Pension transfer are a way of moving your hard-earned pension funds from one provider to another.
On this page:
What is the difference between a Defined Benefits Pension and a Defined Contribution Pension? | Should I transfer my pension? | What are the advantages of a pension transfer? | How do I transfer my pension? | What is a Self-Invested Personal Pension (SIPP)? | Transferring your UK pension overseas | What should you know about the UK State Pension? | What is a pension transfer specialist?
The definition of a pension is “an amount of money paid regularly by the government or a private company to a person who does not work anymore because they are too old or have become ill.” Having a comprehensive picture of your retirement savings and your pension should be a key priority.
You have reached the end of your work life and you can now dream about retirement. Your children have probably gone their own separate ways, so it is time to enjoy your pension as an expat.
There are many ways to capitalise on your pension. You can continue receiving it every month as you were supposed to, but you could also receive it as a lump sum that you can invest in any set of assets you want.
Many financial advisers and services firms claim to be pension transfer specialists. However, unsuitable advice on pensions or even pension scams could have dire consequences on how you live. The pension transfer advice market is a vast one. We always recommend seeking pension transfer advice from fully qualified financial advisers who will be able to identify your needs and build the right plan for you.
Employees who participate in a Defined Benefit (DB) plan are assured that they will receive retirement benefits in the future. Defined benefit pensions are primarily funded by employers, with retirement payouts based on a predetermined formula that takes into account an employee’s salary, age, and length of service with the company, among other factors.
In spite of the retirement certainty and security that a DB pension can provide, DB pension plans are becoming increasingly rare.
A defined contribution (DC) pension is the most prevalent type of pension available today, and it is used in both corporate pension schemes and personal pensions. This type of pension entails building up a substantial sum of money over a long period of time, which is then invested until you reach your desired retirement age.
Employees contribute either a fixed sum or a percentage of their salaries to a retirement account. As an extra incentive, the sponsoring employer will, on occasion, match a percentage of employee contributions.
The majority of defined contribution pension plans in the United Kingdom are now in the form of workplace or private pension funds. Their value is determined by the investment decisions you make, and they are subject to fluctuations in the global stock market.
Depending on the situation and your needs, you may want to move your pension from one provider to another. Transferring your pension may be necessary for a variety of reasons, including relocation abroad, currency risk, the acquisition of a new job, or the desire to take advantage of the pension freedoms available from private pensions.
There has also been discussion about the value and stability of many defined benefit (final salary) pension plans. The various options to keep or exchange these policies for a different pension solution are worth investigating for some of our clients. Holborn’s advisers are focused on empowering clients by providing them with clear, transparent advice.
You must transfer your pension to a pension system registered in the UK; otherwise, HM Revenue & Customs would consider it an unlawful payment and you will have to pay a significant tax penalty on the amount transferred.
If you have multiple pension pots, there may be benefits to combining them into one. When you combine them, you can more easily track and manage your pension funds. Pension consolidation is key if you want flexibility.
The ability to choose how you want to distribute your income and expenditures throughout your retirement is another essential component of the improved freedom that comes with a pension transfer.
One more important benefit is that you may save money if you can switch from a more expensive programme to a less expensive one.
A pension transfer to a DC scheme may be attractive as it allows you to draw a larger tax-free cash lump sum than if you remained in the DB scheme. This means more available funds for you to make your dreams a reality.
The vast majority of people are able to transfer their pension to a new provider. Pension savers should carefully consider the advantages, costs, and risks of moving their pension – either with the help of a financial adviser or by getting in touch with their pension providers.
If you have a pension worth more than £30,000 in a defined benefit or defined contribution scheme, then you must seek financial advice before you can transfer your pension. The financial adviser should be qualified to decide on the suitability of the pension transfer.
If you have a pension worth less than £30,000 or a different sort of pension, you may want to consider whether you want the assistance of a financial consultant in setting up your pension transfer or whether you want to do it yourself.
Holborn Assets employ specialists on pension transfers for expats living in Dubai, South Africa, Hong Kong and globally, who are ready to answer any questions you might have regarding the process.
A Self-Invested Personal Pension or SIPP is intended to be self-invested, as the name suggests. A SIPP is a form of pension plan that provides you greater control over your money and allows you to better match it to your retirement goals. It provides you with greater control over the investments within your pension as well as greater flexibility when it comes to withdrawing your funds when you need them.
However, this does not imply that you must make all of the individual decisions alone. When it comes to investing, it is generally wise to hire a fully qualified financial adviser to handle the day-to-day decisions on your behalf.
Because a SIPP is a UK pension, the value of a SIPP will always be expressed in pounds. It is possible, however, to work with your investment advisor to hold assets in a variety of different currencies.
SIPPs are compatible with various types of pensions, and you can move funds from your workplace pension plan to a SIPP. Additionally, you can manage your SIPP in conjunction with any other pensions you may have. It should be noted that one of the most significant advantages of SIPPs, as with other pensions, is that they can be passed on to your dependents in the case of your death without incurring Inheritance Tax obligations (IHT).
Transferring your UK pension to a SIPP can be a complicated task for individuals who lack financial knowledge and expertise so it may be worth seeking qualified financial advice before progressing.
Transferring your UK pension to an overseas scheme is another option available to you. You could choose to transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS). The tax amount you pay when you transfer your pension overseas depends on the location you are moving it to.
You should make sure that the chosen scheme meets the HMRC conditions to be a recognised overseas pension scheme (ROPS). According to the HMRC, “we cannot guarantee these are ROPS or that any transfers to them will be free of UK tax. It’s your responsibility to find out if you have to pay tax on any transfer of pension savings.”
If you live in the United Kingdom, you will not be taxed on QROPS pensions moved to the European Economic Area (EEA) or Gibraltar. If you reside outside the UK, EEA, or Gibraltar at any stage during the five years following your transfer, a 25% tax rate applies. No tax is due if you move your QROPS pension outside the UK, Gibraltar or the EEA and live in the same country.
Our pension transfer specialists in Dubai, Hong Kong, South Africa and other offices situated around the world will help make your pension transfer as easy as possible.
When you reach a certain age, the state will compensate you with a pension. It is essentially derived from a large government pension pot that you contributed to through your National Insurance Contributions during your working life. The amount you receive is determined by the number of years on your national insurance record. It’s easier than ever to check your National Insurance (NI) contributions and doing so could be beneficial. If you would like to, you can browse through the UK government website for more information on the UK State Pension.
The maximum amount that you can receive in a year is slightly more than £9,000. Since the total amount is rather low to support the lifestyle you may be seeking, workplace pensions and personal pensions are still important.
In contrast to a personal pension, which may be accessed from the age of 55 (and will increase to 57 in 2028), the age at which you can claim the state pension is determined by the year you were born. For both men and women, the official state pension age is presently 66 years old.
To be eligible for the full state pension, you must have 35 years of national insurance contributions or credits. From April 2022, the full new state pension will increase to a maximum of £185.15 per week.
A pension transfer specialist is someone who is qualified and has experience in helping clients move their pensions to different providers.
It’s clear that transferring your pension can be a complicated task, especially if you lack the necessary financial knowledge. The pension transfer process can become easier with suitable advice from a fully qualified professional with years of experience in the market. Pension transfer specialists should provide an impartial and client-focused advice service for individuals looking at transferring their UK DB/DC pension schemes.
Pensions are governed by a complicated set of laws and regulations. Careful consideration must be given to determining the optimum retirement strategy. Never put your retirement savings at risk; always seek professional counsel before making any financial decisions.
Expats living in Dubai, Abu Dhabi, Hong Kong and the United Arab Emirates can enjoy their pension benefits. Expat life comes with a lot of expenses that can be covered by their pension savings. In some cases transferring your pension is the suitable solution. Regulated advice on pension transfers is of the utmost importance. Financial advisers can review your pension plan and suggest the right solution for you depending on your personal circumstances.
Holborn was established in Dubai over two decades ago, aiming to help expats living in Dubai and other cities around the world achieve their financial goals. No matter the pension type, our fully qualified professionals can offer impartial advice to help you live the retirement life you’ve always dreamed of.