Brits in Spain with old UK workplace pensions left guessing as Britain rewrites how pensions pay out

If you left a workplace pension behind in England and now live in Spain, you could one day be offered a ‘pension for life’ on it. The catch is that the plans don’t mention savers living abroad, and Spain taxes the money in its own way.

Old pots are covered, not just new ones

Brits who left a workplace pension behind in England are included in the plans Pensions Minister Torsten Bell announced on Tuesday November 3, and not just people who are still paying in. Under the Guided Retirement proposals, workplace pension providers would have to offer a default pension, which is a ready-made income that carries on for life, whenever a saver asks to start taking their money.

The consultation says that includes deferred pots (old pensions left behind after changing jobs) and people already in drawdown (taking money out of the pot bit by bit), as long as they aren’t in a default pension already. Final-salary schemes are left out, and so are tiny deferred pots of £1,000 or less.

Savers could still say no

Savers could turn the default down and choose something else, and nothing would be paid out until they ask for it and confirm their bank details. If they never get in touch, the money would simply stay invested. 

For pots above £10,000, the default would have to keep paying for life, so taking the money out bit by bit would be unlikely to count on its own. Some defaults could come from new collective schemes, which pool savers’ money so nobody carries the risk of outliving their pot alone. However, the government’s response says the pension increases wouldn’t be guaranteed and benefits may fluctuate.

The reason for all of this is that around 46 per cent of first-time pension withdrawals in 2025/26 emptied the whole pot, the government says.

Nothing in the paperwork mentions savers abroad

The obvious question for anyone living in Spain is ‘does this apply to me?’, and so far the paperwork doesn’t answer it. Neither the consultation nor the government’s separate response on collective schemes mentions savers who live overseas.

It’s early days, though. The consultation is open until Tuesday December 22, with the collective schemes rules open until Tuesday December 15, and the indicative timetable has providers complying from summer 2029. Those dates could still change. 

Spain will tax the money in its own way

Unfortunately for brits in Spain, Britain’s plan can’t change Spanish tax rules. Under the UK-Spain tax treaty, most UK pension income, including lump sums, received by someone living in Spain is taxed here, and the UK’s 25 per cent tax-free lump sum has no Spanish equivalent once you’re a tax resident. 

So emptying a whole pot, as so many UK savers do, could mean paying Spanish tax on all of it as ordinary income, without the quarter that’s tax-free in Britain. Spain already treats the UK State Pension as income for residents too, as EWN has previously reported.

Until the rules are final, anyone in Spain with an old UK workplace pot should speak to their provider and a cross-border tax adviser before taking money out, because the Spanish tax bill depends on Spain’s rules, whatever Britain decides.