Risks and reasons for a UK pension transfer
UK Pension Transfer to Germany
Even after the regulated withdrawal of the United Kingdom (England, Scotland, Wales, Northern Ireland) from the EU, the topic of pension transfer remains highly topical. The medium to long-term consequences of the UK’s exit from the EU, the war in Ukraine and inflationary uncertainties on the UK’s fiscal policy decisions and their impact on pension assets invested in the capital markets remain uncertain.
We will be happy to guide you through the entire process of transferring your UK pension to a QROPS in Germany without obligation.
Possible risks/reasons for a UK pension transfer
If pension assets exist in a UK system, it may make sense to transfer the existing pension to the home country for various reasons. Possible reasons could be, among others:
- Cancellation/exceeding of the Overseas Transfer Allowance (formerly: Lifetime Allowance)
- Political risks
- Exchange rate risks
- Tax risks
Lifetime Allowance (LTA) is discontinued/exceeded:
If units in the pension assets exceed the Lifetime Allowance (£1,073,100) at the time of pension drawdown or on transfer to a QROPS, separate tax charges of 25% will be payable on these units.
The UK government announced in the Spring Budget 2023 that the Lifetime Allowance Charge will no longer apply from April 6, 2023, meaning that no separate tax payment will be necessary for overseas transfers to a QROPS.
The reason for this change in the law resulted from an increase in the number of employees and workers over the age of 50 who gave up work during the COVID-19 pandemic. In order to give people in this age group an incentive to extend their working life, the British government has increased tax relief for pensions.
An “Overseas Transfer Allowance” was again introduced on April 6, 2024. As a result of this amendment, overseas transfers will again be subject to a special tax of 25%, at least on the monetary shares exceeding a value of £1,073,100.
In principle, the circumstance of separate pension taxation can be avoided if the pension assets are transferred to a QROPS before the £1,073,100 threshold is exceeded.
Political risks:
Political decisions can bring about fundamental changes. In 2017, an aggravating amendment by HMRC (Her Majesty’s Revenue and Customs) for QROPS and associated pension transfers came into force, as a result of which a number of QROPS lost their licenses.
With regard to the UK’s withdrawal from the EU, it is not yet clear whether and to what extent changes to the law could prevent a future pension transfer.
Exchange rate risks:
The pension beneficiary is confronted with exchange rate risks if the currency of the pension assets and the currency of the home country differ. At the start of the pension, exchange rate fluctuations may result in different payment amounts, both in favor and to the detriment of the pensioner.
For UK pensions, there is also a risk that Brexit and the associated economic changes could cause the value of the pound to fall against the euro, which would “gnaw” at existing pension assets.
Tax risks:
The tax treatment of pension payments or the taxation of a pension transfer is influenced by many factors.
The retiree’s place of residence, tax treaties and the residence of the QROPS play a role here. If the residence and domicile of the QROPS are identical, the risk of disadvantageous taxation can be reduced.
Langer Financial Services is your competent partner for the transfer of UK pensions to Germany. We advise you individually and find the right solution for your personal needs and wishes. Let us inform you about your options without obligation!
References
Below you can see some of our customers' feedback and experiences:
Contact us
You are very welcome to send us your questions or requests via our contact form.
Please note:
- Pension assets with a value of less than €25,000 (according to the current exchange rate) cannot be transferred.
- Unfortunately, we cannot offer any help with State Pensions or the transfer of NHS pension rights.
We will usually get back to you within 24 hours if your request is received on a working day. We look forward to hearing from you!
