Tuesday, 31 January 2017

UK EXPATS SHOULD CONSIDER FINAL SALARY PENSION TRANSFERS WITH FCA-REGULATED FIRMS ONLY, ADVISES GUARDIAN WEALTH MANAGEMENT



Record-high transfer values offering lucrative lump sums for pension pots at risk, says Global Pensions Specialists Clare Bruce
January 30th 2017, Dubai: Expats who have a UK-based pension should consider transferring their final salary pensions, according to financial planning firm Guardian Wealth Management.
The company’s chartered financial advisor, Clare Bruce, who is one of the only FCA-permitted pension transfer specialists in the region, says that current record-high transfer values are making it a good opportunity for UAE expats to transfer their UK private sector pensions. However, such a complex process should only be conducted by firms in the UAE who are regulated by the UK financial regulator.
“We have just heard the news that the former UK pensions minister Ros Altmann has cashed in two of her final salary pensions, which gives a high indication that now is a good time for some people to follow suit,” she said.
“With one in six private sector pensions at serious risk, firms are actively trying to de-risk their liabilities by incentivising members to transfer their pensions out of the scheme with attractive transfer values. Guardian Wealth Management is one of the only financial planning firms in the region with advisors FCA-approved to give advice on pension transfers.”
In the UK, a final salary pension scheme was traditionally seen as the best type of pension to have, often referred to as a ‘gold plated’ pension. A scheme such as this is a rigid income-contract style of pension, funded by contributions from employee and employer and payable from a pre-defined retirement age such as 65. However, the alternative is to claim the transfer value on offer and, combined with investment growth over time, provide the person with a flexible and tax efficient income at retirement, with much improved death benefits for loved ones.
Unfortunately, as the pension and economic landscape has developed in recent years, a final salary (“defined benefit”) scheme no longer represent a safe bet for retirement and a growing number of schemes have closed their doors to new members. The risk of these schemes is largely down to record-low gilt yields (UK government bonds) that these pension funds had been invested into, meaning potentially large deficits in pension pots. Of course, while that scheme has promised an income at retirement, it is dependent on the health of the pension to allow it to keep that promise.
A final salary transfer is the name given to the process of switching the balance of this pension into a HMRC recognised pension scheme. When a transfer value is calculated, it is based on how much it would cost the person to buy an annuity like-for-like (insurance that guarantees income for life), so effectively a matching private income contract capable of providing the same income and any benefits that the person’s scheme would provide in retirement.
The figure is calculated by the scheme actuary who follows pre-determined guidelines based on principles such as how many years left before retirement, personal circumstances, average life expectancy and so on.
“Many of the recent cases of pension transfers that we have done for our clients have seen transfer values be as much as 40 times the value of the preserved pension income, so in essence the transfer opportunity can be very lucrative,” said Clare.
“There are many reasons why a final salary transfer might be advantageous. For instance, if you are concerned about your company’s ability to support your pension scheme or if you want greater flexibility and control over your fund, which will allow you to decide when and how much you draw throughout retirement”.
“For expats in particular, transferring your pension offshore can allow much improved income tax planning opportunities and allows you to pass down the total amount of the pension fund to your loved ones rather than be limited to a taxable widow’s pension, if the worse should happen”.
However, it is important to note that there are some risks with final salary pension transfers, such as penalties for transferring out early. In addition, not all members of final salary schemes can transfer. With a final salary scheme, the person is essentially guaranteed an income for life. So by accepting the transfer value, they begin an irreversible process where they surrender the existing benefits in return for a cash lump sum and are discharged from the pension scheme.
The success of the new pension is, of course, determined by the success of the investments made within it. If the fund struggles, then there is a possibility they could end up with less money to draw income from, highlighting the importance of having an approved, regulated advisor.
“Such an important decision should never be taken without receiving sound advice from a financial planning firm that can be held accountable under FCA rules should anything go wrong. Additionally, a bespoke plan should be made for each transfer so that the funds are being re-invested into a suitable vehicle”, said Clare.
Guardian Wealth Management uses UK Crown Dependencies or territories with similar protection and the same transparent regulations, offering higher levels of protection. All GWM advisers are UK qualified and regulated in the jurisdiction which they operate.
For more information and advice on pensions, visit www.guardianwealthmanagement.com
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