Can I Transfer My Pension to My Bank Account? Options for UK Expats

While the phrase “transferring a pension to a bank account” is commonly used, UK pension funds cannot be moved wholesale into a personal bank account. Instead, pension savings can only be accessed through specific, HMRC-permitted methods once the relevant conditions are met.

Any money paid into a bank account is therefore the result of an authorised pension withdrawal or income arrangement, rather than a direct transfer of the pension itself.

Accessing pension funds for payment into your personal bank account requires choosing from several withdrawal options, each with its own administrative requirements and tax treatment.

This article will examine the permitted methods for drawing funds from a pension arrangement and explain how these options may be structured to mitigate tax exposure while supporting your broader retirement objectives.

Can You Access a UK Pension Before Retirement Age?

UK pension benefits cannot normally be accessed before reaching the normal minimum pension age. For most people this is age 55, rising to 57 from April 2028, although some individuals may retain a protected pension age under specific scheme rules. Any arrangement or offer to release pension funds earlier than this, outside of very limited circumstances such as serious ill health, is likely to be unauthorised.

Early or unauthorised pension withdrawals can give rise to significant tax charges, including an unauthorised payments charge of up to 55% of the amount accessed.

Such arrangements may also permanently compromise retirement savings. UK expats should be particularly cautious of overseas schemes or advisers promoting “early access”, “pension loans”, or so-called “pension unlocking” solutions.

How To Access Your UK Pension: Three Key Withdrawal Methods

Accessing pension funds for payment into your bank account is typically achieved through one or more of the following authorised pension withdrawal methods:

1. Taking the pension as a lump sum
2. Setting up flexible drawdown
3. Purchasing an annuity

Taking the Pension as a Lump Sum

For many retirees, the first step in accessing their pension savings is to take out a portion of it as a tax-free lump sum once they reach the normal minimum pension age, which is currently 55 but scheduled to increase to 57 in 2028.

Some individuals may retain a protected pension age below 57, depending on their specific pension scheme rules and historical membership.

In most cases, you can withdraw up to 25% of your accumulated pension benefits as tax-free cash, commonly referred to as a Pension Commencement Lump Sum (PCLS).

The amount you may withdraw as a PCLS is limited by the lump sum allowance (LSA), which equals £268,275 for most individuals and applies across all your pension arrangements.

Since April 2024, the previous Lifetime Allowance framework no longer applies, and tax-free lump sums are instead governed by the lump sum allowance rules.

Any withdrawals above your available LSA are typically treated as taxable income and are subject to tax at your marginal rate.

In limited circumstances, you may be able to take a larger amount tax-free as a serious ill-health lump sum. If you are under age 75 and have a life expectancy of less than one year confirmed by a medical professional, the lump sum may be paid tax-free up to your lump sum and death benefit allowance (LSDBA), which is currently £1,073,100. LSDBA includes prior lump sum withdrawals and relevant death benefit lump sums.

Payment of a serious ill-health lump sum is subject to formal medical certification and approval by the pension scheme administrator.

While it is possible to withdraw an entire pension pot as a single lump sum, doing so typically creates a significant income tax liability in the year of withdrawal and may push you into higher tax bands.

Payment is subject to formal medical certification and approval by the pension scheme administrator.

Setting Up Flexible Drawdown

Upon reaching the normal minimum pension age, you may designate some or all of your pension savings into a flexi-access drawdown. This arrangement allows you to keep your pension invested while drawing income in a flexible manner, both in terms of timing and the amount.

In practice, flexi-access drawdown enables you to decide:

• Whether you wish to move funds into a drawdown in one step or in stages
• When and how often you take withdrawals (regular payments or ad hoc amounts), paid directly to your nominated bank account
• How the unwithdrawn portion of the fund remains invested

When you enter a drawdown, you typically designate (crystallise) a certain amount of your pension benefits. You may withdraw up to 25% of the crystallised amount tax-free (subject to LSA), while the remainder moves into the drawdown account and stays invested.

Importantly, taking only tax-free cash does not restrict future pension contributions. However, once you withdraw taxable income from a flexi-access drawdown fund, you will normally trigger the money purchase annual allowance (MPAA), which reduces your tax-relievable contribution limit to £10,000 per tax year.

For individuals living overseas, the MPAA is only relevant where they remain eligible for UK pension tax relief.

Because drawdown income is taxable and the remaining fund is exposed to investment risk, it is crucial to plan withdrawals carefully. Excessive or poorly timed withdrawals may reduce the sustainability of your retirement income over the long term.

Purchasing an Annuity

Expats who prefer greater certainty and lower investment risk may use some or all of their pension pot to purchase an annuity, a financial product that provides guaranteed income.

There are two types of annuities according to the payment timeline:

The amount you can expect to receive from an annuity and the terms offered depend on several factors, including:

• The size of your pension pot
• Your age
• Your health and lifestyle
• Prevailing interest rates and market conditions at the time of purchase

You should obtain a quotation from your current pension provider, but you are not required to purchase an annuity from them. Under the open-market option, you may buy from a different provider if more favourable terms are available.

In addition, you can choose how much of your pension to use for an annuity. For instance, you may:

1. Take out any available tax-free cash
2. Allocate a portion of the remaining fund to purchase an annuity
3. Leave the remaining balance invested via drawdown or another arrangement

This blended approach may diversify your income sources and help balance income security with longer-term growth potential. However, it requires careful modelling of tax outcomes and sustainability.

Given the long-term and often irreversible nature of annuity decisions, seeking professional guidance is highly recommended. Our advisers at Titan Wealth International can help assess suitability, model tax implications, and evaluate the trade-offs between annuities, drawdown, and hybrid strategies to support your broader retirement objectives.

Can You Receive a UK Pension While Living Abroad?

In many cases, you can continue to receive your UK pension while living overseas. However, the practical arrangements and tax outcomes vary by provider and the country of residence, and they should be reviewed carefully before or alongside your expatriation.

Key considerations include:

• Foreign exchange risk and payment costs: If your pension is paid into an overseas account and converted into local currency, the amount you receive can fluctuate with exchange rates. Conversion spreads and banking charges may also reduce net income over time.
• Provider limitations: Certain pension providers may require you to maintain a UK bank account or otherwise be unable to process your pension if you live abroad. In this case, it may be necessary to review alternative pension arrangements, such as an international SIPP, subject to careful consideration of costs, regulatory protections, and tax implications.
• Loss of benefits: While your private pension rights generally remain intact after your relocation, certain entitlements may differ depending on your country of residence. For instance, State Pension increases may not apply in some countries, and product guarantees can be affected if you transfer or restructure benefits.

An additional issue requiring particular attention is the cross-border tax treatment of your pension income. A UK pension paid overseas may be taxable both in the UK and your country of residence, depending on your tax residency status and the existence of any double taxation agreement (DTA) between the UK and that jurisdiction.

Where a DTA applies, relief may be available to mitigate or eliminate double taxation. However, the applicable rules and procedures are treaty-specific and may require formal claims or supporting documentation.

In practice, UK pension providers often apply UK PAYE tax by default, even where a double taxation agreement assigns taxing rights to the country of residence. In such cases, the individual may need to submit a formal claim to receive pension income gross or to reclaim UK tax already deducted.

Currency and Inflation Risk When Receiving Pension Income Abroad

When receiving pension income while living overseas, currency movements and local inflation can materially affect the real value of retirement income over time.

A pension paid in sterling may fluctuate in local currency terms, while inflation in the country of residence may erode purchasing power if income does not increase accordingly.

These considerations are particularly relevant for retirees relying on fixed or guaranteed income sources, such as annuities or the UK State Pension, and should be taken into account when deciding how and where pension income is received.

Tax Residence and Domicile: Why the Distinction Matters

The tax treatment of pension withdrawals is determined primarily by your tax residence at the time the income is received.

However, your broader UK tax position, including your domicile status, may still be relevant in certain circumstances, particularly in relation to inheritance tax and the treatment of pension death benefits.

Living overseas does not, by itself, change your UK domicile, which is a separate legal concept from tax residence and is assessed under different criteria.

Many long-term UK expats therefore continue to be treated as UK-domiciled unless they take specific steps and meet the relevant legal tests.

From April 2025, the UK has moved towards a residence-based framework for inheritance tax, reducing the practical role of domicile in some areas.

However, transitional rules, historic domicile status, and the interaction with overseas tax systems mean that domicile considerations have not been eliminated entirely.

As a result, professional advice is often required to understand how pension income, lump sums, and death benefits may be taxed both during life and on death.

Can You Transfer a UK State Pension Abroad?

The UK State Pension can generally be claimed and paid overseas, and the International Pension Centre (IPC) is the main point of contact for claims and changes to your details (such as address or bank account).

For the new State Pension, you usually need a minimum of 10 qualifying years on your National Insurance record to receive any entitlement. If you have fewer than 10 NI qualifying years, you may still be able to meet the minimum by using periods of social security coverage in select countries, including:

• EEA countries
• Switzerland
• Canada
• Australia
• New Zealand

These aggregation rules determine entitlement to the State Pension, but they do not necessarily increase the amount payable.

Living abroad does not automatically make the UK State Pension tax-free. UK and local tax treatment depend on your circumstances, and you may, in principle, be subject to taxation in both your home country and the country of residence, unless a relevant DTA prescribes otherwise.

While the State Pension is paid worldwide, annual increases (uprates) are only applied if you live in:

• The EEA, Gibraltar, or Switzerland
• A country with a relevant reciprocal social security agreement that provides for uprating (note that Canada and New Zealand do not provide for uprating).

If you live in a country where uprating does not apply, your State Pension can be frozen at the rate first paid, or the rate at the point of your relocation overseas.

In the UK, increases are commonly delivered via the “triple-lock” policy (the highest of earnings growth, inflation, or 2.5%), but this does not extend to all overseas residents.

It’s important to remember that the triple lock is a government policy rather than a statutory guarantee and may be amended or withdrawn in the future.