How to approach consolidating your overseas pensions

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It is possible that, over the course of your career, you’ve worked for various employers and been enrolled in multiple pension schemes. 

Life is rarely quiet and, in the midst of all the busyness, you may have found yourself sat on multiple pension pots without having had the time to consider how best to organise them in time for your retirement.

The process of consolidation can have a wide range of associated benefits for your retirement plans and general wellbeing, especially if you’ve since moved abroad and are facing the challenges of dealing with overseas pensions.

Read on to discover how to approach consolidating your overseas pensions and why it could be a beneficial step for your long-term plans.

Consolidating your pension can be straightforward at first, but gets more complicated if overseas transfers are involved

According to Zippia, the average adult in the UK will work approximately 12 jobs over the course of their career.

In this time, it is likely that they will be enrolled in multiple different workplace pension schemes. After a few decades, this could leave them with a complicated situation to manage as they prepare for their transition into retirement. 

If you find yourself in this situation, consolidating your various pension pots into a single scheme could provide massive relief in terms of time spent managing your plans, reduce any associated stress, and simplify your retirement planning. All that can benefit you before you get to any financial incentives. 

Consolidating your pension is relatively simple and can be dealt with by contacting your relevant pension providers. However before doing so, you should:

  • Ensure whichever plan you’ve picked to consolidate under is the best option for you by researching associated fees, funds, and investment performance
  • Confirm which providers will accept inbound transfers from an overseas resident, many are unable to do so
  • Check if your preferred provider will allow you to access Australian dollar investments so you can mitigate the risk associated with holding retirement savings in a foreign currency (GBP) 
  • Check that you aren’t losing any potentially valuable benefits associated with any of your pension schemes such as the ability to take lump sums or income earlier than normal, or provide an income for your spouse.

Moving your pension overseas involves transferring into a qualifying recognised overseas pension scheme

If you are based in Australia and plan on retiring here, you might find it easier to manage your consolidated pension if it’s based in Australia rather than the UK. 

This might be because you:

  • Don’t want to receive an income in pounds and worry about fluctuating exchange rates
  • Might find it easier to keep track of local tax and regulation changes
  • Wish to draw an income under the superannuation system where the income is non-assessable non-exempt income (NANE), or tax free upon meeting a condition of release.

The process of transferring your UK pension overseas involves a Qualifying Recognised Overseas Pension scheme (QROPS). 

The process can be complicated and if not handled correctly could result in a hefty 55% tax charge and potentially additional penalties. But it can also be hugely beneficial in regards to your tax obligations.

Most QROPS pay a tax-free lump sum on retirement and can usually pass onto your heirs free of UK Inheritance Tax issues. Before making any decisions, you should seek professional advice.

Luckily, I’m an expert in these areas and have helped many clients over the years navigate the QROPS process. If you are considering moving your UK pension overseas, you should get in touch to discuss the best approach.

The pros and cons of consolidating your UK pensions

It is possible to leave your pension in the UK and draw it from overseas. If you’re considering consolidating multiple overseas pension pots, it’s important to understand the pros and cons.

The benefits of consolidation

Consolidating your multiple pots under one provider simplifies the process of managing and drawing from your pot. You will only have one provider to contact and deal with, and only one pot to track and keep updated.

Consolidation can also:

  • Potentially reduce management fees associated with multiple pots — especially in the case of some old-style pension schemes that carry heavy fees and ongoing administration costs
  • Provide you with a reminder to trace any lost or dormant pension pots, which the government can help with, and potentially uncover a hidden boost to your overall pot
  • Provide access to Australian dollar investments so you can mitigate the risks associated with holding retirement savings in a foreign currency (GBP) and align with your Australian sourced Superannuation savings
  • Ensure the underlying investment strategy is linked to your current objectives and appetite for risk
  • Help with tracking the performance of your investments and funds in one place and make it easier to understand the value of your pension at any given time
  • Simplify monitoring whether your fund might be affected by the Lifetime Allowance
  • Offer greater flexibility in how and where you take the proceeds from your pension fund – which can be especially important if you live or work abroad
  • Make it easier to manage your tax affairs efficiently, especially if you’re a higher- or additional-rate taxpayer and need to provide details of your contributions to HMRC each year as part of your claim for tax relief.

The drawbacks of consolidation

Some UK pension schemes have added benefits that greatly increase their value to your retirement plans such as being part of a defined benefit (DB) scheme, also known as a “final salary” scheme.

A DB pension pays out a secure income for life, that increases each year in line with inflation, at an amount dependent on how many years you’ve been a member of the employer’s scheme and the salary you earn when you leave or retire.

You could lose the security of this guaranteed income by consolidating your pots.

Other drawbacks include:

  • Potentially incurring charges involved with the consolidation process that could reduce the value of your fund
  • Your existing pensions might be performing very well, and be invested in accordance with your tolerance for risk with low costs
  • The loss of a more heavily diversified pension portfolio that raises the associated risk if your pension fund were to collapse.

We all get fed articles like this so it can be easy to switch off, but it’s important if something strikes a chord with you that you act on it.

Get in touch

If you have any queries regarding your UK pension schemes and how to best manage them while residing in Australia, please get in touch, and we can analyse your situation and work out the best solution for you.

Please email or call 0498 740 840.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.  

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

This information in this email is general advice and does not take account of investors’ objectives, financial situation or needs. Before acting on this general advice, investors should therefore consider the appropriateness of the advice having regard to their objectives, financial situation or needs.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Financial solutions for expatriates in Australia | Jason O’Connell is an Authorised Representative (“AR”)  1269423 Shartru Wealth Management. ABN: 46 158 536 871 operating in Australia under AFSL: 422409. 

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