Please do not hesitate to contact Paul should you have any questions related to this or other financial matters.

UK pensions – 6 key things to understand

By Paul Montague, Partner, Blevins Franks 

Pensions is a topic dear to all our hearts. It represents a lifetime of professional effort, but also the rewards should be the fulfilment of that hard work to see us comfortably through our retirement years.

But it can be complicated, can’t it?

  1. UK State Pension

To qualify for the full UK state pension you must have paid UK national insurance contributions for 35 years. Otherwise, provided you contributed for 10 years, the amount you receive is based pro-rata on how many years you secured. It is possible to make voluntary contributions to buy back six years to reach the 10.

You can obtain a UK State Pension forecast online at, or download form BR19 and post it to the Department for Works & Pensions.

UK nationals resident in the EU continue to receive the UK state pension.  It’s paid gross and taxed in your country of residence.

  1. ‘Defined Benefit’ pensions and ‘Defined Contribution’ pensions

People who worked for UK companies long term often have traditional company pensions called ‘defined benefits’ or ‘final salary’, where the accrual of benefits is based on the number of years worked for the company and your final salary.

These schemes are becoming more of a rarity because they created a massive ongoing liability for the company.

These days employers often favour ‘defined contribution’ or ‘money purchase’ pensions, where the financial commitment is quantifiable.

  1. Taxation in Spain

Generally, if you are resident in Spain and have an NT tax code, your personal pensions are liable to Spanish income tax (only government service pensions are taxed in the UK).

Spain also applies an annual wealth tax. Although pension plans are generally listed as one of the assets exempt from wealth tax, a 2019 ruling by Spain’s Directorate-General for Tax concluded that non-EU pension plans do not qualify for this exemption. Spanish wealth tax therefore now applies to a UK pension fund (from the point a member can take benefits).


  1. The ‘lifetime allowance’

The lifetime allowance is the maximum combined amount you can accumulate in UK pensions (excluding state pensions). It is currently frozen at £1,073,100.

Any amount above the allowance is subject to a one-off tax charge of 25% if the excess is paid as a pension or the fund is transferred abroad, or 55% for lump sums.

It is not limited to UK residents, so continues to affect us in Spain.

  1. QROPS

A Qualifying Recognised Overseas Pension Scheme is an overseas pension created to receive monies from UK pensions when the owner has moved abroad. They can provide various benefits, depending on your situation and objectives.

However, in 2021, the Spanish Directorate-General for Tax issued binding ruling V2508-21 which determines that unless a pension is either a Spanish pension contract or an EU pension, a pension transfer from a ‘third country’ pension scheme to an EEA pension scheme will be subject to a personal income tax charge – on the whole fund value.

If you are still UK resident you could transfer your pension to QROPS before you become resident in Spain and avoid the tax charge.

  1. The ‘overseas transfer charge’

The UK introduced the overseas transfer charge in 2017 to deter people from transferring their pensions out of the UK for what the then Chancellor described as purely tax avoidance reasons.

Importantly, currently not all QROPS transfers are subject to the overseas transfer charge. If you live in the EU and transfer to an EU QROPS, the charge won’t be applied. But if you move outside the EU within five UK tax years of making transfer the overseas transfer charge may be applied retrospectively.

What does the post-Brexit future hold?

The UK will continue to uplift UK state pensions, the same as if you were living in the UK. It will continue to honour the S1 system for those receiving UK state pensions.

However rules can change, and now the UK is outside the EU/EEA it could very easily extend the overseas transfer charge to EU residents.

It could decide to change the rules completely, renegotiate the double tax treaty and tax all UK arising income in the UK, as UK rental income and government pensions already are.

From the Treasury’s perspective, one attractive option would be to remove personal allowances for non-UK residents.

If you haven’t considered the impact of what might initially seem like quite subtle changes, you need to dig a little deeper into what the ramifications could be for you, and importantly if there is anything you can do about it.

The bottom line is that pensions is an area that can be complex with some pitfalls not immediately visible and one to seek expert advice on.

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.


Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.