Expats can stay strong in face of Brexit

There’s quite a buzz around pensions at the moment – and rightly so, as they provide the backbone of our income in our later years. But currently, pension deficits are hitting the news, and figuring them out can still prove difficult.

Pension deficits concern what are commonly known as “final salary pensions” or Defined Benefit schemes.   Final salary or defined benefit (DB) schemes are essentially occupational pension schemes that provide a set level of pension at retirement, the amount of which normally depends on your service and earnings at retirement or in the years immediately preceding when you retire. Because your pensionable salary is used as one part of the formula in order to calculate your pension, a final salary scheme is commonly referred to as a ‘salary related’ scheme. Two common examples of ‘final pensionable salary’ would be your last year’s pensionable earnings or an average of your last 3 years’ pensionable salary.

Recently, there have been high-profile failures of these systems, such as the folding of Monarch Airlines – and the collapse of their pension fund. Initially, it appeared that owners could still walk away with a profit (after new hands tried to turn the airline into a more accessible and “Ryanair-like” product) by offloading debts, and this included dropping the pension fund. Ironically, this was once a major credit to the business. The fund, which is now in the Pension Protection Fund (PPF), had been under speculation of being left short when the business first began to struggle back in 2014, after years of asset-stripping.

So, you’re wondering – what is ‘robo-advice’?  There is a growing market in the UK of online offerings where, instead of going for a consultation with a financial adviser, you use a questionnaire devised by the provider which, depending on your responses, advises you where best to put your cash.  Investors are placed in a broad investment strategy that, in theory, suits their objectives and attitude to risk. These strategies largely consist of passive investments which ‘track’ an index.

The move has come about in response to the retail distribution review which ruled on how advisers were paid and, in essence, meant they had to charge an up-front fee.  This led to many advisers devising a minimum sum they would accept for a consultation.  Clearly someone with a modest pot of money might feel that the charge was too great and therefore miss out on the opportunity to receive professional advice.