UK Pension Transfers

Updated 1/11/2018.  Most likely, you have already started to save for retirement back home; but when you move overseas, typically your pension becomes frozen. With nobody looking after it – well, is it working hard for you? Also, if you have a defined benefits scheme (final salary) with a previous employer, can you trust that it will still be there when you retire, or do you have better options right now? These are matters that I routinely assist clients with, and help them take more control over the assets they’ve already worked hard to accumulate.

What is a UK Pension Transfer?

Very simply, government rules allow you to transfer your UK pension fund, or funds, into a different pension scheme.  So long as you are careful to follow the rules.

There are a variety of reasons why people choose to do this:

  • You are unhappy with your current scheme, don’t seem to be getting the growth you want, and want to take back control of your retirement assets;
  • You have multiple pensions, perhaps have lost track of some, and want to bring them all together for easier management;
  • You want access to wider range of investments than are currently available to you;
  • You want to access the investment advice and expertise of a wealth manager or financial adviser, and your current scheme doesn’t allow you to appoint one;
  • You plan to retire abroad, and want to diversify your currency risk away from GBP, because later on you need to take your pension income in a different currency;
  • You have a defined benefit (final salary) scheme from your employer, but are worried that the scheme is underfunded and you don’t want to risk losing a big chunk of your entitlement;
  • You have a defined benefit scheme from your employer, but would prefer to convert that to a lump sum rather than a pension entitlement, either for your own needs, or so that you can pass the wealth on to your beneficiaries when you die;
  • You are non UK citizen, worked in the UK and have a pension fund, but will never return to live in the UK.
The above is by no means an exhaustive list.  Everyone’s situation is unique, but the start point is to get a transfer value from your current pension scheme (or schemes).  This will then allow you to asses your pension fund within a broader context of your financial plan, and explore options in discussion with your advisor.  As a matter of routine I can arrange transfer valuation statements for my clients UK pensions; all this is required is a simple Letter of Authority.

Quick Overview of Pension Schemes

Defined Contribution Schemes

These are the most common nowadays, especially for newer schemes.  You save a specific amount each month, perhaps with some contribution matching from your employer.  Your money is invested into funds that you have selected, or have been chosen for you.  When you read a valuation statement of your defined contribution pension, it shows the amount of money in the fund at the present time, and some projection as to what that might generate for you as an income at retirement (with and without taking a 25% tax-free lump sum). 

In other words, the value of your defined contribution pension is determined by how much you’ve saved (hence they are sometimes called money purchase schemes) and the growth of the fund itself.

There are several different varieties of defined contribution scheme.  Common types include Executive Pension Plans (a company pension scheme), and personal pension schemes such as a Stakeholder Pension or a Self-Invested Personal Pension (SIPP).

Defined Benefit Schemes

These are always workplace pension schemes arranged by your employer, and typically final salary schemes or career average schemes.  The main difference between these types of scheme is how your entitlement is accrued during your working lifetime.  When you read a valuation statement of your defined benefit pension, it shows a pension entitlement projected to your target retirement age.  Some defined benefit schemes will allow you to take a tax-free lump sum, and the rest as regular pension income. 

In other words, the value of your defined benefit pension is determined chiefly by your length of service and level of salary during employment.  When you die, your spouse may be entitled to a half-pension, according to the terms of the scheme.  When both of you are deceased, there is no further entitlement to pass on to your children or other beneficiaries.

What Schemes Can I Transfer Out Of?

In general, all types of defined contribution scheme will allow you to transfer your pension pot to another scheme.  Most types of defined benefit also will, however some types of government and public sector schemes do not. 

Note that if a scheme is still ‘live’ i.e. you and/or your employer is still contributing, it generally does not make sense to consider a transfer.  However if you are resident overseas and your UK pension is ‘frozen’, it always pays to request a transfer value so that you can properly asses the choices available to you.

What Schemes Can I Transfer Into?

For maximum flexibility and control over your own retirement fund, a SIPP (Self-Invested Personal Pension) is usually recommended.  There are several types of SIPP, and your advisor will be able to explain your options.

If you are likely to be overseas for several years, and will probably retire abroad, then a QROPS (Qualifying Recognised Overseas Pension Scheme) may be an option, but only if you’re going to be resident within the EEA (else there’s a 25% tax charge).

Simple Steps to Taking Control of Your UK Pension

STEP 1 – Letter of Authority

A Letter of Authority (LOA) is a simple letter that lets me contact your pension provider on your behalf, to obtain full details of your pension, it’s benefits and a ‘cash equivalent transfer value’ (CETV).  The LOA does not authorise any changes or fees to your pension. 
Pension providers are notoriously slow!  The process of retrieving the details we need can take up to three months.  Naturally myself and my team make a big effort to accelerate things if possible.

STEP 2 – Analysis of your Pension Rights and Benefits

I carry out an analysis of your existing pension (or pensions if you have more than one), taking into account several important factors of your current scheme:
  • All costs associated with your current plan
  • Any benefits such as life or health protection, bonuses, guarantees, or other elements that may apply.
  • The investment funds, how much risk they are taking, and their performance over the years.
  • The value of your plan, including any enhancements or penalties in the event you transfer your pension.
  • The specified retirement age.
  • Death benefits, including any details of the nominated beneficiaries they have on file.
  • The income you will likely get in retirement.

STEP 3 – Determine Options and Make Recommendation

If in my opinion the best option for you is to keep your pension money where it is, I’ll advise you of that straight away.

However many people find that transferring their pension is an attractive option.  Once you have full control of your pension assets, you are in a much better position to make important decisions.

What does it Cost?

I make no charge for assisting in retrieving all your pension details, or carrying out the analysis of your options. 

Before you decide whether to go ahead with a transfer, I will explain all fees applied by the pension scheme (if any), and also highlight my professional advisory fees, which are generally in the region of 1%.

To start the process and take control of your UK pension funds, please contact me now.

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