The Hidden Cost of Ignoring Your Previous UK Workplace Pension as an Expat

(And Why a Transfer Might Be the Smartest Move You Make)

When you moved abroad, you probably packed up your life: your passport, your career, your family. But did you take your pension with you?

For many UK expats, pensions are their second largest asset after property. But unlike your home, which gets regular attention, your pensions are often neglected. Without regular reviews or active management, these can underperform, be misaligned with your goals or even result in significant tax consequences. Which can quietly cost you thousands over time.

I’ve seen it play out time and again, it’s why this article exists. Let’s unpack the hidden risks of neglecting your UK pensions and explore how a transfer (such as to an International SIPP) could be the smartest move you make.

Why Ignoring Your UK Pension Could Cost You Thousands

You’ve likely built up pension savings in the UK, often through multiple different employers. But do you know where they’re invested? Are those investments appropriate for you? It’s your future after all.

Most workplace pensions invest in default strategies, selected by the employer, designed to appeal to the masses rather than be tailored to you as an individual. Many of these strategies are invested in a “lifestyling” strategy, designed decades ago. This strategy reduces equity (shares) exposure as you approach retirement, shifting into bonds and cash to limit volatility before retirement. This is because at the nominated retirement age (often 60 or 65) the pension pot would be exchanged with an insurance provider for an annuity, a guaranteed income. It was important for the value of the pension pot to be steady prior to the exchange.

What is an annuity? Learn more from our chat with Robert Chan, our partner at Knighthead Annuities. Watch this playlist here.

Sounds logical, right? Not always.

If your retirement age is set to 60, some providers begin this de-risking process as early as age 45. That means you could spend 15+ years with your pension heavily weighted toward low-growth assets, even while you’re in the accumulation stage of trying to grow your wealth.

When ‘Low-Risk’ Investments Backfire

Back in the UK, I once worked with a 59-year-old nearing retirement. His pension with one of the nation's largest pension providers had been shifted fully into bonds by default. Interest rates subsequently rose, meaning the value of those existing bonds dropped because they were seen as less attractive than the new bonds issued. Twenty percent of his pension value was wiped out just before retirement.

His “low-risk” investment ended up costing him dearly, a result of outdated default strategies and no regular reviews. It is important that your pension matches your risk appetite and current circumstances.

Exploring Overseas Pension Scheme When Living Abroad

Since the 2015 pension reforms, people now have access to drawdown; this is now the most popular way of accessing your pension pot. It keeps most of your pension invested and allows you to take income flexibly, separating the tax-free element (usually 25%) from the taxable element.

As an expat, this flexibility opens the door to smarter tax planning and longer-term growth. Transferring to an international SIPP (Self-Invested Personal Pension) can provide even greater flexibility, paying out gross income, allowing you to better align payments with your country of residence.

The Tax You Didn’t Know You Might Be Paying

Many expats assume that moving overseas means their UK pension is no longer taxed by HMRC. Unfortunately, this isn’t always true. Even if you’ve been living abroad for years, withdrawals may still be subject to up to 45% UK income tax, unless your pension is structured appropriately.

If, like me, you're a tax resident in Malaysia, a country with a Double Taxation Agreement (DTA) with the UK, you might be eligible to receive pension income completely tax-free, but only with the right planning.

️A New Risk on the Horizon: UK Inheritance Tax Changes

Previously, pensions were not included in your estate for UK inheritance tax (IHT) purposes. This made them attractive as a legacy planning tool.  

But from 6 April 2027, this is changing. Pensions will become part of your estate for IHT, which could mean:

• Exceeding your £325,000 nil-rate band

• Leaving your beneficiaries with an unexpected tax bill

• Delays and complexities in cross-border probate

This is particularly important for families living internationally. Without proper planning, a once tax-efficient asset could now become a liability.

How to Protect, Optimise, and Manage Your Pension

The next step is making sure your pension savings are working hard for you and are appropriate for your circumstances.

At Melbourne Capital Group, we use cash flow modelling to show you exactly where you stand:

• Are you on track for your ideal retirement?

• How much income will you need, and where will it come from?

• Are you taking advantage of your local tax allowances?

• Is your pension invested appropriately for your goals and time horizon?

It’s a powerful way to take control of not only your pension, but of your entire financial picture.

Recording: Basics of UK Pension, Pension Transfer, and Overseas Pension Scheme

Click here to access our previous webinar recording where we discuss the UK pension scheme, its tax and pension rules, how we can help you transfer your pension, and how we use cash flow modelling to ensure you’re in control of your retirement plan.

Things to Think About Before Transferring your Pension

Before transferring your pension, it’s important to understand exactly what you might be giving up. Some older pension schemes include valuable features, such as the ability to take more than the usual 25% of your pension pot as tax-free cash, or a guaranteed growth rate that would no longer apply after a transfer. Others may apply exit fees or penalties that reduce the overall value of your pension pot. We help clients review what they currently hold, understand whether these factors apply to them, and make sure any transfer is the right decision based on their individual circumstances.

What Makes My Approach Different

Having worked extensively with UK expats across Southeast Asia, I understand the complexity of living a cross-border life. From currency risk and tax treaties to succession planning and ongoing reviews, I help expats align their pensions with their lives abroad. I start with your goals and reverse-engineer the plan from there. My role is to help you make informed, confident decisions that align with the life you’re building.

Your pension isn’t just a number on a statement; it can be your future lifestyle, your freedom, your legacy you leave behind.

Don’t leave it to chance, with the right advice and structure, your pension can become one of the most powerful tools in your expat financial toolkit.  

Whether you’re unsure about your UK pension, wondering if you should transfer your UK pension or not, want to explore your options, or just need a second opinion — I’m here to help. No pressure, no obligation. Just a clear, honest conversation to help you make informed decisions about your future.

Originally from the UK and now based in Kuala Lumpur, Daniel is a Private Wealth Manager at Melbourne Capital Group, working closely with British and international expats across Asia.

Connect with him on Linkedin or email him at daniellees@melbournecapitalgroup.com for more info.