Participation in a UK pension scheme whilst working outside the UK

In this Insight we outline the key points to consider when an individual is working outside the UK and participates in a UK based pension scheme.

Employer provided pensions (e.g. occupational schemes)

In most cases individuals working overseas on an international assignment or a more permanent arrangement such as remote working and who remain contractually employed in the UK, may continue to participate in an employer provided pension scheme under UK rules during their period of work overseas. However, generally, if an individual changes employment contract to a non-UK employer it will not be possible to continue to make contributions (inputs) to a UK pension scheme.

For ‘defined contribution scheme’ arrangements, employee pension contributions in effect may not receive UK tax relief if the individual does not have UK taxable income.

Personal pension schemes

Where an individual participates in a personal pension scheme, including a group personal pension (GPP) scheme, the scheme provider should be contacted to confirm whether they would accept pension input in respect of a UK tax non-resident member. This is a significant factor as many pension scheme providers are unwilling to accept personal pension contributions from non-resident members on account of the additional reporting and administration required for the scheme.

Subject to the pension scheme provider’s approval, where an individual has previously joined the scheme when UK tax resident and subsequently becomes UK tax non-resident, they can make personal pension contributions to the scheme for a period of five UK tax years following their last UK tax year of residence.

During this period an individual can continue to receive relief on their personal contributions based on the higher of their UK relevant earnings (earnings reportable for UK tax purposes from sources such as employment remuneration and benefits in kind, trading income, furnished holiday lettings and patent income), or £3,600 (whereby the net relievable contribution from the individual would be £2,880).

Pension contribution limits

Employer and employee pension contributions to a UK scheme remain subject to the UK Annual and Lifetime Allowances i.e. the amount of contributions may be limited and subject to charges on excess contributions. This can apply even in the case where no UK tax relief is claimed in respect of the contributions paid into the UK pension scheme.

Lifetime Allowance Enhancement Factor

Where an individual is UK tax non-resident, they may be able to claim a non-resident Lifetime Allowance Enhancement Factor (LTAEF), which will increase their overall Lifetime Allowance via a prescribed statutory formula.

In order to be eligible to claim a non-resident LTAEF, an individual must qualify as a relevant overseas individual (ROI) according to certain requirements. Where  an individual is regarded as an ROI  a non-resident LTAEF must be applied for at the latest by 31 January five years following the end of the last UK tax year for which an individual was considered to be an ROI (e.g. if the 2021/22 UK tax year was the last year for which an individual held ROI status, the deadline for applying would be 31 January 2028).

Are there taxes overseas on the UK pension?

The treatment of the pension contributions in the overseas country in which the individual is living must also be considered to establish whether the employee contributions can qualify for overseas relief to reduce the overseas tax in that country, and/or whether employer pension contributions are regarded as taxable in the overseas location (or what conditions need to be met to qualify for relief).

Such relief may be available either via local tax rules in the particular country, or in the case of a limited number of Double Taxation Agreements between the UK and certain countries provide some tax relief subject to certain conditions. Clearly it may come as a surprise to many if they are hit with a tax bill in the overseas location for the contributions the employer makes in the UK so it is worth understanding these complex tax rules and whether there are any planning opportunities.

It is important that the advice is aligned in both the UK and the overseas location otherwise you may end up with unintended outcomes in the other location.

Would you like to know more?

If you are an employer looking for further information on how to structure international pensions visit our International Pensions page and if you are an expatriate looking for information on cross-border pension planning and compliance visit our Cross-border Pensions page.  Alternatively, contact any of the experts listed on this page.