Expat retirement savers who have moved overseas but left a pension in the UK should consider their options as Brexit approaches.
Britain will leave the European Union on March 29, 2019 – although a transition period that could last until December 2020 is under negotiation.
Essentially, expats have three choices to make about their pensions:
- Leave the money where it is
- Shift the cash to a UK SIPP
- Transfer the fund to a Qualifying Recognised Overseas Pension Scheme (QROPS)
But there is no sense in looking at a transfer until you have benchmarked your current scheme.
The worry for many retirement savers with a workplace pension run by a big-name company is if the company can fulfil those commitments.
Pricing pension rights
After several high-profile pension scandals in the past year, many employees will be asking such questions.
If the company goes bust, the likelihood is the government’s Pension Protection Fund (PPF) will take up the slack, but at the cost of 10% of the benefits and a cap on annual payments of around £35,000 a year for higher earners.
Not moving the fund should always be considered. Workplace pensions often have benefits that are irreplaceable on transfer, such as guaranteed annuity rates, index linking against the cost of rising inflation and death benefits for spouses.
Many employers are trying to put a price on the rights by offering enhanced cash values to savers if they leave the scheme.
If you do decide the switch is financially worthwhile, what’s the best scheme for an expat?
SIPP or QROPS?
The answer is the transfer depends on your personal and financial circumstances.
If you are an expat with UK tax residence because you are only overseas for a short time, then a SIPP still offers all the flexibility and tax advantages of any other UK pension.
Once you reach the age of 55, you can withdraw money to spend as you like, have your unspent funds ring-fenced against inheritance tax, while having a much broader range of investment opportunities.
QROPS are for expats who have moved permanently overseas. Any cash taken from the scheme is tax-treated under the rules of the country where you live, but once the fund has been transferred, UK pension rules such as the £1,030,000 lifetime allowance do not apply.
Don’t forget this is a broad brush look at pension transfers for expats – many more factors need considering and it’s vital to take financial advice from a professional pension expert in the UK and in the country where you live.