Do you hold UK pensions but are looking to move back to Germany? Company pensions have become more attractive than in the past due to changes in legislation and rules concerning occupational pension schemes. The German government has been advocating and supported employees to enhance their pension provisions for retirement. If you are looking at pension solutions, a UK pension transfer to Germany might be the right solution for you.

The Current Pension System in Germany

This is based on a three pillars model. The first pillar consists of the state and civil servant pensions, followed by private pensions in the second pillar and occupational pension schemes in the third pillar. The first pillar is the only mandatory one. However, with decreasing levels of benefits, the second and third pillar are increasingly becoming more popular. The government subsidizes and allocates tax incentives for the second and third pillar models.

Occupational Pension Reform

According to Gerhard Bäcker at the University of Duisburg/Essen, the main focus of the reform was the introduction of a so-called partnership model. Pure defined contribution pensions act as a top up to existing occupational pension schemes. This model will offer the possibility of ‘automatic earnings conversion’. This is whereby a percentage of employees earning will accumulate towards an occupational pension fund.

There has been an Occupational Pension Reform in 2017. This was due to state pension shortages so the focus has been on improving and strengthening the laws governing the Occupational Schemes in Germany.

According to the Federal Ministry of Labour and Social Affairs, the number of occupational pension entitlements went from 14.6 million in 2001 to about 20,4 million. Furthermore, the number of “Riester” pensions in place reached a level of 16,5 million by the end of June 2017. The state subsidizes Riester pensions schemes. They are a safer government regulated scheme. The aim is to induce people to contribute with private provisions towards their retirement. 

Your unique position as an expat

Working in the UK for the past several years, you might have accumulated one or several occupational and/or private pension schemes. Now that defined contributions schemes are popular in Germany, you are looking at the possibility of a UK pension transfer in order to consolidate your investments and pensions. There are different pension transfer options so when looking at a potential UK pension transfer to Germany, each pension has to be looked into on an individual basis, especially with occupational pension schemes. An independent financial adviser will be able to analyze your unique situation and offer their guidance on possible pension transfer options.

Reasons to transfer your UK pension to Germany

• Changes to regulations in Germany – Occupational and private pensions in Germany have a favourable tax treatment
• Take advantage of an increased level of flexibility and control of your investments by transferring your pensions to Germany.
• Consolidation of pensions
• There is DTA agreement between Germany and UK. This means that you will not be double taxed. You will pay tax in Germany and you will not be taxed at source in the UK.  In order to do so, you need to apply for a UK Nil tax code.
• Since 1st January 2018, Defined Contributions pensions were introduced as allowed and legal pension schemes. This was done in order to strengthen the overall retirement system.
• You might also be able to transfer your pension to a Qualified Recognised Overseas Pension Scheme (QROP)
• With a QROP you might be able to pass on benefits at a lower tax rate upon death.
• A Malta QROP can protect you from UK inheritance tax but you must have been a non-UK resident for the last five years or more. This is in order to avoid paying a 45% income tax on your pension in the UK.

What to do next?

At Harrison Brook, we can assess your overall financial situation and analyze your pension requirements and provide you with the best advice. We are also committed to providing you with fully independent and fee-based advice.

Harrison Brook is a cross-border pension transfer specialist. Get in touch today to discuss how we can assist with your financial planning and to find out more about your pension position and options. Harrison Brook is a cross-border pension transfer specialist.