Bethany Joslyn: Duty-free retirement saving?

Remote working, be that at home or somewhere more exotic, is here to stay, writes Bethany Joslyn. Here she looks at retirement saving options for UK workers doing their 5-9 from anywhere

Even before the onset of Covid-19, working from home was on the rise in the UK. 8.7 million people reported that they had worked from home at some point during 2019, with 1.7 million of those people reporting that they had worked mainly from home during that time.

We live in an increasingly interconnected world and, despite current circumstances where travel options are restricted, it isn’t a big leap to go from “working from home” to “working anywhere”.

For those still saving for retirement, a move abroad could impact their ability to contribute to their pension. The good news is that it is possible for overseas members and employers to pay into a UK registered pension scheme. However, there are a few factors to consider.

Personal contributions

Members of UK registered pension schemes can receive tax relief on personal contributions if they are under 75 and a Relevant UK Individual (RUKI). There are five possible criteria for qualifying as a RUKI, and you only have to meet one.

Perhaps of most relevance to members now living overseas is that they qualify as a RUKI provided they were resident in the UK:

  • at some time during the previous five tax years, and
  • when they became a member of the scheme.

An easily overlooked point here is that the member will only receive tax relief on contributions to a scheme they were already a member of when they left the UK. If they join a new scheme, they will not be entitled to tax relief unless they return to the UK.

Members should consider whether they have Relevant UK Earnings (RUKE), which limits how much tax relief is available. Overseas income isn’t RUKE, but even if the member has no RUKE they’ll be able to receive tax relief on contributions up to the basic amount, £3,600 (gross).

Employer contributions

UK based employers can still pay into a member’s UK pension after the member moves abroad. Provided the contribution meets the “wholly and exclusively” test, the employer still qualifies for relief through a reduction to their UK corporation tax bill.

Employers based overseas can also contribute to a member’s UK pension scheme, irrespective of where the member is living. However, if the employer is not subject to UK corporation tax they will not be able to benefit from this rule. Overseas employers should consider the rules for the tax jurisdiction they’re based in and whether they are entitled to similar or equivalent reliefs.

Other considerations

While there is no legislation preventing contributions from overseas sources, each scheme will have its own requirements, such as currency restrictions and identity verification checks. They may simply choose not to accept contributions from an overseas source, so check with the pension provider to confirm their approach.

Every member’s circumstances will be different, and continuing with contributions to the UK pension may not be the best option. Alternatives could include the member contributing to a retirement plan in their new country of residence, or transferring their UK pension to a QROPS, particularly if they don’t plan on returning to the UK.

But if they do intend on returning, there is scope while overseas to carry on contributing.

Bethany Joslyn is technical consultant at AJ Bell