Pension Drawdown Strategy for Expats

For expats approaching or in retirement with UK pension savings, the drawdown decision involves a layer of complexity not faced by UK-based retirees. Which structure is most tax-efficient in your country of residence? How do you manage currency risk on a sterling pension drawn abroad? What is a sustainable withdrawal rate? And when does an annuity make sense for someone living outside the UK?

This guide addresses the key decisions in pension drawdown for internationally mobile retirees.

The core choice: UK SIPP vs QROPS in drawdown

The first question for many expat retirees is whether to retain pension savings in a UK Self-Invested Personal Pension (SIPP) or transfer to a QROPS (Qualifying Recognised Overseas Pension Scheme) in drawdown.

UK SIPP drawdown

A UK SIPP remains a highly flexible and well-regulated retirement structure:

• Up to 25% of the fund can typically be taken as a Pension Commencement Lump Sum (PCLS), free of UK income tax, subject to the Lump Sum Allowance (£268,275 as of 2026/27)
• Remaining funds can be drawn as income at any level
• On death before age 75, undesignated pension funds pass to nominated beneficiaries free of income tax (though from April 2027, pension pots will be within the IHT estate)
• The SIPP can hold a wide range of investments, including international funds and multi-currency assets

SIPP drawdown from abroad — tax treatment

UK pension income drawn by a non-UK-resident is subject to UK income tax in the first instance. However, many double taxation treaties (DTTs) provide that pension income is taxable only in the country of residence, not in the UK. Under these treaties, a non-UK-resident can apply to HMRC (form NT — "no tax") to receive UK pension income without UK withholding, paying tax only in their country of residence.

Key DTT positions:

• Cyprus: Pension income from UK sources is taxable only in Cyprus for Cyprus-resident individuals under the UK-Cyprus DTT. Cyprus taxes foreign pension income at a flat 5% above a €5,000 exempt threshold (raised from €3,420 under the 2026 Cyprus tax reform, effective 1 January 2026), with the option to elect normal progressive rates instead. Exceptionally advantageous.
• Spain: Under the UK-Spain DTT, UK private, occupational and State Pension income paid to a Spanish resident is taxable only in Spain, not the UK (so an NT code can be obtained). The exception is UK government (e.g. civil service, armed forces, most NHS/teacher/police) pensions, which generally remain taxable only in the UK.
• UAE: No personal income tax in the UAE. The UK-UAE double taxation convention does not give the UAE exclusive taxing rights over UK-source pensions in the way some other treaties do, so UK pension income received by UAE-resident individuals generally remains subject to UK income tax.
• Thailand: Under the UK-Thailand DTT, UK government pensions are taxable only in the UK; other pensions may be taxable in Thailand.

The treaty position must be checked for each country of residence. An NT code application to HMRC is available where the relevant DTT provides for taxing rights to rest with the country of residence.

QROPS drawdown

A QROPS can draw income in the local currency, under local rules. For expats who are settled long-term in their country of residence, this can be cleaner than a UK SIPP — avoiding UK tax filing obligations on pension income, removing sterling currency risk on income, and aligning the pension to local regulations.

However:

• The 25% overseas transfer charge applies to most QROPS transfers. Since 30 October 2024, the EEA/Gibraltar exemption was abolished; the only remaining exemption is where the member is resident in the same country as the QROPS (see our separate guide)
• QROPS charges are typically higher than UK SIPPs
• If the member returns to the UK, re-importing the pension becomes complex
• The QROPS jurisdiction must be chosen carefully — not all have equal regulatory standards

Currency risk on a GBP pension drawn abroad

This is one of the most underestimated risks in expat retirement planning. A UK SIPP invests and pays income in GBP. An expat retiring to the eurozone, Thailand or Cyprus needs euros, bahts or euros respectively. The pension income in real terms depends on the GBP exchange rate.

Over a 20-year retirement, currency movements can add or subtract substantially from real living standards. A retiree in the eurozone experienced a 20–30% real income reduction from 2007 to 2023 simply from sterling weakness against the euro.

Managing currency risk:

• Invest the SIPP portfolio in globally diversified assets that are not exclusively UK/sterling denominated — this provides a natural partial hedge
• If withdrawing regularly, consider a forward contract or regular order FX service to smooth conversion costs
• A QROPS in the local currency eliminates income currency risk but introduces investment currency risk (if the underlying assets are sterling-denominated)
• Some advisers recommend maintaining a cash buffer (6–18 months of income) in the local currency to avoid forced conversions at adverse rates

Sequencing risk — the order of returns matters

Sequencing risk is the risk that a market downturn in the early years of drawdown causes permanent damage to the portfolio's sustainability, even if long-run average returns are adequate.

Example: Two portfolios both achieve 5% average annual returns over 20 years. Portfolio A experiences poor early returns then good ones; Portfolio B experiences good early returns then poor ones. If both are being drawn down at a fixed rate, Portfolio A will run out of money far sooner — even though average returns are identical.

Managing sequencing risk in drawdown:

• Bucket strategy: Hold 1–3 years of income in cash (Bucket 1), 3–7 years in lower-risk bonds and income assets (Bucket 2), and long-term growth in equities and alternatives (Bucket 3). Drawdown from cash in down markets avoids selling equities at depressed prices.
• Dynamic withdrawal: Reduce drawdown in years when the portfolio is down; take more in good years. This requires income flexibility — practical for those with additional income sources (State Pension, rental income) that provide a floor.
• Annuity for the base income floor — see below.

Sustainable withdrawal rates

The classic financial planning guideline — the "4% rule" — suggested that a retiree could withdraw 4% of their portfolio annually and have a high probability of not running out over 30 years. This was based on US historical data from the 1990s.

In a lower-return, higher-valuation environment (as of 2026), many planners consider 3–3.5% a more conservative starting point for a 30-year drawdown. For those with a long life expectancy or a younger spouse, 3% or below may be appropriate.

These percentages should be adjusted for:

• Additional income sources (State Pension, annuity, rental income)
• Flexibility to reduce withdrawal in down markets
• Sequence-of-returns risk profile of the portfolio

Should expats consider an annuity?

An annuity exchanges a pension pot for a guaranteed income for life. It is widely dismissed in an era of low annuity rates — but annuity rates have improved substantially since 2022 as interest rates have risen.

For expats, the annuity decision has additional dimensions:

• A UK annuity pays income in GBP — currency risk still applies
• Some overseas life companies offer annuities in local currencies, but the range is limited
• The annuity's value depends on the applicable DTT and local tax treatment of the income
• For base income security, a partial annuity — covering essential living costs — combined with drawdown for discretionary spending is a rational approach for retirees who are uncomfortable with market risk

If your essential living costs in retirement are, say, €2,000 per month, and the UK State Pension (when it starts) will cover half of that, a modest annuity or income-generating bond portfolio could cover the remainder — leaving the SIPP pot intact for discretionary spending and legacy purposes.

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How Global Investments can help

Drawdown planning for international retirees is one of our specialisms. We advise on the full picture — pension structure, investment strategy, currency management, tax efficiency in the country of residence, and estate planning.

Contact us to arrange a retirement income review.

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This article is for general information. Pension, tax and regulatory rules vary by country and change over time. Individual circumstances require individual analysis — always obtain regulated financial advice before making drawdown decisions.