Pensions can be a confusing business when you live and work in the UK, so when you move or retire abroad what to do with them becomes even more daunting! For expats who have amassed a collection of “frozen” company pensions, after a mobile career in the UK and/or abroad, financial planning gets even more daunting.

In 2006, in an attempt to simplify the situation, the UK government harmonised the way pension contributions are treated for tax. The result was the creation of the Qualifying Recognised Overseas Pension Scheme (QROPS), which allow medium- to long-term British expats to relocate their UK pensions abroad without incurring a tax charge.

QROPS provide greater flexibility for expats, giving better control over the management and content of investments. For example, an expat living in the Eurozone and using a QROPS can run their pension assets in euros and benefit from tax freedom at source on the income.

However, QROPS may not suit all long-term expats. Specifically, some UK pensions include significant benefits and transferring them into a QROPS may result in such benefits being lost. Tax freedom on the pension income can also be achieved through simpler routes, such as relying on Double Taxation Agreements (DTA). QROPS can also be expensive although increased competition has helped reduce costs.

Another option for people seeking more flexible pension planning could be to place some of their liquid capital within a Qualifying Non-UK Pension Scheme (QNUPS). Some of the general rules to which a QNUPS must adhere include:

It must be an overseas pension scheme established in the EU or territory with a DTA plus exchange of information or at least 70 per cent of the fund must provide the member an income for life.

Pension benefits from 55+ unless ill health.

Membership of the scheme is open to persons resident in the country or territory in which it is established.

In terms of spin-off benefits, a QNUPS offers:

Inheritance Tax protection from day one.

10 per cent foreign pension allowance for returning expats.

Full transfer of fund on death with no tax charge.

“When it comes to expatriate pension planning, we always recommend seeking professional advice,” advises Richard Way, editor of The Overseas Guides Company. “Consulting a tax and financial advisory firm, such as The Fry Group, could save you money and give you peace of mind. The Fry Group can help with all your pension planning needs, including the provision of annual pension reviews, and advice on investments, using QNUPS as a means of augmenting your pension provision and amalgamating pensions into more efficient schemes, such as QROPS.” The Fry Group can be contacted on +44 (0)1903 231545.

Another, often overlooked, consideration for anyone moving their UK pension – or receiving sterling payments – abroad is how you transfer those funds into a foreign currency account. Using a currency exchange specialist, such as Smart Currency Exchange, to make currency transfers could save you considerable amounts of money thanks to their exchange rates typically being 2-4 per cent better than banks. You can find out more by downloading their free report here.