Whether you are looking to draw on your UK pension in the UK or whilst residing abroad, pension advice from a suitably qualified professional independent financial adviser is essential in our opinion. There are so many pitfalls, some of which may not even be obvious at the time of transferring but you learn about much later on, when it is too late to reverse.
Many people are thinking of consolidating multiple pension pots for ease of management or to transfer to an overseas pension scheme and receive their pension income in the currency of the country they have moved to. So how can you ensure you get the best results for a financially secure retirement? What about tax implications on transfer or consolidation, and how will your pension benefits be affected by moving out of the existing scheme? Will Brexit change the rules? What are you unknowingly giving up? Google probably has all the answers, but what questions do I need to input?
These tips should help you avoid buyer’s remorse at a later date:
1. Check your financial adviser’s registration with the UK Financial Conduct Authority (FCA).
The easiest way to do this is to look up the firm or financial adviser on the Financial Services Register https://register.fca.org.uk/. The description of the company’s regulated activities will reveal whether they are authorised to provide pension advice. Taking regulated advice is compulsory for transfers of ‘final salary’ pension benefits worth £30,000+, and many pension providers insist that regulated pension advice is obtained on transfers out of money purchase schemes with guaranteed benefits. UK Regulated financial advisory companies have to maintain public indemnity insurance and adhere to strict standards in order to justify to the regulator (if ever challenged in the future) as to why they recommended a transfer or not. This liability to formerly justify their advice is life-long and can be challenged at any-time in the future, therefore the consumer can have trust and confidence in the fact that a UK regulated adviser is advising them on what is right for them and not motivated by how much fee or commission the adviser will earn.
The UK financial services regulatory authorities such as the Financial Conduct Authority (FCA) are considered to be the gold standard by many around the world and we lead the way in consumer protections. Unfortunately there are many other countries around the world, where the financial advisers are not held to account for their advice to consumers or the authorities do not provide the same levels of consumer protections and standards as here in the UK, hence why many clients will often visit the UK for the specific purpose of receiving financial advice from an FCA authorised person.
2. Cross-border tax advice tailored to your situation is a must.
Tax treatment of pensions in other countries may differ to the UK and can be very complex. Many UK pension advisers do not have the necessary expertise or experience of overseas taxation and how this may affect the eventual benefits you take from your pension. In many ways the affairs get complicated when succession, wealth and income tax mitigation come into play at the same time. This can lead to much higher tax bills in future than necessary and by engaging with the right international adviser in the first place, the hassle can be avoided.
3. If it looks too good to be true, then it probably is.
Be aware and cautious of company’s cold-calling you especially if they are not regulated: there is no recourse if things go wrong. Never commit to signing anything under pressure and check the adviser’s credentials and experience before you engage in a follow-up conversations.
4. Look at the bigger picture.
Our clients have many different reasons for wishing to transfer their existing pension arrangements, but most commonly it is to pool a number of smaller pension pots into one and potentially make it easier to see all their pension savings in one place, or to have a wider underlying investment choice.
Whatever your motivations may be, you could end up saving money in terms of the total fees and charges you were paying before, but this should never be the main driver, as there are multiple things to consider. So weighing up if a transfer is the right thing for you in the first place is not a simple matter of finding the cheapest alternative or the new plan that gives you a wider investment choice, they are all just constituent parts of the overall package to take into account.
The main driver for us is to always ensure we have matched your goals with our advice and pointed out any hidden pitfalls there may be, so that you do not live to regret your initial decision to transfer or not, as the case may be.
Pension consolidation is not suitable for everyone and differences between old schemes and new ones can result in loss of protected benefits or guarantees. In many cases, clients are not even aware that their pension benefits may carry such substantial values and that it is in their best interests not to transfer the pot at all.
There are lots of benefits offered by Qualifying Recognised Overseas Pension Scheme (QROPS) which Include: more flexibility with withdrawals, such as the option to take your benefits in sterling or perhaps a different foreign currency so as to limit the effect of currency fluctuations on your pension income during retirement. Freedom to pass benefits to heirs other than your spouse. Transfer to a QROPS whilst your total pension pot is below the lifetime allowance (currently £1,000,030.00) and all future growth will not face the lifetime allowance charge. However, a QROPS will not suit everyone and is not always the most tax-efficient solution.
Alternative investment structures could offer expatriates and UK nationals planning to live abroad, comparable benefits to QROPS.
With some current opportunities not expected to survive post-Brexit, there might be limited time to take advantage of certain freedoms. Having said that, you should not rush into making decisions, and instead take time and involve knowledgeable financial professionals to establish the most suitable strategy for your retirement.
In summary, to try and tackle any sort of pension transfer without professional advice is financial suicide and the government and regulators realise this, hence why they have virtually made it impossible for you to do.
If you have been thinking about your retirement plans for a while and been wondering where to go and who you can trust for an honest opinion and advice then feel free to give us a call for a friendly free of charge initial chat – we won’t bite, promise.