UK Pension vs Local Pension: What Expats Should Know

One of the less-discussed decisions for internationally mobile individuals is what to do with pension contributions when working abroad. For most UK professionals moving overseas, the default — continuing to contribute to a UK pension — is neither the only option nor always the most efficient one. Understanding the alternatives requires knowing both what you might give up by leaving the UK system and what you might gain from local arrangements.

What makes the UK pension so attractive

The UK pension system's primary advantage is tax relief on contributions. A basic-rate taxpayer contributing £80 into a pension has £100 invested — the government adds £20 in relief. A higher-rate taxpayer can claim additional relief through self-assessment, reducing the effective cost further. This uplift is immediate and guaranteed, unlike the uncertain returns on investments.

UK pension funds grow free of UK income tax and capital gains tax. On retirement, 25% of the accumulated fund can typically be taken as a tax-free lump sum (subject to the Lump Sum Allowance of £268,275 as of 2026). The remainder is drawn as taxable income.

The UK pension system also offers strong regulatory protection via the Pensions Regulator and the Pension Protection Fund (for defined benefit schemes in corporate insolvency).

The critical issue: UK tax relief when non-resident

To receive UK pension tax relief, you generally need to be a UK taxpayer — or at least have UK-relevant earnings. If you are working entirely outside the UK with no UK-source employment income, you typically cannot receive tax relief on pension contributions. Continuing to contribute to a UK pension as a non-resident employee, with no UK tax liability to offset, provides no contribution uplift.

There is an exception: non-UK resident individuals can contribute up to £3,600 gross per year into a UK pension and still receive basic-rate tax relief (even with no UK earnings). This relief is currently available for up to five years after leaving the UK. It is a modest but real benefit worth preserving.

UAE: the DEWS mandatory savings scheme

The UAE introduced mandatory end-of-service benefits for most private-sector workers through the DEWS (Daman Employees' Work Scheme) — though participation varies by employer. Under the scheme, employer contributions go into investment accounts rather than being held as an unfunded corporate liability (the historical model for UAE end-of-service gratuity).

Key features:

• Employer-funded (employee contributions are not mandatory, though voluntary top-ups are permitted in some structures)
• Portable — the balance follows the employee across employers and can be taken on departure
• Invested in diversified funds
• Not tax-advantaged in the UK sense (the UAE has no income tax), but nor is there tax drag during accumulation

For UK nationals working in the UAE on a short-term assignment, the DEWS / gratuity is a useful supplement but not a replacement for a UK or international pension structure. For those planning to remain in the UAE long-term, the calculus is different.

Spain: the public pension system

Spain operates a PAYG (pay-as-you-go) contributory pension system based on Social Security contributions. Workers in Spain contribute to the Social Security system (both employee and employer contributions apply), and upon retirement draw a Spanish state pension based on their contribution record.

For UK nationals working in Spain, there are several considerations:

• Contributions to the Spanish Social Security system may count towards a Spanish state pension — but only if sufficient years of contributions are accumulated (generally 15 years minimum for a partial pension, 37+ years for the full benefit)
• Under the current UK–Spain social security arrangements (post-Brexit), contribution records in each country may be taken into account for eligibility purposes, though this is a complex area
• Private pension contributions in Spain (planes de pensiones) attract modest tax relief but are subject to strict drawdown rules

For most mobile professionals passing through Spain over a few years, the Spanish state pension system is unlikely to provide significant retirement income. Private pension arrangements — whether UK-based or international — remain more relevant.

Thai provident funds

Thai employers commonly operate provident funds under the Provident Fund Act — workplace savings vehicles with tax incentives for both employers and employees. Contributions (up to certain limits) are tax-deductible for employees. The fund is managed by licensed fund managers and invested in authorised assets.

The Thai provident fund is a genuine savings vehicle, but for UK expatriates it is typically a secondary consideration. The investment options are Thailand-focused, the currency is THB (baht), and the fund is most valuable for those who intend to retire in Thailand or remain long-term.

QROPS: for permanent emigrants

QROPS (Qualifying Recognised Overseas Pension Scheme) allows UK pension funds to be transferred to a qualifying overseas pension scheme. For individuals who have left the UK permanently and do not intend to return, a QROPS transfer can:

• Consolidate pensions into a structure better suited to the country of residence
• Allow drawdown in local currency
• Potentially reduce the tax payable on the pension in the receiving country

However, QROPS transfers have become significantly more complex and less advantageous following successive legislative changes. An Overseas Transfer Charge of 25% applies to most transfers. The EEA/Gibraltar exemption that previously allowed charge-free transfers to EEA-based QROPS was abolished on 30 October 2024. From that date, the only remaining exemption from the charge is where the member is resident in the same country as the QROPS at the time of transfer. The conditions under which a transfer is charge-free have therefore narrowed considerably.

QROPS remain genuinely useful in some specific circumstances — particularly for individuals with large UK pension pots who are permanently settled abroad in a jurisdiction with a recognised QROPS scheme. But they should only be considered after thorough advice, as the charge and the loss of UK Pension Protection Fund coverage are real costs.

Dual-system strategies

Many internationally mobile professionals accumulate pensions in multiple countries over a career. A practical approach:

1. Preserve existing UK pensions — do not cash them in. Defined benefit entitlements especially have significant value.
2. Continue paying voluntary UK National Insurance contributions to preserve UK State Pension entitlement — the cost per year is low relative to the guaranteed, inflation-linked income that results.
3. Participate in local mandatory schemes (UAE DEWS, Spanish Social Security) as required, treating them as supplementary.
4. Use an international pension or investment wrapper for active contributions while abroad, allowing reinvestment without the geographic restrictions of UK or local schemes.
5. Review consolidation options when you know where you will retire — at that point, QROPS analysis (or simply leaving UK pensions in place) becomes relevant.

The worst outcome is fragmentation: small pension pots scattered across multiple jurisdictions, each charging annual fees, none large enough to be managed efficiently. Consolidation — at the right time and in the right way — is almost always worthwhile.

Preserving is not the same as contributing

The two decisions are frequently conflated, and separating them removes much of the confusion. Leaving an existing UK pension where it is costs you nothing beyond the scheme's own charges, keeps the accumulated tax-advantaged growth intact, and preserves whatever benefits and guarantees the scheme carries. Continuing to pay new money into it is a separate question, and one whose answer turns almost entirely on whether you have UK-relevant earnings to set the relief against.

For someone employed wholly overseas by an overseas employer, the honest answer is usually that new contributions beyond the limited non-earner allowance achieve nothing that could not be achieved in an ordinary investment account, while adding an access restriction. That is not an argument for cashing anything in — it is an argument for directing new savings somewhere the tax treatment actually rewards them.

The exception worth checking each year is the non-resident allowance described above, which is modest but genuinely free money for the period it remains available. It is also time-limited, and the limitation runs from your departure rather than from when you notice it, so it is worth diarising rather than remembering.

The currency question that gets asked too late

A pension accumulated in sterling and spent in euros, dirhams or baht is exposed to the exchange rate for the whole of retirement, not merely at the point of transfer. This is one of the strongest practical arguments for thinking about where you will actually retire well before you get there, because it is far easier to build currency alignment gradually over a working life than to correct a mismatch once drawdown has begun.

It also cuts against the instinct to consolidate everything into whichever jurisdiction feels most convenient today. Someone who is genuinely uncertain where they will end up may be better served by keeping options open — a UK pension and an international arrangement running in parallel — than by making an irreversible decision on incomplete information. See our guide to currency risk management for expats for how the exposure is measured and managed.

When a transfer is being sold rather than advised

Overseas pension transfers have historically attracted a sales culture that UK-based pension advice does not. A few signals are worth treating as reasons to slow down: an adviser who raises a transfer before establishing where you intend to retire; commission structures that are described only in general terms; a recommendation that arrives before your existing scheme's benefits have been analysed; and any suggestion that the decision must be made quickly for reasons connected to the adviser's timetable rather than yours.

The questions to put in return are straightforward. What specifically does the receiving scheme do that my existing arrangement cannot? What am I giving up, including any guarantees, protections and compensation cover? What are the total charges — initial, ongoing, and at the underlying investment level — expressed in cash terms rather than percentages? And what happens if I later move to a different country than the one this recommendation assumes?

Our comparison of QROPS and SIPPs in a financial planning context and the guide to transferring a UK pension to an international SIPP set out the alternatives in more detail.

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This article is for general information only. Pension rules differ by jurisdiction and are subject to change. The Overseas Transfer Charge and QROPS rules in particular have changed significantly in recent years. Contact us to discuss your pension arrangements with a specialist.