Guide to moving your pension abroad

What is an International Social Security Agreement?

An International Social Security Agreement helps governments work together to ensure people are supported as they age when they have lived and worked in more than one country. For instance, Australia has thirty International Social Security Agreements in place, so people can migrate and still receive social security benefits.

What are Double Taxation Agreements?
Double Taxation Agreements are usually tax treaties that exist between two countries to prevent double taxation of international individuals and businesses.

One of the risks when it comes to moving your pension is that you may be taxed twice – both by your home country and by the country where you transfer your pension, if there isn’t a Double Taxation Agreement in place. Please note: In most cases,if the tax rates in the two countries are different, you will probably end up paying the higher tax rate.

Depending on where you are trying to move your pension you may be eligible for “full relief” or “partial relief” from double taxation. You will have to submit a claim form to get relief from double taxation. You may submit it prior to the transfer so you are not taxed, or after the transfer so you are reimbursed for the tax you have already paid. Consult your pension or retirement account manager or the government taxation office for details on submitting these forms for relief from double taxation.

Moving your Australian pension overseas

What happens to Australian Age Pension and superannuation when moving abroad? Age Pension can generally be paid even if you live in another country, what changes is the amount you receive. That amount is determined by how long you plan to be abroad and any International Social Security Agreements, which may apply. Superannuation is usually still subject to the rules around withdrawal as if you were living in Australia.

International Social Security Agreements in Australia

You can submit a payment claim for your Age Pension benefits even if you have moved or will move outside of Australia. You will add together your social insurance periods – when you were paying into Age Pension in Australia – or submit the dates of your residence in Australia to show that you meet minimum requirements for an Australian pension.

In most cases, to qualify for Age Pension under the agreement between Australia and another agreement country:

Payments of Australian Age Pension are affected by your travel. You should tell the Australian government about your travel if:

Details for other benefits are available from the Australian government website.

While the International Social Security Agreement applies to lots of countries, a special agreement with New Zealand has been made for Australians who are moving there or visiting New Zealand while they are away from Australia.

For qualifying residents of Australia, the time you spend in New Zealand is added to how long you have lived in Australia while you are between the ages of 20 and 65 years old. This is applicable even if you stop in New Zealand as part of a broader trip to visit long-term or permanently move to another country. For example, a person between the ages of 20 and 65 who plans to move to another country, but stops in New Zealand for 6 months first, will have those 6 months added to their Australian residency. Since Age Pension requirements include Australian residency, time spent in New Zealand should be documented, so payments are issued correctly.

For Australians, you can travel overseas and receive pension payments while doing so, though the payment may change depending on how long you are out of Australia. These payments will be deposited into your Australian or a foreign bank account. If you use a foreign bank account, the Reserve Bank of Australia will transfer your funds at the current exchange rate. If you transfer funds yourself from your Australian bank account to a foreign account, you can work with a foreign exchange company like OFX to help you get the best exchange rate.

Short travel – under 6 weeks

If you are traveling for a short period of time – less than 6 weeks – you can expect your pension to stay the same. Your rate and payments won’t change, though you should notify Centrelink that you are traveling.

Less than 12 months travel

If you are travelling for less than 12 months, and you want normal payments into your Australian bank account, then you can set up your online account to do all of your reporting and submissions. Your pension rate will change to the rate that is paid for those outside of Australia. This rate is calculated based on income and asset test.

More than 12 months of travel

If you are travelling for more than 12 months, your payments will be made only every 4 weeks and you will be subject to the rate available for those outside of Australia. If you choose to have the payments submitted to an overseas bank account, the Reserve Bank of Australia will use the current exchange rate, and your funds will arrive in local or US dollar currency. You can have the funds transferred to your Australian bank account and complete the foreign transfer yourself, which may save you substantially on foreign transaction fees and exchange rate margins.

What are QROPS or ROPS?

QROPS stands for Qualifying Recognised Overseas Pension Scheme. These are overseas pension programs that have been vetted by U.K. tax law and have been shown to meet qualifying criteria for transfer. There may be fees and charges for transferring to a QROPS pension.

A list of available QROPS is available on the HM Revenue and Customs website.

What are the tax implications of moving your pension abroad from the U.K?

To transfer your pension from the U.K. to another country, you need to be aware of current Qualifying Recognised Overseas Pension Scheme (QROPS) requirements outlined by HMRC. In the U.K. failing to transfer into a qualifying account can lead to a minimum 40% tax on the money you transfer. Various taxes may apply based on where you transfer and where you live as well as any moves you make within 5 years of the transfer. (Please be advised that you are responsible for determining whether or not is QROPS before the transfer is made, otherwise it could be considered an unauthorised transfer with more penalties.) If you do not transfer your pension into a qualifying QROPS pension scheme, you may be taxed up to 40% on the transfer.

If you are taxed, but you move to an EEA country within 5 years of the transfer, you can place a claim for a reimbursement by talking to your pension administrator. You usually don’t pay a tax if you transfer to a QROPS scheme provided by your employer.

What happens to a U.S. retirement fund and Social Security when moving abroad?

In the United States, different rules apply to your Social Security payments and your voluntary retirement fund. For example, your social security payments cannot be paid to persons who live in certain countries including Cuba, Georgia, and Ukraine amongst others. The U.S. may offer exceptions if persons meet and agree to restricted payment conditions including regular appearances at the U.S. embassy or consulate. IRAs, Roth IRAs and 401Ks all have different tax structures and implications and any tax payable will depend in part on if you are converting the fund at current or future tax rates.

Tax implications for moving your retirement from the United States

Both IRA’s and regular IRAs have different tax structures which may vary from state to state. Speak to a local tax advisor to learn about options for moving your U.S. retirement fund overseas. There is a federal penalty for early withdrawal of 10% on both types of accounts before the age of 59.5.

General advice for moving your pension overseas

Some countries will tax a pension payment, while others may tax based on how you decide to receive your pension monies – if you have a lump-sum or if you have an annuity. In some cases all three are taxed – the transfer of money to a new pension scheme, the lump-sum you receive as payment and the annuity payments.

Do I have to transfer my entire pension if I am retiring abroad?

If you have a pension account in one country but are relocating for retirement, there are a few ways to handle your pension:

If you choose to keep your pension account in the origin country, some pension providers may not transfer money to a foreign bank account. Or, they may charge high fees for doing so. OFX can help you save on fees and margins, if you’re making regular transfers from one bank account to another account in a foreign country.

Often it is preferable to have pension payments paid to a bank account in the same jurisdiction as your pension and then to transfer the money abroad yourself. This may help to avoid certain taxes that apply for early withdrawal as well as high bank fees and margins on the exchange rate.