These are interesting times for UK pensions, particularly in view of Brexit. With some of today’s freedoms likely to change after March 2019, there may be limited time to take advantage of current opportunities.

As pensions are often the key to long-term financial security, take extreme care to do what is right for you and your family. Start by understanding the options for different pension types. 

‘Defined contribution’ or ‘money purchase’ pensions

Here, what you are entitled to depends on how much you have paid into the scheme alongside employer contributions, tax rebates and investment growth. Examples include personal and employer pensions and Self-Invested Personal Pensions (SIPPs).

Members of defined contribution schemes can usually do the following from age 55: 

  • Take the whole fund as cash – 25% will be tax-free in the UK.
  • Make cash withdrawals when you want – a quarter is usually free of UK tax each time.   
  • Take regular income through ‘flexible drawdown’, leaving the remainder invested. 
  • Take a secure, regular income for life through buying an annuity.

Expatriates also have the option to transfer UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS). This can unlock more flexibility to pass pension benefits to chosen heirs, take income in Euros or Sterling, and protect funds from lifetime allowance penalties and future UK taxation. 

Transfers to a QROPS based in the EU or EEA (European Economic Area) – including Gibraltar – are currently tax-free. However, a 25% UK charge has applied since March 2017 on transfers to QROPS outside the EU/EEA (unless you are resident in that jurisdiction). Some speculate that post-Brexit, once the UK government sheds its EU obligations, it may widen the scope to start taxing Britons transferring within the EU/EEA.

Consider acting now, but take personalised, professional advice to establish if transferring is suitable for you and navigate the complex options. 

‘Defined benefit’ or ‘final salary’ pensions

With these ‘gold-plated’ pensions, your employer promises a proportion of your salary for the whole of retirement. 

While you cannot usually withdraw cash, you can transfer benefits to a defined contribution scheme or a QROPS. Traditionally, this has been considered less attractive than drawing a guaranteed pension for life. However, today, some struggling providers are tempting members to cash-in with ‘transfer values’ of up to 40 times the annual benefits due at retirement. Such high pay-outs – sometimes amounting to hundreds of thousands – may not be available for long. A generous one-off sum could potentially provide a retirement income that exceeds the original annual payment, but it is crucial to fully understand the consequences before giving up the certainty of a lifetime income. 

See six things to think about before cashing in a 'gold-plated' pension

Whatever type of pension you have, there are other issues to consider before taking action.


While 25% of cash withdrawals can be taken tax-free in the UK, if you are Spanish resident they are usually fully taxable in Spain (under the Spain/UK double tax agreement).

Income from UK occupational and state pensions will be taxable only in Spain under the terms of the Spain/UK tax agreement. Conversely, UK government service pension income – including teachers’, local authority, army, police and civil service pensions – remains taxable in the UK only (although it is considered when calculating your Spanish final tax rate).

Most expatriates with Spanish residency will therefore escape UK taxes on pension income, but are subject to Spanish income tax rates. However, in certain circumstances – for example, with lifetime annuities – it may be possible to receive up to 92% tax-free in Spain.

Download our guide to taxation in Spain

Making your money last

Having the freedom to withdraw or transfer your pension does not mean that you should; you may be better off taking no action at this time. If you choose to take some or all of your benefits as cash, make sure you have a reliable plan to fund your long-term financial future. 

See more about financial planning to last a lifetime

Note that pension scams have never been more widespread and sophisticated – Age UK estimates £43 million has been lost to scammers since April 2014. Generally, if an investment sounds too good to be true, it probably is. Also, beware of unregulated companies offering pension services as they provide no recourse if things go wrong.

Learn more about pension scams and unregulated investments

Make sure your adviser is regulated through the UK Financial Conduct Authority (FCA) and has cross-border experience to understand the tax implications in both the UK and Spain. They should take account of your needs, objectives, personal circumstances and risk appetite to find the most suitable solution for you. 

While you should take the time to get it right, keep the Brexit countdown in mind. With many predicting that Brexit could introduce tax penalties and limit how expatriates in the EU can access their UK pensions, now is the time to review how you can best secure a prosperous retirement in Spain.  

Contact us to discuss your pension options

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.