Despite Brexit
and global uncertainty, today's climate can provide opportunities for
expatriates with final salary ('defined benefit') UK pensions.
1. Pension providers
are vulnerable
Employers providing final salary pensions guarantee a known
percentage of your salary throughout retirement. While income depends on salary
and length of service, it is usually generous, especially compared to expected
benefits from other types of pensions.
With today's low interest rates and increased life
expectancy, the cost of funding
these benefits has increased substantially, making it harder for many
companies to afford the promised
pension payments. Like BHS, companies with significant shortfalls can
fail, and so could their pension schemes.
2. Transfer values have
never been higher
To offload liabilities, many companies are offering members
large sums ('transfer values')
to leave. Calculated as a multiple of the future pension payment, some
pay-outs have doubled from 20x two years ago to 40x today – sometimes hundreds
of thousands of pounds. Properly managed, such high pay-outs can potentially provide
a retirement income that exceeds the original annual payment, outweighing the
benefits of drawing a guaranteed pension for life.
3. Expatriates can
access tax-efficient alternatives
Expatriates
may benefit from reinvesting UK pension funds into more tax-efficient arrangements
for Cyprus. This can also offer estate planning advantages. While many UK pensions
are payable to your spouse on death, other structures offer flexibility to
include other heirs, even across generations.
4. A lower pension
allowance could catch you out
UK pension savings (excluding the State Pension) totalling over £1 million
breach the lifetime pension allowance. This triggers 55% UK taxation when taken
as cash or 25% as income, wherever you are resident. Those close to the limit
should consider HMRC 'protection' options or transferring before attracting tax
penalties.
5. Advice is
essential
Despite tempting pay-outs and other potential benefits, transferring
from final salary pensions is not suitable for everyone. Transfers are also a target for pension
scams, so 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.
You should at least confirm your current transfer value and
check if your scheme is at risk. The government's Pension Protection Fund only
compensates up to £33,678 a year at 65, so if your pension offers more and your
scheme is vulnerable, consider transferring.
6. The window
of opportunity may close
If you decide
to transfer, now may be the time to act as such high transfer values may be short-lived. Also, some speculate that the UK government may change
the rules to make withdrawals more difficult, or start taxing pension transfers
for non-residents post-Brexit.
With so much speculation and uncertainty
ahead, there has never been a better time to review your pension arrangements.
Take personalised, professional advice to ensure
you are in the best position to enjoy your retirement in Cyprus.
Please CLICK HERE for a free consultation with one of our Partners, and we can call you to make an appointment. 
