If you have an Irish pension, but are currently living abroad or planning to retire abroad, you have the option to transfer it to an overseas pension scheme. From a tax perspective it’s preferable to transfer your Irish pension offshore; by doing so, you’ll avoid government levies and charges of up to 4.5% annually. You’ll also be able to open a self-directed pension, giving you more control over your retirement planning. You could also be eligible to ‘vest’ up to 30% as a cash lump sum. Finally, you could avoid hefty fees and forex risks posed by simply doing a transfer from your Irish bank account each month.
The Irish pension custodian allows Irish expats to transfer your pension offshore, to a scheme in one of the following countries: Malta, the Isle of Man and Gibraltar inside the EU, and Australia and New Zealand outside of the EU.
The rules are strict for transfers outside of the EU; you must be working or resident in the country to which the transfer is being made, ie. Australia or New Zealand.
However, the rules are somewhat flexible if you’re working or planning on retiring within the EU. In such cases, you have the option of transferring your pension to Malta, the Isle of Man or Gibraltar, but live in another EU jurisdiction. You would no longer have to pay Irish government levies and fund fees, nor Irish income, capital gains and inheritance taxes. The taxes you would have to pay would depend on whether there is a Double Taxation Agreement (DTA) between the country of the pension scheme and the country in which you draw your pension.
For example, if an Irish expat is living in Spain and transfers his Irish pension to an overseas pension scheme in Malta, which has a DTA with Spain, they would avoid Irish taxes altogether, but would pay Spanish income tax on their pension. The pension would be paid out gross in Malta, but taxed on income in Spain.
However, if the country the Irish expatriate lives in a country that does not have a DTA with Malta, then they would pay Maltese income taxes of between 15% and 35%. In which case, they may be better off keeping their pension in Ireland or finding a low-cost overseas pension scheme in Gibraltar or the Isle of Man.
The best fit would depend on the DTA between the country that the Irish expatriate lives in and the receiving pension jurisdiction as well as any rules surrounding their current pension scheme(s).
The process isn’t straight-forward, and your individual case is subject to approval by the Revenue. Also, some of the risks you should consider before making such a decision include:
- uncertainty of taxation consequences
- potentially higher and non-transparent costs
- dealing with unregulated intermediaries
- difficulty obtaining legal redress should it become necessary
- no longer having the protection of Irish regulation.
It’s always best to take financial advice before making any decisions, especially concerning issues of retirement and taxation. Get in touch with one of our consultants for a review of your circumstances and assistance with your application.