UK Pension Transfers
Should You Transfer Your UK Pension Scheme(s)?
Regulated advice should be the place to start. There are those that have done this that would now wish they had not and there are those that have benefitted greatly. The common denominator between both parties is likely to be the quality of the advice that they were given at the outset.
If you’re an expat that has recently begun to consider this aspect of your finances and has made the decision that gathering information could potentially be beneficial if not educational at the very least then begin with getting proper advice.
Pensions can be complex and understanding the nuances is key. If you’re looking to get some quick answers to your Pension Advice questions, then click one of the options below, or simply Get In Touch.
For more information on Pension Transfers as a resident in Dubai, please contact me by clicking below.
Expat Pension Transfer Advice
Indeed, if you have defined benefit assets that have a cash equivalent transfer value higher than GBP 30,000 it is mandatory for you to obtain UK Regulated advice before a transfer can proceed. This would come in the form of a Defined Benefit Analysis Report, otherwise known as a DBAR. As mentioned above, pensions can be complex and contain many nuances.
There are generally significant differences between schemes and the DBAR must be written by somebody who is a specialist within this area and has been authorized by the Financial Conduct Authority to give such advice. In order to obtain this authorization and, importantly, keep it, the advisor must have a stringent set of pre requisite qualifications, approach each case completely independently, follow strict guidelines laid down by the FCA and adhere to rigid CPD criteria in order to maintain their permissions.
I have listed some examples which may support the idea of transferring your pension scheme or schemes
A Flexi-access drawdown (FAD) is something that you seek (a flexible income).
There is a material risk that your scheme would go into the Pension Protection Fund which could have a marked impact upon your retirement provision.
It could be that your pensionable assets are of little significance to your own personal financial situation.
Your scheme has stated that they will not be increasing payment in line with inflation.
Winding up a workplace pension scheme means closing the scheme and ending the trust.
You have several defined contribution schemes which are difficult to manage and wish to consolidate these.
There is a risk that you may exceed the Lifetime Allowance.
You wish to leave pensionable assets to beneficiaries and would struggle to do this via other means (such as life cover).
Your desired retirement date is being pushed back.
You have a personal pension with high fees.
You have a personal pension that is being poorly managed.
It is possible that you may be offered higher Cash Equivalent Transfer Valuations than would be expected historically which may seem attractive.
You wish to make use of a Double Taxation Agreement (DTA)
Frequently Asked Questions About Pension Transfers
1. What is the process for a Pension Transfer?
Answer: The first stage is to write to your current pension provider and obtain a valuation. If you have a final salary pension scheme (defined benefit) you will receive something called a Cash Equivalent Transfer Value. This will be honoured for 3 months by the UK Trustee. If you have a money purchase scheme (defined contribution) then you will simply receive it’s invested value on any given day which can obviously change.
Once you have this information meet with your financial advisor once again who will explain what it all means and do the analysis for you. In the case of a final salary scheme, a DBAR would be need next so paperwork has to be completed in order to generate one of these.
Once the DBAR has been completed the process can be finished.
The fact that this process takes a fair amount of time is a positive thing as it gives you lots of time to consider all facets of the process as well spend lots of time talking with your advisor and going through the pos and cons.
2. How long does the process take from beginning to the transfer being completed?
Answer: This can vary. The part related to question 1 above which you complete with your advisor will likely take around 2 – 3 months, however, this does not complete the transfer. The UK Trustee or Trustees then have to complete their own due diligence and compliance before moving the money and, depending upon how busy they are, the complexity of the case, the size of the transfer, the liquidity of the scheme, the underlying investments and even the availability of the individual trustee members the timeline can be effected.
If, however, everything has been completed correctly and the UK Trustee takes too long then The Pensions Regulator in the UK has issued guidelines for them whereby they have to consider offering a revaluation – if this figure is higher than the original it must also be adhered to.
3. When should I be looking at this?
Answer: Although individual circumstances will vary, it is important that people with UK Pensions understand them and know what they have got. It is important to understand what you are likely to get from your pension, when you are likely to get it and what would happen if you were to decease prior to that point or, indeed, afterwards. Obtaining this information and getting advice does not mean that you then have to transfer if this is not the right thing to do, however, it is still useful to know all of the above and more.
4. What advantages are there to transferring a final salary pension scheme?
Answer: Again, this is going to be dependent upon the individual and there is no one size fits all answer. However, some considerations might be:
5. I am already receiving my pension – does this make a difference?
Answer: In most cases this will make a difference and you should seek advice as depending upon what type of scheme you have your options may be more limited.
6. What are the fees for transferring a UK pensions?
Answer: This will depend upon a number of factors such as:
7. I have more than one scheme – does that matter?
Answer: No. Often it can actually be advantageous to consolidate numerous schemes into one easily managed scheme. There are no limits to the number of schemes that can be consolidated into a SIPP or a QROPS (the most I have seen is 16).
8. What if I do not know much information about my existing scheme?
Answer: This is no problem. A large financial advisory generally has a department which is specifically designated to trace down pensions where the scheme member may not have all of the details.
Some points to note are that if you are from the UK and you left your employer between April 1975 and April 1988 you will have a pension provided that you were over the age of 26 and had completed five years in the scheme – this was mandatory then. If not, then you will probably have had a refund of your contributions to the scheme and have no further rights.
If you left your employer after April 1988 then you will be entitled to a pension as long as you completed two years with the employer. If you did not then you probably received a refund of your contributions.
9. Does this impact the UK State Pension?
Answer: No. The UK State Pension is a separate issue and is based upon your National Insurance Contributions. Many expatriates are unaware that they can actually continue to contribute towards the UK State Pension on a voluntary basis in order to ensure that they are still building towards that pot whilst they are outside of the UK. This is likely to be worth doing for most expatriates and more information can be found here.
10. What is the pension commencement lump sum?
Answer: In simple terms, this is a lump sum payment from your pension at the point of access that should be paid free of taxation even if you are in the UK.
If you have final salary benefits then the scheme’s rules will determine how much you are entitled to. However, if you have defined contribution benefits it will be up to 25% of the total value of the pot.
11. I have heard about the Lifetime Allowance – does this impact me?
Answer: The Lifetime Allowance is the maximum amount that you are able to have in a pension before you start paying an extra layer of taxation over and above income taxation upon everything above the Pension Commencement Lump Sum. The amount of tax you pay is dependent upon how you access the monies and will be levied at either 55% or 25%.
The Lifetime Allowance currently stands at GBP 1,073,100 and this limit applies to the value of all your pension arrangements including:
If you are approaching the Lifetime Allowance or have already gone beyond it then I would suggest contacting your financial advisor.
12. Is it possible to increase my Lifetime Allowance?
Answer: If you have been working outside of the UK then you might be able to enhance your Lifetime Allowance. This can be remarkably beneficial if you qualify.
Essentially, it is designed to compensate the scheme member for the fact that they did not get tax relief on the contributions that they made towards their UK Pension scheme whilst they were not resident in the UK (as they were not tax resident). It was decided in the Finance Act of 2004 that people in this position might be able to apply to enhance their Lifetime Allowance as they have been paying their income tax in a different country’s tax system. This can potentially be tremendously advantageous.
13. If I am not eligible to enhance my LTA, can I protect it in other ways?
Answer: Both Fixed Protection 2016 and Individual Protection 2016 remain and can be applied for in certain circumstances. However, if you are in this position it likely to be best that you seek advice before trying to work through yourself.