Pensions in the UK

An overview of the pensions and taxation system affecting foreign residents in the UK. Information for those who have retired to the UK and those retired from work in the UK...

UK Registered Pension Schemes

Pension schemes fall into two broad categories:

  • final salary (defined benefit) where the pension is determined by an individual's length of service with and earnings from their employer
  • money purchase (defined contribution) where there is an accumulated "pot of money" that is used to provide benefits

Depending on the rules of a particular scheme, registered pension schemes are available to all UK taxpayers.

The same rules apply to all pension arrangements and they either fall within the Annual Allowance (AA) or the Lifetime Allowance (LTA) concept. The levels of the AA and LTA may be reviewed from 2015/16 but are fixed, with no annual escalation, until then.

Taking Benefits

The minimum age at which benefits can be accessed in good health is 55. It is not necessary to "retire" to draw benefits.

Individuals can take a tax free cash lump sum of up to 25 percent of the value of their entitlement in the scheme.

Pension benefits can be accessed from money purchase schemes in one of two ways. The accumulated funds can be paid to an insurer or Life Office to purchase an annuity, which is a guaranteed income for life. Alternatively, the pension can be accessed from the fund in the form of pension income drawdown whilst the assets continue to remain invested.

For those pension scheme members that retire outside of the UK, they can either (a) leave their accumulated pensions in the UK and then access benefits in their new country of residence, relying on the Double Taxation Agreement or (b) transfer to a Qualifying Recognised Overseas Pension Scheme ("QROPS").

The changes announced on 14 October 2010 do not however cover the proposed changes to taking benefits that were set out in the government's consultation document issued in July 2010, for example, potentially more flexibility around the accessing benefits.

Following a government consultation in 2010, a number of changes to taking benefits were proposed. It is highly advisable to seek professional advice before committing to a pension scheme or before taking benefits as the rules are complicated.

Information supplied by PriceWaterhouseCoopers PWC, 1 Embankment Place, London, WC2N 6RH Contact: Mike Curran | Tel: 0207 213 8190 | e-mail or Dipan Shah | Tel: 0207 804 0685 | e-mail