Get to know today’s pension landscape

We outline six pension issues affecting British expats, from State Pension payments to tax-efficient transfer options for private pensions.

We outline six pension developments affecting British expatriates today, from State Pension payments post-Brexit to tax-efficient transfer opportunities for private pensions.

1. State Pension increases should continue post-Brexit

Reassuringly, the UK government pledged to continue yearly cost-of-living increases in State Pension payments to expatriates in the EU. Increases will track whichever is highest – the rate of inflation, earnings or 2.5% – until at least 2022. See more about Britain’s Brexit pledges

2. ‘Final salary’ pension providers are at risk

Employers offering these ‘gold-plated’ pensions guarantee an inflation-linked income throughout retirement. But many companies today are struggling to afford promised lifetime benefits. Like BHS, companies with significant shortfalls can collapse – so could their pension schemes. 

The government’s Pension Protection Fund offers a safety net, compensating up to £34,655 a year at age 65. If your pension benefits are worth more, consider transferring.

3. ‘Transfer values’ have never been higher

To save costs, many final salary pension providers are offering members high pay-outs in exchange for giving up future benefits. Today, some transfer values are 30-40 times the annual pension payment due – often hundreds of thousands of pounds. Properly managed, such sums can potentially provide a retirement income that well exceeds the original annual payment. But take care to understand the long-term implications of giving up a guaranteed pension for life. Six questions to consider before transferring a ‘gold plated’ pension

4. Expatriates have tax-efficient and flexible options  

You could potentially unlock tax benefits by reinvesting UK pension funds into compliant arrangements for your country of residence, or by transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS). Doing this can also offer multi-currency options that help insulate pension income from volatility in the Pound and Euro. You could find more estate planning flexibility too, including choosing who inherits your pension wealth beyond your spouse. Take guidance to establish what might work for you.

5. A lower pension allowance could catch you out

UK pension benefits (excluding the State Pension) totalling over £1 million breach the lifetime pension allowance. Anything over this triggers 55% UK taxation when taken as cash, 25% for income or transfers, regardless of residency. Those near the limit should consider HMRC ‘protection’ options or transferring to minimise tax penalties. Find out how to avoid the lifetime allowance trap

6. Regulated advice is essential 

Transferring is not suitable for everyone, especially from final salary pensions, where you are forfeiting a ‘gold-plated’ income for life. In any case, to avoid pension scams it is essential to employ due diligence and use a regulated provider. For benefits worth over £30,000, the Financial Conduct Authority makes this compulsory, but this is prudent for anyone considering their pension options.

If you decide to transfer, now may be the time to act as today’s high transfer values and tax-efficient opportunities may be short-lived. Take personalised, professional advice to ensure you do what is best for your financial security. 

See more about your pension options

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.