be taken. It must also comply with reporting requirements for five complete tax years after the fund holder has left the UK.
While some QROPS have rules whereby you must be resident in the country where the scheme is located, others do not. In this case you can choose a tax friendly jurisdiction which has more flexible rules on how the benefits can be taken. Not all overseas pension schemes qualify as QROPS so you need to ensure that you only transfer into an authorised scheme.
In order to transfer your pension out of the UK you must have already left the UK for tax purposes or be intending to move out of the UK shortly. Once you are tax resident in Spain, you can transfer your pension fund out of the UK into a QROPS.
Which UK pensions can be transferred to Spain?
Many types of pension can be transferred, including personal and occupational pension schemes. Pensions that are in drawdown (even if currently in payment) and protected pension rights can also be transferred.
Unfortunately, it is not possible to transfer a basic state pension, or if you have already purchased an annuity. This also applies to most Final Salary Schemes if you have already begun taking benefits.
Hope it helps save somebody money.....