Moving overseas comes with so many ‘to-do’ lists; it might feel like the simplest option is to leave your pension products in place. However, it’s impossible to exaggerate the critical importance of assessing your financial plans and evaluating the multitude of options available.
Unfortunately, there isn’t one catch-all solution since we’re all different and have alternative aspirations, plans, and retirement expectations – but adjusting your pension plans can make a world of difference to your income during those retirement years in Belgium.
Let’s summarise some of the top considerations for pension planning in Belgium, answering some of the most popular questions from our international expat clients.
If in any doubt as to the right solutions for you, please get in touch to schedule a private consultation with one of our friendly, experienced advisers.
Drawing a UK Pension as an Expat Living in Belgium
So, if you’re leaning towards leaving your UK pension in situ, the first information we need to share is that you absolutely can. There is no mandatory requirement to consolidate, transfer, or reinvest.
Provided you’ve sought professional advice and are confident it’s the best option for your finances, you can leave British pensions where they are and draw on them from abroad. There are, however, a few considerations we’d recommend thinking about:
Transferring a Defined Benefit Pension
Defined benefit pension products mean you have a guaranteed income for life. The advantage of this pension type is that you receive income throughout retirement and can even transfer payments to a spouse on your death in some cases.
The disadvantage is that they’re inflexible, and you typically can’t opt to take any of that benefit in a lump sum. To circumvent that restriction, one option is to transfer the fund to a defined contribution scheme instead.
If you transfer a defined benefit scheme, you risk losing the security blanket of lifetime payments. Still, you might also find yourself with much greater flexibility regarding how you access those benefits or having the right to make a lump-sum drawdown.
Defined Contribution Pensions
Defined contribution schemes are more flexible than defined benefit – you can decide how to utilise your funds. That might be a lump-sum withdrawal if you need the capital to purchase a Belgian property, for example. However, you also need to be mindful that the pension pot is limited in value, so eventually, the fund will run out if you opt for regular drawdowns.
Another solution could be to buy an annuity as a lifetime income product. Again, that’s not always the most practical solution depending on the value of your pension and your plans.
Exchange Rate Fluctuation Risks
Currency exchange rates are always crucial when drawing on a pension from overseas. You’ll need to factor in that a UK pension is paid in Sterling. Each time you draw down a payment, whether that’s a large lump sum or a regular income stream, you will need to swap the Sterling for Euros.
Depending on how the currencies are performing, that might be positive or negative and will usually mean paying conversion charges that eat away at your pension value.
As we can see, making the right choice about your UK pension and how to access those funds from Belgium very much depends on the nature of your pension fund and how you want to gain access to your income.
Taxation in Belgium on UK Pension Earnings
The next element to think about is that you may be liable for Belgian taxes if you’re a tax resident. If you’re a non-resident, you may also need to submit an income tax return – although whether you are liable for taxes depends on where your pension originates and how much you have drawn.
The 2021 Belgian individual income tax bands are:
|Up to €13,540||25%|
|€13,541 – €23,900||40%|
|€23,901 – €41,360||45%|
|€41,361 and above||50%|
Income from a British pension scheme could therefore be taxed at anything up to 50%. The only exception is a Service Pension or Civil Service Pension, which is always taxed at source in the UK.
There are also some variances and allowances to bear in mind when estimating your tax charges:
- Capital lump-sum pension withdrawals can be taxed as low as 10% if categorised as an extra-legal pension (supplementing statutory pension income).
- Lifetime annuities are taxed annually at a rate of 0.9%.
- The Belgium tax authorities can add municipal income taxes to the federal income tax rate – these vary from 0% to 9%, depending on where you live. Non-resident expats in Belgium pay a surcharge of 7%.
- There is a personal allowance, equivalent to €8,990 per taxpayer in the 2021 tax year, which increases if you have dependent children.
Pension Transfer Options When Moving to Belgium
Now we’ve covered the risks and rewards of retaining a UK pension; it’s also vital to run through some of the options if you are considering transferring your British pension benefits overseas.
Recognised Overseas Pension Transfers
A Recognised Overseas Pension Scheme (ROPS) is a qualifying pension fund in another country that is recognised on the HMRC approved list. Currently, there are three recognised ROPS in Belgium, but it remains crucial to verify the suitability of any scheme you’re transferring to.
There are pros and cons to making a transfer – with the key advantages being:
- You can consolidate multiple schemes into one pension product.
- Pensions are protected from exposure to UK tax rules.
- Any potential changes to UK pension taxation will not impact your fund.
- There is far greater flexibility to diversify how your funds are invested.
- The freedom to choose how you access your pension benefits.
- Ability to transfer rights to your fund to any named beneficiary.
- Management of multiple currency investments and drawdowns.
On the downside, a transfer does carry with it the possibility of tax exposure. Whether or not tax levies will mitigate the value of a ROPS transfer or be a good solution depends on the type of pension you hold and the finances involved.
Tax liabilities may include:
- UK Lifetime Allowance tax charge of 25% on any fund values over £1.073 million.
- Overseas Transfer Charge of 25% against the transfer value.
Note that Lifetime Allowance taxation on a ROPS transfer may indeed be the most tax-efficient option available, particularly if the fund remains invested and has the potential to grow.
Likewise, the Overseas Transfer Charge is currently a grey area – post-Brexit, the UK government hasn’t clarified that it will levy the charge on EU transfers, but the potential is there.
Making Sound Pension Planning Decisions
With so many options, advantages and downsides to bear in mind, the best decisions for your pension planning in Belgium depend on several criteria, including:
- Your risk exposure appetite.
- When you expect to retire.
- The type of pension products you own.
- Other earnings or investment streams.
In some cases, a completely different investment structure may be more beneficial than any pension transfer option – and our advisers will always recommend the solutions we think are to your best advantage.
Get in touch with the Chase Buchanan team via our Brussels Office or UK Administration Centre for more information about any of the options explored here and ensure your future in Belgium is under control, with professional, experienced, and straightforward advice.