Retirement News & Insights

When an expat is faced with the question of what to do with their pension, there are several options available to them. And it's important to understand everything that could be beneficial for your pension pot because very few countries offer their citizens high standard pension systems, as shown by the latest Melbourne Mercer Global Pension Index, which ranks the pensions provided by the governments of 30 countries.

The good news is that the Index's ranking had a few standouts. Near the top of the table, coming in at number two (beaten only by Denmark), was the Dutch system, which is great for any expats in the Netherlands who are eligible to receive the country's state pension. If you've lived or worked in Netherlands, then you would have built up a Dutch state pension. The longer you have lived in the country, the larger your Dutch pension will be (you can combine it with a state pension accumulated in another EU and EEA member country).

Recent pension transfers I have been involved with include British Airways and BT, amongst others, and these have prompted me to consider their perceived “gold-plated” image and whether clients may be better off transferring out to a Self-Invested Pension Plan (SIPP), perhaps, or a Qualifying Recognised Overseas Pension Scheme (QROPS).

If you are contemplating your pension planning, ask your pension trustees to send you a Cash Equivalent Transfer Value (CETV) and you may be shocked by the size of the sum involved. The British Airways Scheme recently offered over £500,000 transfer value to a member whose pension entitlement would be £20833 at retirement. That’s 24 times the income.

Brexit has thrown up so many concerns for expats already that it's no wonder expats are feeling jittery.

And now it has emerged that private pension providers based in the UK are in danger of not being able to pay pensions to British expats after Britain leaves the EU in 2019.

The risk is so significant that Nicky Morgan, chair of the Treasury select committee, has written a letter raising his concern about the matter to Phillip Hammond, asking the chancellor whether he plans to discuss the problem soon during Britain's exit negotiations.

Since the Pensions Freedom Act came into force in the UK, in April 2015, there has been a huge outflow of money from defined benefit pension schemes and personal pensions in the UK. Many people have taken advantage of the new flexibilities by having control of their own pension pots.

However, it's becoming increasingly difficult to transfer from some schemes now, as hurdles have been put in place by some providers.  It is true that these hurdles ensure that individuals are not transferring their pots to unauthorised schemes, but they also act as a "double check" that the advice provided about the pension transfer is from a qualified Independent Financial Adviser (IFA).

What is a frozen pension?

The term “frozen pension” can be misleading, because a frozen pension can be defined in multiple ways. In short, however, a frozen pension is one which no longer increases in value. This could be because you have moved abroad and no longer eligible for increases through inflation, or you’ve moved employer and are no longer contributing.

But does this really apply to you?

My recent meetings with clients have largely revolved around transferring pensions out of the UK into Qualifying Recognised Overseas Pensions (QROPS to you and me). Without exception, all of my new clients have been scared to discuss their UK pensions with a Financial Adviser in Spain because of headlines like the one above (Financial Times – March 10, 2017).

Juicy lottery-sized sums are being offered to savers to tempt them out of gold-plated workplace pension schemes and into personal plans. We’ve explored whether you should consider taking a final salary pension, as well as the benefits and drawbacks of withdrawing.

What is a final salary pension?

A final salary pension, sometimes referred to as a gold-plated pension, is a special style of retirement fund that is based on your final or average salary.

The main difference between this and a defined contribution pension is that a final salary scheme gives you a guaranteed sum annually for the rest of your life when you retire.

To work out the value of your final salary scheme, consider a few factors: 

Your final or average salary at your place of employment (confirm this with your employer) Your length of service The final salary scheme’s accrual rate (this is often 1/80th)

Your final salary pension will take each factor into account, and the resulting figure will be the guaranteed annual sum you are entitled to.

For instance, if you worked somewhere for ten years, and leave on a salary of £100,000, with an accrual rate of 1/80th, you will have a guaranteed retired annual income of £12,500.

It is possible to undertake a final salary pension transfer. Depending upon how long you expect to enjoy retirement, this could be a favourable choice. However, it’s important to consult a financial advisor to make your final salary pension transfer values work harder.

What are the benefits of transferring a final salary pension?

Assessing your final salary pension transfer value, you might consider it worthwhile to withdraw. We’ve outlined the main benefits of taking your final salary pension:

Receive the cash value of your final salary pension

Withdrawing from a final salary scheme allows you to receive a cash lump sum in return for forfeiting your guaranteed income in retirement. This final salary pension transfer value is the main reason to withdraw from a scheme, as it offers you financial freedom.

Remove ties with your employer

This is an especially important point if you’re concerned that your employer may not exist throughout your full retirement. For most, the pension protection fund (PPF) will cover your pension, but, for especially high earners, there is a PPF ceiling of £41,461 (as of April 2020).

Enjoy a flexible income in your retirement

A final salary scheme entitles you to a guaranteed annual income when you retire, but if you go down the route of transferring your final salary pension you will be able to enjoy a little more flexibility in how you receive your income. Usefully, by withdrawing from your final salary scheme, you can choose to take more out in your younger years.

Choose how you want to invest your pension

A final salary scheme is controlled tightly to accommodate all employees and their interests. When withdrawing from the scheme, however, you can take complete control over how your pension fund is invested.

The considerations you should make before transferring your final salary pension

While there are certainly benefits of going down the route of transferring final salary pension funds into various other pots, it’s important to consider what you’ll be giving up:

Entitlement to a fixed annual income for the rest of your life A safe income that doesn’t fluctuate with volatile markets and share prices Spousal and family benefits that come with a final salary scheme  Example: Should I cash in my final salary pension?

An example is Mrs Dee (not her real name), 4 years ago she asked for her final salary transfer values, which came in at £250,000 - a nice sum, you may think. After reviewing all the facts and figures available, however, I advised Mrs Dee to leave her final salary pension where it was, which she duly did.

Towards the end of last year, because of favourable market conditions, I applied again to see the value of transferring her final salary . This one came in at just under £600,000.

A new study has highlighted the issue of the gap between women's pension pots and those of men. The size of the difference? According to the research, by the end of her working life the average woman could potentially end up £47,000 worse off than men in terms of what's in their pension pot.

The study, carried out by Zurich, looked at 250,000 pension plans, making it one of the largest studies of workplace savings. It looked at pension plans broken down by age, gender, and the contribution rate of employers and employees.