Expat Advice for Pension Planning in Belgium
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.
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 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.
Original source:- https://chasebuchanan.com/expat-advice-pension-planning-in-belgium/
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