Steps To Transfer A Final Salary Pension Abroad
LEARNING OBJECTIVES
At The Wealth Genesis, we provide high quality, relevant and up-to-date retirement advice to British Expats around the world.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
How a final salary pension works for non-UK residents
The final salary pension transfer process and time-frames
Key considerations before transferring out
How much a final salary pension should cost
Transferring your pension from a final salary scheme overseas entails relinquishing your lifetime guaranteed income for a cash equivalent value. This money is subsequently invested in an overseas pension plan, in line with your risk tolerance and goals.
If you have one or multiple final salary pension schemes and are considering transferring them overseas, this article is designed to guide you through the necessary procedures.
Final Salary Pension Overview
Also known as a defined benefit pension, they offer guaranteed, inflation-linked income for life, including spousal and dependents support in the event of death.
For most members, you will be worse off by transferring your benefits out of your DB scheme. Importantly once your transfer is completed, it is irreversible.
In certain cases such as unfunded public sector schemes, you can only transfer to another final salary scheme. Examples include the NHS Pension Scheme and the Teacher Pension Scheme.
If you are in a private sector DB scheme or a fund public sector pension such as Local Government Pension, you should be able to transfer out.
Your defined benefit pension scheme can only be transferred to another recognised pension scheme. Outside the UK, this is a QROPS Qualifying Recognised Overseas Pension Scheme.
QROPS
A QROPS is an HMRC approved overseas pension scheme. It involves removing your pension from the UK. Key benefits include removal from the UK regarding IHT, the ability to invest and withdraw in local currency, and greater investment choice.
Overseas transfers allowance (OTA) was brought in from April 2024, and is set at £1.073m although can be higher if you have protected allowance.
If you are exempt, you will need to pay an overseas transfer charge of 25% on the excess above the OTA.
You'll usually be exempt if:
You're are resident in the country your QROPS is held
You're resident in the European Econmic Area EEA and your QROPS is also based in the EEA or Gibraltar
The QROPS you wish to transfer to is a employer sponsored scheme
If you are not exempt, you'll have to pay the overseas transfer charge of 25% on the total value.
You'll be considered not exempt if you transfer to a QROPS in the EEA and live outside of this area.
You trasnfer to a QROPS outside the EEA and are not resident in the same country.
Defined Benefit Pension Transfer
Should you wish to transfer, the first step is to obtain your Cash Equivalent Transfer Value CETV. This is the cash value your pension scheme will provide in exchange for giving up the pension rights you hold in your DB scheme.
To receive this, it needs to be requested from your pension scheme operator. This will be provided with a Statement of Entitlement which outlines:
Cash Equivalent Transfer Value CETV
A breakdown of the benefits built up in the scheme
Transfer information and documents required by your new scheme
The CETV is guaranteed for 3 months and is only available to non-members. i.e You must have left the scheme and no longer be an active member.
Final Salary Pension Advice
If the CETV is over £30,000 you will need to take advice from an FCA-regulated Pension Transfer Specialist. They will access your position, objectives, and the benefits held within the scheme that you will be giving up, and provide a report recommending to transfer or not.
As an expat, this is complicated by the fact a UK adviser cannot advise you directly because of licensing permissions. As such, you need to work with a locally regulated cross-border financial adviser in conjunction with an FCA-regulated pension specialist.
Defined Benefit Pension Transfer Process
The following is a general overview of the process if you do not have a CETV:
Initial discovery meeting with a regulated adviser to discuss your position and objectives, ensure you understand what it means to give up the protected rights within a DB scheme and and the options available.
Completed a Fact Find, Risk Profile and Letter of Authority (LOA).
LOA sent to DB Pension scheme for processing. Turnaround time 10-20 working days depending in scheme.
Once LOA is in place, a formal request for your Cash Equivalent Transfer Value CETV, plus the additional actuarial calculations required for your Defined Benefit Suitability Report. Once CETV is received you have 3 months from the stated date to complete the process.
All documentation is submitted to the UK FCA-authorised pension transfer specialist.
12-18 days later the suitability report is provided by the Pension Transfer Specialist. This includes the end solution.
You will then have a call to discuss their recommendation and confirm you understand everything within the report.
Complete the transfer application pack to be sent to the ceding scheme.
Confirm the deadline date has been met and the transfer value has been secured.
Transfer your CETV to your QROPS.
The whole advice process is likely to take 7-10 weeks. Once the DB Scheme has the completed paperwork they will carry out their own due diligence.
This can include requesting further information from you or a phone call. Requiring a call between you and MoneyHelper, the free and impartial Government organisation setup for pension options.
Transferring your CETV to your QROPS can take another 5-8 weeks from the day the paperwork has been submitted.
Before Transferring:
Make sure you do not rush your decision and take your time to understand the risk involved and the benefits you will be giving up.
Never speak to a company that has cold-called or contacted you directly without making an enquiry.
Speak with multiple advice firms to ensure the best fit for you, from both an advice and cost perspective.
Be mindful of pension scams and the investments being recommended.
Locally Regulated Independent Financial Adviser
Due to the timeframes involved, it's recommended you speak to a locally regulated financial adviser before you begin the process. If you do not complete the process within the 3-month guarantee period you will need to start the process again. This incurs additional costs and the CETV will also need to be revalued which can go up or down.
Cross-Border Financial Advice
The Wealth Genesis is a cross-border pension specialist assisting expats globally with their pension and wealth management needs. If you are considering transferring your defined benefit pension benefits it is vital to get regulated, independent and expert financial advice.
FAQs
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Costs vary per advisory firm with fees as high as 5% + £3500 plus product setup costs.
The Wealth Genesis charges a flat £3000 initial fee. We work with a panel of UK FCA regulated pension transfer specialists with fees starting at £2200.
Therefore, total initial adviser fees are £5200 plus product setup costs.
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A transfer incentive is when your employer offers a financial incentive to leave the scheme. This can be a cash payment on top or an enhanced transfer value.
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Flexibility in how and when you access your pension.
Death Benefits, meaning you can leave 100% of the pension value to your beneficiary of choice rather than 50% of the income at best.
Mitigation of currency risk, so you can invest and withdraw in your local currency rather than a guaranteed income in pound sterling.
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Loss of guaranteed income for life.
Investment risk, as the value of your investments can go up or down. Poor performing funds could result in you having a shortfall in your retirement income.
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No, there is usually the option to take 25% tax-free cash (tax-free in the UK) and a reduced guaranteed income but you cannot take the 25% of a CETV and transfer the remainder.
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Yes, you can consolidate your defined benefit pension with any other defined contribution schemes you have including personal and workplace pensions.
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No, once you have started to take income from your defined benefit schemes you cannot transfer out.
