Retirement News & Insights

by Keith Littlewood, International Financial Adviser Costa Blanca

A brand new state pension was ushered in on 6 April 2016 as a result of a massive shake-up. The new payout has been designed to make the whole process easier to understand, although it’s still far from simple.

The old system was in two parts, a basic state pension of £119.30 plus an additional pension, if applicable, with 30 years NI contributions required to get the maximum amount.  Under the new system there is a flat rate payment of £155.65 plus any protected payment for which you will need to have 35 years NI contributions to get the maximum amount.  There are also a minimum of 10 years in the NI system required to get anything at all. 

We have all read in the press recently about the demise of BHS, but the most worrying part of the story is how this will impact UK taxpayers and BHS pensions. UK taxpayers will have to cover the statutory redundancy pay of the company’s 11,000 staff. Based on previous failures, such as Comet, city experts believe the bill will top £40 million.

At the same time, every worker in the UK who is a member of a company pension scheme will have to help fill a black hole estimated at £571million in the BHS pension scheme. This is because the Pension Protection Fund, which steps in when businesses collapse, gets its money through a levy imposed on all company schemes. 

As the baby boomers hit pensionable age, the issue of pensions has become more important politically than ever before. This is a fact which has been reflected in the raft of changes that have been made by both the current and the previous government over the past few years. Baby boomers could be forgiven for feeling a little confused by it all and even retired expats with considerable regular savings are no different; pensions and pensions rules affect all.

Whoever you are, wherever you have settled in Europe and whatever the nature of your pension scheme – final salary or defined contribution – it is essential that you get advice regarding both your expat regular savings and your pension scheme; it can mean the difference between uncertainty and security.

Many UK expatriates do not realise that even if they have left and are no longer resident in the UK, they remain UK-domiciled and therefore subject to UK Inheritance Tax (IHT) on their worldwide estate at a rate of 40 per cent after allowances. This can come as a major shock. 

What can be done about this? There are several options. 

Transfers of wealth on death between husband and wife are exempt from IHT, but only if the spouse is also domiciled in the UK (or both are non-domiciled). This catches out many expatriates who have married a foreign passport holder who is likely to be domiciled elsewhere. Even then, the IHT is only delayed rather than avoided, because on the death of the survivor the tax will be payable on the passing of the family assets to the next generation. 

Although having solid expat regular savings is important no matter what the financial climate, it is good to see that recent efforts by campaigners to end the freeze on state pensions currently endured by more than half a million retired expats abroad may be gaining momentum.

As it stands around 550,000 retired Brits abroad have to rely on their expat regular savings to top up a state pension which was frozen at £67.50 a week; nearly a full £40 less than the sum received by other pensioners.

The unfairness of their situation is compounded by the fact that the Government has struck individual deals with certain nations ensuring the full, unfrozen pension, but has left the expat residents of another 150 countries stuck with the year 2000-level pension.

For many, the stresses and demands of work often leaves little time to consider your personal affairs and it is easy to put things on the back burner. International jobs whilst often paying “top dollar” can be transient in the regard that you may be in Paris this year and New York the next. Compound this with changes of employers and local pension regimes (if there is one) and one can quickly find that retirement provision is fragmented and very soon not in line with current earnings or expectations for your exit from business and eventual retirement.

A survey by Old Mutual Wealth has found that 38% of international financial asset management professionals would like a review of the new QROPS pension transfer scheme rules. Only 20% said they were happy with the new rules, while 40% described themselves as “unsure”.

As part of rules introduced in April 2015 those undertaking QROPS pension transfers should receive independent and impartial advice from a professional appropriately authorised by the UK Financial Conduct Authority.

Many people have pension pots just sitting, not really doing anything, but at every stage in life it is very important that you should keep track of your retirement provision.

If you are in your 30s or 40s look closely to what provision you have and what you might need in the future. State Benefits are not going to kick in for you until you are 67.

If you are in your 50s then this is a very critical period. One bad investment year can affect the income you receive for the rest of your life, so make sure you are looking at setting your investments up in a balanced way so that no unforeseen disasters can hurt you – this is called ‘Life Styling your Pension Pot’.