UK Pension Transfer FAQ's, Defined Benefit Schemes
Every new year we see an influx of clients for as everyone has 'sorting out their pension' near the top of their resolution or to do list. With us receiving so many questions, we decided it would be a good idea to release a few posts with frequently asked questions on both types of UK Pension. Whilst this is specific to defined benefit schemes, we have posted another focussed on defined contribution schemes.
If you had a company pension in the UK then you have the ability to transfer it into a new plan that may bring you benefits.
What is a company pension?
A company pension (also known as a defined benefit scheme or final salary pension) is a pension set up by an employer that upon retirement will pay out an income for life (typically inflation linked) at a value calculated on the number of years you worked for them multiplied as a fraction (usually 1/60) against your salary upon leaving.
How is this type of pension transferable?
The trustees who run the scheme convert these benefits into a cash sum offer known as a Cash Equivalent Transfer Value (or CETV). The sum is a calculation that is made by the actuaries of the pension scheme.
Why would I want to accept this offer?
One of the main reasons that people transfer our of these pensions is to remove themselves from the growing deficits and risk that they may end up receiving nothing. If the company that manages the scheme goes under then so does your pension.
Most of the schemes are under funded and sitting with huge deficits. A major study by the Pensions and Lifetime Savings Association (PLSA) stated that three million savers in remaining schemes had only a 50% chance of receiving the payouts they had been promised. In fact, only 11 household names including Sainsburys are sitting on deficits that are not only larger than their market capitalization but in some cases their deficit is as much as six times what the company is actually worth.
So how do I receive this cash sum?
If you accept the offer then they will transfer the amount to you but only into pension scheme with another UK based employer (if you are still working in the UK), to a UK registered and licensed SIPP or if you are residing overseas in the European Economic Area or a ROPS country (Australia, New Zealand, Hong Kong or Barbados) then to an HMRC registered plan overseas.
What is a SIPP?
A SIPP (or Self Invested Pension Plan) is a UK registered personal pension that unlike the conventional UK pension plans offers greater flexibility and freedom.
What are some of the benefits in transferring my UK pension into an International SIPP?
Our International SIPP has been structured with the expatriate in mind. Aside from taking advantage of the new rules under the Pension Freedoms Act, giving you maximum flexibility it also offers the further benefits of:
Having access to a much larger range of investment products
The ability to leave 100% to your chosen beneficiaries and not losing 50% on death
Access to a Wealth Manager to ensure that your investment strategy is always up to date
Monies paid out gross to eliminate the risk of double taxation
What is the Pension Freedoms Act and why would this apply to me under the International SIPP?
In April of 2015, the UK government introduced new rules under the Pension Freedoms Act which allow one to have:
Earlier access to your pension from the age of 55
The ability to access the pot as you please with no set limit
Your current pension provider will most likely not follow these rules as there is no legal obligation to do so and they do not want to lose their clients any sooner than they need to.
What is the process for transferring my pension?
In the first instance we would need to understand what pension(s) you have and what your goals for retirement are. We would get in touch with your pension company and ask for the latest valuation along with other information and put together a report of advice.
If after receiving the advice you decide that you would like to proceed then we will establish your new pension trust, contact your pension company and then have them transfer the balance from the sale of your investments directly into your new plan.
How much does all of this cost?
Depending on what type of pension you have, there might be some minimal establishment costs however Loadstone Group only charge an annual management fee to manage the pension after the transfer has taken place. All other associated fees for the establishment, where applicable, will be disclosed prior to any decision being made and will be deducted directly from your pension.
What would be the next step if I want to explore this further?
The next step would be for you to contact us by email or through form on our site. We will appoint a Wealth Manager that covers your region to get in touch with you and then reach out to your previous employer to obtain a Cash Equivalent Transfer Value for you. Once he or she has obtained this offer they will conduct an interview with you and then present you with a no obligation report of advice.
To contact us and learn more, please email your Wealth Manager, info@loadstonegroup.com or alternatively complete the contact form on our website at this link.
