UK Pension Transfers - The Basics
Pension deficits have reached all-time highs in recent years, and with changes in pension rules now offering more flexibility than ever, members are taking more interest and exploring their options.
There are generally two types of pension schemes:
Defined benefit pensions pay an income relative to length of service or finishing salary at retirement (aka final salary). Trustees manage the schemes and ensure that contributions are maintained by employers. 'DB' schemes have become extremely expensive to run and deficits have rocketed as a result, with many employers replacing them with defined contribution (or money purchase) schemes.
Defined contribution schemes are usually paid into by employees and employers to purchase funds that will create an income at retirement. The value is dependent on fund performance and the charges deducted.
If you live in your home nation it may be possible create your own personal pension as you can in the UK, where the government offers incentives such as 20% tax relief on contributions for personal, stakeholder and some workplace pensions, as long as you do not exceed the following limits:
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£40,000 a year (the current annual allowance)
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100% of your earnings in a year, the limit on tax relief
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£1.073,100 million in your lifetime (the current lifetime allowance)
For expats it is vital for expats to know that as 'non-relevant' UK individuals without UK earnings, tax relief on contributions won't usually apply above a maximum of £3,600 pa (£2,880 plus 20% tax relief). More about tax-relief can be found on our International SIPP page.
Expat Pension Transfers
Legislative changes in 2006 made it possible to transfer final salary pensions into other schemes offering greater access, investment flexibility and the option to pass assets to loved ones after death. Transfers into qualifying recognised overseas pension schemes (QROPS) and SIPPS soared, with expats looking to convert their UK schemes in to 'expat pensions'.
Things To Look Out For
Transferring your pension offers many benefits but if you live somewhere with less stringent financial regulation, advisors may still be able offer you expensive or even unregulated investment funds. Campaigns by regulators warning of cold-calls and and 'too good to be true' investments, people are still falling victim to scams.
Many international IFA's are still widely commission-based and get paid for selling products to benefit themselves more than customers. So it is crucial to request clear explanations of fees and charges and how your advisor is paid, along with the potential sacrifices you'll be making by moving your pensions, such as an inflation linked income for life and spouses pension on your death.
The Expat Advisors provide clear and concise expert guidance and full disclosure on every aspect of the investment process and eliminate any risks associated with unregulated advice. To learn more, get in touch today and we'll show you how.
