Massive shake up for UK Pensions

[Andrew from Vista Financial]

In the recent UK Budget one of the momentous Chancellor announcements is that from April next year anyone aged 55 or over will be able to take their entire pension fund as cash – although only the first 25 per cent will be tax-free. The remaining 75 per cent of the fund would be taxed at the saver’s marginal rate.

 

Read here: http://www.moneymarketing.co.uk/news...008135.article

 

Watch here: http://www.bbc.com/news/uk-politics-26650855

 

This is actually already in play in Australia in that when someone reaches the age at which they are able to access their Superannuation up to 100% can be taken as cash and in most cases tax-free (which does differ from the new UK change announced).

 

 

Kind regards

 

 

Andy

[Gbye grey sky]

In the recent UK Budget one of the momentous Chancellor announcements is that from April next year anyone aged 55 or over will be able to take their entire pension fund as cash – although only the first 25 per cent will be tax-free. The remaining 75 per cent of the fund would be taxed at the saver’s marginal rate.

 

Read here: http://www.moneymarketing.co.uk/news...008135.article

 

Watch here: http://www.bbc.com/news/uk-politics-26650855

 

This is actually already in play in Australia in that when someone reaches the age at which they are able to access their Superannuation up to 100% can be taken as cash and in most cases tax-free (which does differ from the new UK change announced).

 

 

Kind regards

 

 

Andy

 

Hi Andy

 

This is great news for those in a pension scheme as previously there was little option but to buy an annuity and these often were poor value especially for those with modest pension pots. Plenty of speculation here that people may just take it and blow the lot but many may actually still choose an annuity.

 

We still are likely to favour moving ours via a QROP when we emigrate however I am curious about what Australians actually do in practice with their Super when they reach 60 and are then able to draw from it.

 

Kind regards

David

[Linday]

Does this mean that those of us who have recently transferred pensions to a QROPS super will no longer have to wait 5 years to access more than 25% of the super in cash?

[Andrew from Vista Financial]

Hi Andy

 

This is great news for those in a pension scheme as previously there was little option but to buy an annuity and these often were poor value especially for those with modest pension pots. Plenty of speculation here that people may just take it and blow the lot but many may actually still choose an annuity.

 

We still are likely to favour moving ours via a QROP when we emigrate however I am curious about what Australians actually do in practice with their Super when they reach 60 and are then able to draw from it.

 

Kind regards

David

 

Hi David

 

Very good question.

 

Most Australians will move their Super to an Account Based Pension similar to what is known as Drawdown in the UK.

 

Essentially there are 3 options:

 

 

• Draw out up to 100%;

 

 

 

• Purchase a Superannuation Annuity (generally more flexible than UK Annuities);

 

 

 

• Move to an Account Based Pension (ABP)

 

 

Obviously what is the best option will depend on an individual's own circumstances and for some people that may be drawing 100% in cases perhaps where they still have a mortgage and need the funds to pay it down.

 

It is not a case of one or the other though and a combination of the above can occur but as I say for most (in my experience) the Super is rolled to an Account Based Pension.

 

An Account Based Pension is simply a wrapper around investments which provide tax efficiency and of course the ability for your investment to continue to grow, this being 0% tax on earnings (as opposed to 10% - 15% on Super) and 0% tax (generally) if over age 60 on withdrawals.

 

There are minimums that must be taken and if retired no maximum.

 

There are also advantages to having a an Account Based Pension with regards to the Australian Age Pension however this is likely to cease from Jan 2015 on new ABP's.

 

 

Kind regards

 

Andy

Edited March 25, 2014 by Andrew from Vista Financial

[Andrew from Vista Financial]

Does this mean that those of us who have recently transferred pensions to a QROPS super will no longer have to wait 5 years to access more than 25% of the super in cash?

 

No not necessarily Linday, it will depend on the type of pension and what comes out of the consultation due to take place on 11 June 2014.

 

Regards

 

Andy

[Gbye grey sky]

Hi David

 

Very good question.

 

Most Australians will move their Super to an Account Based Pension similar to what is known as Drawdown in the UK.

 

Essentially there are 3 options:

 

 

• Draw out up to 100%;

 

 

 

• Purchase a Superannuation Annuity (generally more flexible than UK Annuities);

 

 

 

• Move to an Account Based Pension (ABP)

 

 

Obviously what is the best option will depend on an individual's own circumstances and for some people that may be drawing 100% in cases perhaps where they still have a mortgage and need the funds to pay it down.

 

It is not a case of one or the other though and a combination of the above can occur but as I say for most (in my experience) the Super is rolled to an Account Based Pension.

 

An Account Based Pension is simply a wrapper around investments which provide tax efficiency and of course the ability for your investment to continue to grow, this being 0% tax on earnings (as opposed to 10% - 15% on Super) and 0% tax (generally) if over age 60 on withdrawals.

 

There are minimums that must be taken and if retired no maximum.

 

There are also advantages to having a an Account Based Pension with regards to the Australian Age Pension however this is likely to cease from Jan 2015 on new ABP's.

 

 

Kind regards

 

Andy

 

Thanks Andy

 

That is very helpful, thank you, and I like the sound of ABP. The whole system in Australia sounds so much better thought through and grown-up compared with the UK system which dangled the carrot of tax relief for voluntary contributions (which mainly appealed only to higher earners on a higher marginal tax rate).

 

Compulsory pension enrolment is coming in the UK but it is controversial over here and employees will still have opt outs which I am sure many will exercise. I am sure Super must have been controversial when it first started but it sounds very forward-thinking.

 

Kind regards

David

[Parley]

My elderly mother receives the British pension (she is 86).

Is there any impact to her.

[koopmaster]

I will worry about it in 25- 30 years... they will change it by then, like they always do.

[Andrew from Vista Financial]

Just an update on this and of particular interest is the proposition to remove the option to transfer from a public service defined benefit scheme i.e final salary to a defined contribution scheme, except in very limited circumstances!

 

This could mean that inability to transfer the likes of NHS and Police Pensions and potentially private final salary schemes to Australia from that point.

 

However there is a government consultation on this due on June 11 2014 and my own personal opinion is that a person moving overseas might fall into the category of very limited circumstances.

 

It has come to my attention that many transfer companies are jumping on this and scaremongering people into transferring on the basis of you must act now – one company with a headline “Lights out for UK Pension Transfers”

 

My advice is not to act on this and transfer on this basis, certainly if a transfer is of interest then seek advice but not on the basis of not being able to transfer in the future.

 

For this we must wait until the consultation in June, as always I will keep you posted.

 

 

Kind regards

 

Andy

Edited March 29, 2014 by Andrew from Vista Financial

[Gbye grey sky]

Of particular interest is the proposition to remove the option to transfer from a public service defined benefit scheme i.e final salary to a defined contribution scheme, except in very limited circumstances!

 

This could mean that inability to transfer the likes of NHS and Police Pensions and potentially private final salary schemes to Australia from that point.

 

However there is a government consultation on this due on June 11 2014 and my own personal opinion is that a person moving overseas might fall into the category of very limited circumstances.

 

It has come to my attention that many transfer companies are jumping on this and scaremongering people into transferring on the basis of you must act now – one company with a headline “Lights out for UK Pension Transfers”

 

My advice is not to act on this and transfer on this basis, certainly if a transfer is of interest then seek advice but not on the basis of not being able to transfer in the future.

 

For this we must wait until the consultation in June, as always I will keep you posted.

 

 

Kind regards

 

Andy

 

As well as having a private pension which I intend to transfer I also have a Civil Service pension that I could draw from 2020 when I reach 60. I was anticipating that this would have to be paid into a UK bank account and I would do periodic money transfers. It will be a good one as I left a few years ago having worked in the CS for 30 years and it rises every year with inflation.

 

Under what possible circumstances might it be worth considering switching a final salary scheme to a defined contribution scheme? I thought that the former was the Rolls Royce of pensions.

[Andrew from Vista Financial]

As well as having a private pension which I intend to transfer I also have a Civil Service pension that I could draw from 2020 when I reach 60. I was anticipating that this would have to be paid into a UK bank account and I would do periodic money transfers. It will be a good one as I left a few years ago having worked in the CS for 30 years and it rises every year with inflation.

 

Under what possible circumstances might it be worth considering switching a final salary scheme to a defined contribution scheme? I thought that the former was the Rolls Royce of pensions.

 

Yes final salary schemes do/have often been referred to as the Rolls Royce of pensions and generally in the past in the UK it would not have made sense to transfer these schemes out to market linked schemes.

 

However the Australian rules differ to the UK rules and there may be merit for some people to transfer a final salary pension to Australia based on differing reasons/views.

 

For example one well known difference is that generally withdrawals from Australian Superannuation Funds are tax free over the age of 60, also upon death of the member the balance of the fund is paid to the member’s nominated beneficiary/ies.

 

Lastly upon retirement and a full condition of release being met Australia allow the option of accessing up to 100% of the pot.

 

Looking at the way that final salary schemes works in contrast to the Australian rules particularly for a person who is an Australian tax resident is that the maximum lump sum that can be accessed is generally 25%, the pension income is assessed for tax (this may or may not be an issue depending on amount) and upon death the pension will generally pay 50% less to a spouse if applicable.

 

There might also be other reasons and factors involved for a person to believe a transfer is in their interests alternatively a person may feel that it is in their interests to leave the Pension in the UK depending on their reasons/views.

 

We only need to look at the new UK proposals in play to understand that people will view a final salary pension differently in relation to what they wish to do at retirement with their retirement monies.

 

By this I mean that with the proposal of market linked schemes being able to access 100% but not final salary schemes the government go on to propose ceasing transfers out of final salary schemes to market linked schemes (as stated above) in fear of ‘mass transfer out’.

 

Clearly some people will prefer the ability to have access to their whole fund as a lump sum at retirement in favour of a smaller annual income for life.

 

There is not necessarily a right or wrong due to unknown future variables especially UK to Australian variables i.e currency etc.

 

Regards

 

Andy

[sueandave]

Hi Andy

 

We are new to Poms in Oz, would you be able to help with our questions. How is the UK state pension assessed by Centrelink, we were once told it was 50c in every dollar, I do not believe that is correct? is it all assessed as income with the income & assets? test applied. We have paid make up payments which qualifies us for 25 years currently, I am not sure now if that was such a good idea, paying make up payments and possibly loosing a Centrelink benefit. I would like to understand how it is assessed in Oz.

 

 

Kind regards

 

Dave & Sue

[Andrew from Vista Financial]

Hi Dave and Sue

 

I can confirm that Centrelink now assess it as income under the 'Income and Assets Test'.

 

You may wish to have a look at this thread regarding the Age Pension: http://www.pomsinoz.com/forum/financial-advice-ask-vista/165251-australian-age-pension-information-thread.html

 

I will also reply to your email that you sent me and will attach a fairly recent newspaper article where this question was raised and answered.

 

Kind regards

 

Andy

[Gbye grey sky]

Yes final salary schemes do/have often been referred to as the Rolls Royce of pensions and generally in the past in the UK it would not have made sense to transfer these schemes out to market linked schemes.

 

However the Australian rules differ to the UK rules and there may be merit for some people to transfer a final salary pension to Australia based on differing reasons/views.

 

For example one well known difference is that generally withdrawals from Australian Superannuation Funds are tax free over the age of 60, also upon death of the member the balance of the fund is paid to the member’s nominated beneficiary/ies.

 

Lastly upon retirement and a full condition of release being met Australia allow the option of accessing up to 100% of the pot.

 

Looking at the way that final salary schemes works in contrast to the Australian rules particularly for a person who is an Australian tax resident is that the maximum lump sum that can be accessed is generally 25%, the pension income is assessed for tax (this may or may not be an issue depending on amount) and upon death the pension will generally pay 50% less to a spouse if applicable.

 

There might also be other reasons and factors involved for a person to believe a transfer is in their interests alternatively a person may feel that it is in their interests to leave the Pension in the UK depending on their reasons/views.

 

We only need to look at the new UK proposals in play to understand that people will view a final salary pension differently in relation to what they wish to do at retirement with their retirement monies.

 

By this I mean that with the proposal of market linked schemes being able to access 100% but not final salary schemes the government go on to propose ceasing transfers out of final salary schemes to market linked schemes (as stated above) in fear of ‘mass transfer out’.

 

Clearly some people will prefer the ability to have access to their whole fund as a lump sum at retirement in favour of a smaller annual income for life.

 

There is not necessarily a right or wrong due to unknown future variables especially UK to Australian variables i.e currency etc.

 

Regards

 

Andy

 

Thanks again Andy. A lot depends for me on the valuation of the fund if I transferred it to a market-linked scheme. I will make some enquiries and then weigh up the options.

 

The 25% lump sum on the Final Salary scheme which would be tax free if I was UK tax resident becoming taxable in Australia was something I had been aware of previously but I had not thought about the possibility of transferring it due to the index linking.

 

Also having a taxable UK income from age 60, declaring it on both Uk and Oz tax returns with double taxation claims etc is a real downer.

 

So much to consider..............

[mickeyrum]

My mortgage term is expiring in June, I have an interest only mortgage which I have had for about 8 years, any advice as to what options are open to me now?

[Busybee07]

In similar situation and interested to here if anyone has switched a civil service pension to Aus. And if so what company they used?

grateful for any feed back on experiences. Been reading up on QROPS and maybe going to get advice from one of tihs peculiar company's like PTD. Any feed back on this company?

thank you

[Gbye grey sky]

In similar situation and interested to here if anyone has switched a civil service pension to Aus. And if so what company they used?

grateful for any feed back on experiences. Been reading up on QROPS and maybe going to get advice from one of tihs peculiar company's like PTD. Any feed back on this company?

thank you

 

First thing to do is to ask the CS Pension Scheme for a valuation. I am waiting on mine at the moment. It takes up to 3 weeks. To my way of thinking the valuation would need to be high to justify doing this even with the potential tax advantages.

[Busybee07]

First thing to do is to ask the CS Pension Scheme for a valuation. I am waiting on mine at the moment. It takes up to 3 weeks. To my way of thinking the valuation would need to be high to justify doing this even with the potential tax advantages.

 

 

Thanks for for the advice, yes a valuation is a start. Have you looked at using any of the transfer advisors at. All?

[Andrew from Vista Financial]

My mortgage term is expiring in June, I have an interest only mortgage which I have had for about 8 years, any advice as to what options are open to me now?

 

Hi Mickey

 

Perhaps you can start a new thread about this within this sub forum http://www.pomsinoz.com/forum/money-finance/ and also give some more information about your situation as it is to much of an open question to be able to answer.

 

Kind regards

 

Andy

[Andrew from Vista Financial]

In similar situation and interested to here if anyone has switched a civil service pension to Aus. And if so what company they used?

grateful for any feed back on experiences. Been reading up on QROPS and maybe going to get advice from one of tihs peculiar company's like PTD. Any feed back on this company?

thank you

 

 

Hi

 

Are you still in the UK or are you in Oz?

 

Have a look at this thread I wrote, it may help to get some initial understanding: UK Pension Transfers to Australian Superannuation (QROPS)

 

I would not advise on obtaining a value until you are deciding as to who you will be using (if taking advice), the company will do it for you. Generally you will get a 90 day guarantee period when a value is calculated and if you have not decided who you will be using you may find that the process is not completed within that timescale therefore potentially costing you a few hundred quid to have another value calculated.

 

What type of advice are you looking for?

 

Most of the transfer companies are just that, they will give generic advice on the transfer itself and about how the Australian system works, generally with a bias toward a transfer as only get remunerated if a transfer proceeds.

 

If you are trying to understand where your benefits might best be placed for you and your retirement then I would suggest working with a qualified Adviser who specialises in UK Pension Transfer Advice and particulalry Retirement Planning.

 

Kind regards

 

Andy

[Gbye grey sky]

Thanks for for the advice, yes a valuation is a start. Have you looked at using any of the transfer advisors at. All?

 

Looking at Andy's reply it appears that I may be charged for a second valuation further down the road. I hadn't appreciated that but I have already asked. I understand that every valuation is different but I would be happy to share the basic calculation method they apply when I get it so that you have a bit more to go on (I don't know about you but I am completely in the dark ATM).

 

Are you, like me, still in the UK?. Are you still in the CS scheme or, like me, out of it but with a preserved pension?

 

My gut feel is that I will probably keep the pension, draw it when I am 60 and have it paid into my, then, Oz account as this can be arranged. There will be tax to pay on it (as it will exceed the tax threshold in Australia). My intention is to do some basic number-crunching with the valuation and if in doubt use the services of an independent advisor (such as Andy). I am planning ahead a bit with this though and expect to emigrate in August 2015 so it is too soon to enact anything.

[Busybee07]

Hi

 

Are you still in the UK or are you in Oz?

 

Have a look at this thread I wrote, it may help to get some initial understanding: UK Pension Transfers to Australian Superannuation (QROPS)

 

I would not advise on obtaining a value until you are deciding as to who you will be using (if taking advice), the company will do it for you. Generally you will get a 90 day guarantee period when a value is calculated and if you have not decided who you will be using you may find that the process is not completed within that timescale therefore potentially costing you a few hundred quid to have another value calculated.

 

What type of advice are you looking for?

 

Most of the transfer companies are just that, they will give generic advice on the transfer itself and about how the Australian system works, generally with a bias toward a transfer as only get remunerated if a transfer proceeds.

 

If you are trying to understand where your benefits might best be placed for you and your retirement then I would suggest working with a qualified Adviser who specialises in UK Pension Transfer Advice and particulalry Retirement Planning.

 

Kind regards

 

Andy

 

 

 

Hi Andy

Thanks for the reply. I am in Australia been here 10 years.i am using Pension Transfers Direct, got on to them just before I saw this post. I am aware there will be tax implications if we proceed as we are outside the 6 months tax free period. I will be interested to see how a QROPS scheme is projected to grow versus a final salary scheme and what fees are incurred with a QROPS over its life. Also aware on 11 June in UK the pension transfer situation being reviewed and things may change quickly, we may of missed the boat but you can but try! There are may things to consider in any decision as you note. Are you able to get 2 sets of advice simultaneously I wonder, can I PM you regards our situation.

 

kind regards

bee

[Busybee07]

Looking at Andy's reply it appears that I may be charged for a second valuation further down the road. I hadn't appreciated that but I have already asked. I understand that every valuation is different but I would be happy to share the basic calculation method they apply when I get it so that you have a bit more to go on (I don't know about you but I am completely in the dark ATM).

 

Are you, like me, still in the UK?. Are you still in the CS scheme or, like me, out of it but with a preserved pension?

 

My gut feel is that I will probably keep the pension, draw it when I am 60 and have it paid into my, then, Oz account as this can be arranged. There will be tax to pay on it (as it will exceed the tax threshold in Australia). My intention is to do some basic number-crunching with the valuation and if in doubt use the services of an independent advisor (such as Andy). I am planning ahead a bit with this though and expect to emigrate in August 2015 so it is too soon to enact anything.

 

 

hi thanks for the response.

I am in Aus been here 10 years left CS. I have asked a pension transfer company to pull together some options before I saw threads

Last couple of day this Will aid my further planning. This bit of the advice is free so didnt figure I had a lot to lose. I believe from what Andy says the company will get the valuation and come up with some options. I am planning ahead too as the next few years will fly by and I'll be retired ... Well 10 ish years to go still. Dont mind sharing on PM some data either if it helps, sounds each case is different

lots of variables.

Cheers

bee

[Gbye grey sky]

Just updating. Over a month has passed and I still haven't received the CS Pension forecast. I requested it over the phone so have no evidence of the request in the event they have forgotten it. Will give it a little longer then chase I guess.