A very common question I get asked as a financial adviser working with many expatriate clients in Asia is whether it is a good idea to transfer a UK pension. It is certainly a sensible question to ask for those wishing to ensure that they are making the most of their savings and investments to secure a comfortable retirement. Unfortunately, the decision is not always a simple one to make.
The pension landscape can seem like a minefield. My clients have invested into a myriad of different pension schemes, including employer pension schemes, private pension plans, Personal Self Invested Pensions and overseas pensions, and there is a wealth of different options on offer for ongoing investments. How do you navigate through it all?
This article is aimed at helping you understand the key factors to consider when transferring a UK pension and some of the options available to expats to maximise their income streams in retirement.
What is a pension transfer?
Put simply, a pension is an investment wrapper with special tax benefits and rules set on how the scheme must be administrated, set out my UK HMRC. You make payments into the scheme which are invested in order to build wealth which you will access to support yourself when you retire.
A pension transfer means changing the wrapper so that you withdraw your funds from a particular product, plan and/or provider and invest them elsewhere, within the pension trust structure, usually into a SIPP (Self invested personal pension).
Why would you transfer your pension?
There are numerous reasons why it might be beneficial to move your pension savings; the most common of these include:
- To revise your exposure to risk
- To consolidate multiple pension plans into one savings vehicle to achieve higher growth
- To reduce the fees you pay
- To benefit from the different options available to you if you are relocating abroad
- To improve tax efficiency in your country of residence
- To make your pension easier to access and manage
- To increase the flexibility with your benefits in retirement
- So that your beneficiaries can receive an income in the future or an asset which can be passed on
- For future potential IHT benefits
- Due to ill health and providing a higher amount of benefits while you are alive
It is worth noting that transferring a pension is a decision that requires a holistic approach. You need to consider your overall financial situation, including all the different aspects of your personal circumstances, your current financial position and your future financial goals. It is essential to consult your financial adviser to talk through your options and work out the best pension structure for your situation.
What factors do you need to consider before transferring a pension?
- How your current pension plans are performing and ease of transfer including exit fees and other possible restrictions
- What benefits you are giving up if you transfer. Do you have any guaranteed benefits with your existing pension?
- When you plan to retire
- Where you plan to live when you retire
- Your residence and domicile status and how changing your pension scheme may affect it
- Exposure to risk of your existing investments and how it matches your current risk tolerance
- Upcoming expenditure – you might need to release some equity from your savings to cover major costs such as university fees, a deposit on a house etc?
Which scheme should I transfer my UK pension into?
The most popular schemes expats looking to transfer their UK pensions opt for are SIPPS and ROPS.
- SIPPS – Self-invested Personal Pensions
SIPPS are often described as a DIY pensions but you don’t actually have to manage it yourself. The DIY bit simple means that you, and/or your financial adviser, take on the responsibility of building and managing your own investments. You choose how and where to invest to build your wealth based on your risk profile. You are in control and can tailor the SIPP to your requirements deciding how and when to access the funds.
- ROPS – Recognised Overseas Pension Schemes
These are occupational pension plans which are recognised by HMRC and can receive transfers of funds from UK pension schemes. There are tax advantages and these schemes offer the possibility of drawing lump sums and paying tax at local rates.
Deciding whether a SIPPS or a ROPS is better for you is an important decision which, again, should be taken by looking at your overall financial situation. You should talk through the options in detail with your financial adviser.
Given all the complications that are involved in cross-border financial planning, trying to go it alone in navigating the advantages or disadvantages of transferring your pension, understanding the regulatory frameworks that are relevant to your situation and the tax laws applicable to you is fraught with danger. Take expert advice.
If you don’t already have a financial planner, or if yours does not have cross-border expertise, I’d be happy to help you maximise the potential of your pension savings. Feel free to contact me for an initial, free, no-obligation chat.
Senior Financial Consultant- Highly Commended Emerging Talent of The Year (International Investment Awards 2019)
I aim to maintain and grow an excellent relationship with each client which lasts throughout their working lives and beyond. I strongly believe that a good financial adviser can make a significant difference to an individual’s financial success and positively impact their lives, which is why I love doing what I do.