Final Salary Pension Transfer for UK Expats—The Process Explained

What Is a Final Salary Pension?

A final salary pension, also known as a defined benefit pension, is a type of pension scheme that provides you with annual income based on three main factors:

• Your final or average salary.
• Time spent working for the company.
• The scheme’s accrual rate.

For this pension scheme, it is your employer’s responsibility to manage the funding and ensure there is enough money for your income when you retire. However, they are less common these days and have largely been replaced by defined contribution pensions.

What Does It Mean To Transfer Your Final Salary Pension?

A defined benefit pension transfer allows you to trade your annual pension income for a certain amount of money. You won’t receive these funds in cash but rather in a cash equivalent transfer value (CETV).

A CETV is a sum you can transfer to a new pension scheme. However, this sum will no longer be a guaranteed inflation-protected income for life—it becomes exposed to the stock market and will fluctuate in value based on your investment decisions.

Why Would You Want To Transfer Your Final Salary Pension?

There are a few reasons people might consider final salary pension transfers:

• More flexibility and control.
• Greater spouse’s benefits.
• Tax benefits.

More Flexibility and Control

Final salary pensions don’t allow for any flexibility—you get a set monthly income regardless of your circumstances. Transferring your final salary pension gives you full access to your pension income from the age of 55 (57 from 2028) without any penalty.

It also gives you more freedom regarding how much money you can withdraw and when, which can make tax planning easier.

Greater Spouse’s Benefits

Final salary pension schemes include options for a spouse or dependants to receive a percentage of the pension as regular payments after the person’s death. However, the benefits they receive under a final salary scheme are often less flexible compared to those from a pension transfer, which can offer greater options for passing on assets.

For example, the amount your spouse can get from your final salary pension usually equals 50% of the pension, although some plans offer up to 66%. Children are eligible to receive 25% of the pension income until the age of 18 (23 if they remain in full-time education).

Many final salary pension schemes also offer death-in-service benefits—if you die before reaching the pension age, your spouse or children may receive a lump sum (usually your annual salary multiplied by two or four) on top of future pension payments. These benefits only apply to those still employed by the company, though.

However, under the latest changes announced in the 2024 Labour budget, inherited pension assets will be subject to new inheritance tax rules (IHT) starting from 6 April 2027. Previously, funds left from pensions were exempt from IHT, but from this date, any unused pension funds passed on to beneficiaries—whether from a final salary or transferred pension—will be included in the value of a person’s estate for IHT purposes.

This will apply alongside existing income tax rules for pensions. If you die before the age of 75, beneficiaries will continue to inherit funds without paying income tax, but IHT will now apply. If you pass away after 75, the funds will be subject to both income tax at the beneficiaries’ marginal rate and the new IHT rules.

If you transfer your final salary pension, what remains after your passing can be inherited by any beneficiary as an income or lump sum, offering greater flexibility. However, the new IHT rules mean that unused funds will be considered part of your estate for taxation purposes. With these changes set to take effect in 2027, careful financial planning is now even more critical to minimise tax liabilities for your loved ones and make the most of your pension assets.

Tax Benefits

If you transfer your final salary pension, it is possible to make use of Pension Freedoms and withdraw your pension in a flexible manner. This allows you to structure your pension withdrawals around other funding sources to ensure your income is tax-efficient.

Who Is Most Suitable for the Final Salary Pension Transfer?

Transferring your final salary pension can be a good idea in the following circumstances:

• Your final salary is not your only source of income.
• You see a chance to increase your sum through investments.
• You are concerned about your employer not being able to cover your monthly pension payments.
• You have reasons to believe that you won’t be able to make full use of your final salary pension (for example, if you have a medical condition that is likely to affect your life expectancy).

A transfer is probably not for you if:

• This is your main or only pension, or you can’t live off a lower income in case of poor market performance of your investments or higher fees in defined contribution pensions.
• You’ll rely on income from the final salary pension throughout your retirement.
• Your final salary pension meets your needs, so you don’t need to invest in assets that might go down in value.
• You have dependants who might prefer the features of a final salary pension, such as a guaranteed income after your death, rather than a lump sum.

Remaining in the existing scheme is always an option. Depending on your current circumstances, it can benefit you to consider other alternatives or wait until your financial situation and plans are clearer.

How to Choose the Right Transfer Option

There are six options for transferring your final salary pension:

• Self-Invested Personal Pension (SIPP)
• Qualifying Recognised Overseas Pension Scheme (QROPS)
• Recognised Overseas Pension Scheme (ROPS)
• Qualifying Non-UK Pension Scheme (QNUPS)
• International Private Pension Plan (Section 40ee scheme)
• QROPS Self-Managed Super Fund (SMSF)

Self-Invested Personal Pension

A final salary pension transfer to SIPP or International SIPP provides you with more financial freedom as SIPPs are designed to give you access to a wider range of investment opportunities. You can manage your retirement savings and tailor your investment portfolio depending on your personal goals.

SIPPs are a good choice for those who:

• Plan to return to the UK
• Are comfortable making larger investment decisions in a broader range of assets, such as stocks, cash, mutual funds, UK and foreign government bonds, exchange-traded funds, and more.
• Want their pension to be managed by a financial adviser or prefer managing it themselves.
• Have multiple pensions and want to consolidate them into one pot.
• Want to manage their investments in different currencies.
• Wish to pass on their funds to beneficiaries free of income tax (in case of death before the age of 75) or taxed at the beneficiary’s marginal rate of income tax (in case of death after the age of 75).

Qualifying Recognised Overseas Pension Scheme

A QROPS is an international pension plan that meets HM Revenue and Customs (HMRC) standards. It allows you to transfer your UK pension to another country without incurring tax penalties, which would be at least 40% of the transferred amount for pension plans that aren’t recognised by HMRC. However, if you are not living in the same country as the QROPS or in another country within the European Economic Area (EEA), the transfer may be subject to a 25% Overseas Transfer Charge (OTC).

While there are specific requirements HMRC requires QROPS to follow, the benefits will be similar to a UK pension scheme and in line with pension legislation in the QROPS jurisdiction.

This pension plan also allows you to withdraw higher sums in a more tax-efficient way as your income would be taxed in your country of residence. Some other benefits include:

• Receiving tax-free funds of up to 30% of your CETV, depending on the jurisdiction of the QROPS
• Gaining access to global investment funds
• Choosing the beneficiary of your pension
• Receiving payments in any major currency

This pension plan is ideal for expats who:

• Have multiple UK pensions
• Live in countries with favourable tax laws
• Are concerned about currency exchange rates

Recognised Overseas Pension Scheme

ROPS is an international pension plan that notified the HMRC about its eligibility for pension transfer, but it hasn’t met the criteria for tax benefits. This means that transferring your pension plan to ROPS may incur the 40% minimum tax charges on the transferred amount.

Qualifying Non-UK Pension Scheme

QNUPS are pension schemes recognised by HMRC and defined by UK legislation. However, there are no tax deductions that usually apply to approved pension schemes.

Notable benefits of this pension plan are the lack of contribution limits and very few restrictions on investment options. It is also exempt from UK inheritance tax (IHT), making it a suitable option for those who prioritise long-term inheritance tax protection.

This pension scheme is suitable for individuals who:

• Have maximised their tax-relieved UK pension income and are interested in increasing their savings further.
• Don’t have access to SIPP or QROPS.
• Are looking for more tax-efficient asset ownership.
• Want to avoid capital gains tax (CGT).
• Wish to minimise their exposure to IHT.

International Private Pension Plan (Section 40ee Scheme)

International Private Pension Plans (IPPPs) are pension plans designed for international workers, digital nomads, and other expats who travel frequently for temporary work.

This scheme enables individuals to use one pension fund throughout their career regardless of where they live. Under Section 40(ee), these pension schemes allow individuals to transfer their pensions without tax penalties.

Some other benefits of IPPPs include:

• Investment flexibility.
• Limit-free contributions without any cap on benefits.
• Lump-sum payments.
• Greater fund management.
• Ability to consolidate their pension pots.

QROPS Self-Managed Superannuation Fund

If you intend to move your pension benefits to Australia and you are older than 55, you may transfer your pension into a Self-Managed Superannuation Fund that qualifies as a QROPS.

By doing so, you will have more control over your investments and be able to withdraw your contributions without any tax penalties.

An SMSF can have up to six members, all acting as trustees who are responsible for complying with tax and superannuation laws and making investment decisions.

An SMSF can be a good choice for you if:

• You want to retire in Australia.
• You want to play an active role in managing your finances.
• You are familiar with the requirements of being an SMSF trustee.
• The pension scheme aligns with your long-term plans.
• You are over the age of 55.

If you are not 55 yet but still wish to transfer your pension to SMSF in the future, there are several solutions that can help you maximise your benefits in the meantime. An expert financial adviser can familiarise you with your options and help facilitate the process.

Key Stages of Transferring Your Final Salary Pension Plan

In most cases, you can transfer your final salary pension to a new scheme up to one year before you’re expected to start receiving your pension payments. If you are within that time frame, the transfer process should include the following stages:

1. You will need to request a CETV from your trustee. You may need to complete a form or ask for your CETV in writing.
2. If you qualify for CETV, you will get a Statement of Entitlement from your pension provider. This document outlines your CETV, pension plan details, and information required for the transfer. The CETV is only applicable for three months. If you don’t complete the transfer within that period, the guaranteed value will no longer apply, and you will need to request a recalculation.
3. If your CETV is more than £30,000, you are legally required to consult a pension transfer specialist before transferring your final salary pension. Some pension providers will insist on this step regardless of your pension value.
4. Once all the paperwork has been received by your final salary pension scheme, they have six months to transfer your money to the new pension plan.

Final Salary Pension Transfer Timescales

The process of transferring your final salary pension usually takes 6–9 months. The table below should provide more insight into the length of different stages of the process:

You might be able to speed up the transfer by preparing the documentation that your financial adviser will need to evaluate your transfer request. This paperwork may include:

• Information about your other pensions, including death benefits and funding status.
• Estimates about required pension income.
• State Pension forecast.
• Information about your mortgages and debts.
• Details of your assets and investments.
• Clear outlines of your retirement goals, including early retirement options and penalties.

You may also need to provide details about your current expenses, anticipated future income, and any spouse nominated on the account.

Working with an experienced cross-border financial adviser will simplify this process by helping you gather the necessary information for the assessment, making it less overwhelming.

Final Salary Pension Transfer Fees

The cost of transferring your pension depends on the pension scheme you’re transferring to. While there are no exit fees when transferring your final salary pension, some pension providers may charge a setup fee.

You should also familiarise yourself with the annual management charge (AMC) and any additional ongoing charges.

Some additional costs to be aware of may apply before or after the transfer process. For example, you could be charged for:

• Administration: Some pension providers may charge you for processing the transfer as part of their service.
• Transactions: You might need to pay a fee when buying or selling investments within your new pension plan.
• Final salary pension transfer advice: While you will be required to consult a financial adviser as part of the process, it’s advisable to seek professional financial advice even before you start the transfer.

If you choose Titan Wealth International as your financial adviser, you will receive a complimentary pension transfer assessment.

The review includes a comprehensive comparison between your existing final salary pension and a potential new pension scheme.

The comparison covers detailed cost modelling, growth comparisons, and income projections, helping you make an informed decision without any financial commitment or obligation.

Factors To Consider Before Transferring Your Final Salary Pension

You want to be fully informed before starting the final salary pension transfer process. Some potential downsides to consider are:

You can avoid these potential issues by partnering with a dedicated pension transfer financial adviser. They can help you compare different pension schemes, understand all the tax implications, and decide whether the transfer is in your best interest.

Get a Complimentary Final Salary Pension Transfer Assessment With Titan Wealth International

Get expert guidance on your final salary pension transfer with our Complimentary Assessment. Here’s what you’ll receive:

• CETV analysis and pension tracing: We’ll retrieve and analyse your CETVs and track any lost pensions.
• Pension transfer report: A personalised report outlining the pros and cons of a transfer, including tax implications, long-term benefits, and our recommendations.
• Retirement planning: Comprehensive financial assessment covering property, investments, and cross-border considerations, helping to create a tailored retirement plan.
• Pension consolidation: Guidance on merging final salary, personal, or stakeholder pensions into one streamlined plan for easier management and reduced costs.
• Second opinion review: Have you already received advice? We offer a complimentary second opinion to ensure the best strategy for your CETV.