The options for expats in Spain, in terms of pensions, tend to fall into three categories :
Maintain a Pension - Contributing to a retirement plan once you have moved abroad. There are a number of tax efficient retirement plans for expats.
Transfer a Pension - It is possible for expats to transfer their UK pension overseas, and potentialy benefit from increased flexibility, and reduced tax liability, usually via QROPS
UK State Pension - It is possible to have your UK state pension paid overseas, however their are currency risks. Your pension can be paid straight into your Spanish account. Click Here
In you are planning to live and work overseas, either permanently or temporary basis, and international retirment plan can help you save in a tax efficient way, and enjoy the benefits at a later date, wherever you may be based in the world.
Offshore financial centres can present a viable home for long term investment (retirement) plans, especially if you are undecided as to your eventual retirement destination, as basing pension investment offshore should mean that future movement of capital or income is not impeded. Although pension funds in 'offshore' or 'low-tax' jurisdictions will grow partly or completely without taxation, and may have been established out of tax-free income in the first place, any retirement income eventually received in a high tax country will obviously be liable for taxation. Offshore pensions providers, have tended to stick together in well-regulated jurisdictions with stringent investor protection legislation, such as Jersey, Guernsey, and the Isle of Man. As a result, these jurisdictions have developed responsive regulatory regimes and highly efficient business infrastructures. Dublin and Luxembourg have also come into favour as offshore locations from which to offer pensions, but these products are usually more specific to a European audience.Although the difficult decision regarding which offshore jurisdiction to base your investments in has to some extent been taken out of your hands, then, there still remains the question of whether you want to go for a pre-wrapped pension plan, or put together a portfolio of suitable investments yourself (with the help of a qualified advisor), with a view to providing retirement income in that way. Both forms of pension investment have their advantages and their disadvantages, and in the end, which path you choose will come down to your personal circumstances and preferences. Putting together a managed portfolio with the help of an IFA has distinct advantages, but by the same token, distinct disadvantages. This form of retirement planning could be seen as more flexible, as the investment choices (to a certain extent) are in your hands. You can choose how varied you would like your investment instruments to be, and whether to include shorter-term investments, or savings schemes with no strings attached.It also has the advantage that there are no penalties for reduction or discontinuance of investment if your circumstances change unexpectedly, and there are usually no limits as to the maximum or minimum investment, or the frequency of contribution. However, with this flexibility can sometimes come added risk (which is not ideal when investing for your retirement), which will necessitate more frequent checks and reviews. Therefore, you need to decide, with the help of your financial advisor or broker, whether the added flexibility is worth the potential risk and added responsibility. Alternatively, you could opt for a ready packaged pension or retirement income plan. Many domestic insurers also offer international alternatives to domestic pension plans tailor made for expatriates, usually located in one of the offshore jurisdictions previously mentioned.Key factors to look out for :
- What are their annual and administration charges?
- Which companies have the best historical fund performance?
- Which plan is best for you, which fund sectors are most suitable?
- Are there a wide range of fund types and sectors available?
- What are the limitations imposed on how and when you can take your benefits?
- What are the limits on contributions and benefits?
- Do they accept contributions in a range of currencies ?
- What degree of investor protection is in place?
Example products in the market (not a recommendation)
It is now possible, to transfer your UK pension fund to an offshore jurisdiction, via a scheme called a QROPS. It all began with the advent of the 2003 European Union’s freedom of transfer of monies directive, which gave private investors the opportunity and flexibility to invest across the EU and choose those jurisdictions that appeared more attractive by virtue of lucrative tax benefits and incentives.
This directive represented the first step on the way to an internal market for occupational retirement provision organised on a European scale. Indeed with the UK pension regime overhaul in 2006, great industry attention has been given to those investors who hold dormant UK private and company pension schemes and the opportunity to transfer the value overseas through the HMRC authorised QROPS system. With now over 170 authorised schemes investors are offered a multitude of options if they wish to transfer their pensions to an authorised jurisdiction. Traditionally, the most popular options for clients advised by their financial advisers have been the crown dependent channel-islands: Guernsey and the Isle of Man. Schemes are also now available in mainland Europe through Gibraltar, Malta, Latvia and Lichtenstein, and further afield in Australasia, namely Hong Kong and New Zealand.
Our QROPS section goes into more detail as to the pros and cons of moving a pension offshore.
Qualifying Non-UK Pension Schemes (QNUPS)
The technicalities are complicated, but in simple terms a QNUPS is a new offshore pension for expats or international workers with UK pension rights who now live abroad. The new rules mean all QROPS are by definition QNUPS, but confusingly, not all QNUPS are QROPS. The similarity ends with where the pensions are based. A QROPS must be hosted in a country that has a double taxation agreement with the UK. This means the fund manager has an obligation to report any unauthorised fund payments to the UK taxman during the first five years of the QROPS.
QNUPS came in to being on February 15 2010, when The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010 came in to force.
Key Features of QNUPS :
- There is no maximum age for contributions
- You do not need to receive income from employment to make a contribution
- There is no maximum limit of what you can invest into the scheme
- It is potentially very tax efficient and in most countries you are able to avoid local wealth taxes
- QNUPS avoid local laws on death duty, meaning you are able to choose who inherits your money
- Assets will grow free from tax
- You can hold both a QNUPS and QROPS but no reporting responsibilities are held unless the QNUPS scheme holds assets from both.
Ask one of our expat pension experts a question, free of charge. Choose any subject and a qualified pension expert will do their best to reply, there is no obligation or commitment associated with any response received. Example questions :
- How do I access my UK pension once I have moved overseas
- What about currency exchange risk
- How do I start a new pension scheme as an expat ?
The Spanish government has approved a reform aimed at reducing pension spending by about 3.5% of GDP by 2050. The key features of the reform are:
Legal retirement age: Gradual increase from 65 to 67 over the period 2013-27.
Earnings record: Gradual lengthening of the period used to calculate full pension benefits from 15 to 25 years.
Contribution years: Calculation on the basis of monthly payments rather than rounding to the next full year as prior to the reform; increase from 35 to 37.
Percentage of full pension received: Now proportional to the numbers of contribution years; starting from 50% for careers of 15 years to 100% for careers of 37 years.
Early retirement: Postponement from 61 to 63, with limited eligibility; it will only be possible after 33 contribution years rather than 30.
Voluntary work extension: Bonuses of 2%, 2.75% and 4% for each additional year worked for careers below 25 years, between 25 and 37 and over 37 respectively.
Sustainability assessment: Revision of the system every five years from 2027, taking into account changes in life expectancy.
The pension reform still needs parliamentary approval. Without it, the chances are that Spain will face strong spending pressures due to ageing and slowing population growth. Indeed, ageing-related spending might well contribute to an increase in the debt/GDP ratio in the long term. According to the European Commission’s simulations in the so-called Sustainability Report – published before the proposal of changes to the pension system – the long-term sustainability risk to Spain’s public finances is high, together with Ireland, Greece and the Netherlands. Naturally, these simulations – while still useful – are highly uncertain. It is unlikely that bond markets will keep financing government debts amounting to a multiple of the GDP of the respective countries – or that governments will maintain their policies unchanged in the presence of ever-increasing debts.