Can You Transfer a UK Pension to Cyprus? Everything You Should Know

This article outlines whether it’s possible to transfer a UK pension to Cyprus, explores compliant pension transfer alternatives such as international SIPPs, and explains the tax treatment of foreign pension income for Cyprus-based UK expats.

How Is the Cypriot Pension System Structured?

The Cypriot pension system includes three primary types of pensions:

1. Old age pension: Available to individuals who have accumulated sufficient employment experience and have reached the statutory retirement age of 65. The pension is funded by the social insurance system, with mandatory contributions from the employer, employee, and the state.
2. Social pension: Designed for individuals who do not meet the contribution requirements for the old-age pension. It provides a minimum income (€404.03 per month in 2024) to help reduce poverty among the elderly.
3. Occupational pension: Employment-based pensions funded jointly by the employer and the employee. Participation is typically governed by the terms of the employment contract or collective agreements.

Can You Transfer a UK Pension to Cyprus?

UK pensions can only be transferred to overseas schemes that are approved by His Majesty’s Revenue and Customs (HMRC) and classified as qualifying recognised overseas pension schemes (QROPS). At present, there are no Cypriot schemes on HMRC’s QROPS list.

Transferring a UK pension to a Cypriot scheme that isn’t a QROPS will be considered an unauthorised payment by the HMRC and subject to a tax penalty of up to 55% of the transferred amount.

However, a transfer to a recognised QROPS may still be subject to the overseas transfer charge (OTC)—a 25% tax—unless specific conditions are met.

To be exempt from the 25% OTC at the time of transfer, both of the following must apply:

• The QROPS is based in your country of tax residence (or in some cases, in the same country as your employer), and
• You are a tax resident in that same country.

If either condition is not satisfied, the 25% OTC will apply. HMRC may reassess this charge if your residency changes within five full tax years of the transfer.

Since there are currently no Cypriot QROPS, this typically results in the OTC being applied. However, you can request an OTC refund if you move to the country where the QROPS is based within five years of the transfer.

If you’re entitled to a UK State Pension, you can receive payments directly into a Cypriot bank account once you reach the State Pension age, currently set at 66. Since Cyprus is a member of the European Economic Area (EEA), you will continue to benefit from the annual State Pension increases in accordance with the UK’s triple-lock policy.

However, the value of your pension payments may fluctuate due to currency exchange rates, as the UK State Pension is paid in pounds sterling and must be converted to euros before being withdrawn from a Cypriot bank account.

How To Manage Your UK Pension in Cyprus Without a QROPS?

As you can’t transfer a UK pension to a Cyprus-based scheme without triggering substantial tax charges, you may consider consolidating your UK pension into an international self-invested personal pension (SIPP) before or during emigration.

International SIPPs are regulated by the UK’s Financial Conduct Authority (FCA). They meet strict standards regarding transparency and customer protection, while providing cross-border benefits specifically tailored for expats.

Pros and Cons of Transferring a UK Pension to an International SIPP

The primary benefit of transferring your UK pension to an international SIPP is the absence of transfer limits. Transfers are not considered contributions and are consequently not subject to the annual contribution limits in the UK.

In addition, international SIPPs allow you to continue contributing to your pension while residing abroad—an option typically unavailable if you retain your UK-based defined benefit (DB) or defined contribution (DC) pension.

Other key benefits of international SIPPs include the following:

However, international SIPPs also include certain drawbacks:

• Contribution limits: Pension contributions are subject to an annual allowance of £60,000, which includes personal and employer contributions, as well as any applicable tax relief. Although it is possible to contribute beyond this limit, the excess will be subject to standard UK income tax and may incur additional tax penalties.
• Limited tax relief eligibility: You can only claim UK tax relief on international SIPP contributions if you qualify as a relevant UK individual. This typically requires having relevant UK earnings or having been a UK resident in one of the past five tax years. If you meet the residency requirements but lack relevant earnings, you may contribute £3,600 gross per year, which includes the basic-rate tax relief of 20%.
• Higher fees: International SIPPs often involve higher costs than standard UK pension schemes. These may include setup fees, annual administration charges, and advisory costs, which can reduce the overall value of your retirement savings if not carefully managed.

Rules for Transferring a UK Pension to an International SIPP

International SIPPs allow UK expats to consolidate multiple UK pensions into a single plan for streamlined management from abroad, provided the pensions are classified as one of the following:

1. Defined benefit (DB) pensions: These are traditional workplace pensions that provide a guaranteed income in retirement, calculated based on your final salary and length of service with the employer.
2. Defined contribution (DC) pensions: These schemes are funded by contributions from you and your employer. The contributed funds are invested across a range of assets, and the eventual pension income is determined by the total contributions and the investments’ performance.

Note that individuals enrolled in unfunded public sector DB schemes (like the Teachers’ Pension Scheme or the NHS Pension Scheme) aren’t eligible for a pension transfer.

If you have a DC pension, you can transfer it to an international SIPP using one of the two methods:

1. Cash: This method allows you to sell your pension assets, transfer cash to an international SIPP, and allocate it toward new investments.
2. In-specie transfer: This mechanism enables you to transfer investments directly from a DC scheme to an international SIPP, but this is only possible if both schemes offer the exact same assets.

Meanwhile, DB pension transfers require obtaining the cash equivalent transfer value (CETV)—the pension amount your provider offers for transferring out of a DB scheme. If the value exceeds £30,000, you must seek advice from a pension transfer specialist. For DC pensions, professional guidance is mandatory only if the scheme includes safeguarded benefits, such as a Guaranteed Annuity Rate (GAR), that exceed £30,000.

Our pension transfer specialists at Titan Wealth International can help you evaluate your pension’s performance against your goals and risk tolerance and suggest suitable transfer options. We can also track your CETV and potentially negotiate a higher value, minimising the transfer’s impact on your future pension income.

Can You Transfer a UK Pension to an Offshore Pension Scheme?

You can’t transfer a UK pension to an offshore scheme that isn’t a QROPS, such as a qualifying non-UK pension scheme (QNUPS), without incurring the unauthorised payment charge.

Although QNUPS are not suitable for transferring UK pensions, they may serve as vehicles for accruing additional retirement savings, especially for high-net-worth UK expats. These schemes provide access to a variety of global investment options, impose no contribution limits, and are typically established in low-tax jurisdictions such as Malta and Guernsey, increasing the growth potential of your retirement savings.

Other benefits of holding supplementary pension savings in a QNUPS are outlined in the table below:

Still, before contributing to a QNUPS, it’s crucial to carefully consider its disadvantages:

• No access to UK tax benefits: QNUPS don’t qualify for the allowances and tax reliefs available to UK-based schemes.
• Higher costs: These schemes typically involve higher fees than UK-based plans, including international SIPPs. Setup costs can reach £1,000, while the annual charges range from £750 to £1,000.
• Complex tax compliance: Effectively managing a QNUPS requires adhering to cross-border tax laws to avoid tax penalties.

How Are Foreign Pensions Taxed in Cyprus?

Cyprus taxes its residents on their worldwide income, while its non-residents are subject to tax only on income sourced within Cyprus. As a result, once you become a Cypriot tax resident, your foreign pension (like an international SIPP) will be liable for tax in Cyprus.

As the UK generally taxes pension withdrawals from UK-based schemes regardless of residency, you may be taxed on the same pension income in both countries. To mitigate this common expat tax issue, the UK and Cyprus signed a double taxation agreement (DTA), which assigns the primary taxing rights over pension income to the country of tax residence.

According to the DTA, if you are a tax resident of Cyprus, your pension income from UK-based private schemes will be taxable only in Cyprus. However, your UK unfunded public sector pension entitlements may only be taxed in the UK, unless you are both a Cyprus resident and national, in which case they will be taxed only in Cyprus.

You can choose to be taxed on your pension income at a flat rate of 5%, applicable to amounts exceeding €3,420 per year. Alternatively, you may combine your pension income with income from other sources and be taxed under Cyprus’ progressive income tax rates, as outlined below:

If you decide to take the 25% tax-free lump sum from your international SIPP, you won’t be liable for tax in Cyprus or the UK, regardless of residency.