Ban on UK Pension Transfers

[Andrew from Vista Financial]

You may have seen headlines similar to this over the last few months followed by statements to take action now before it’s too late!!

 

This thread really is to try and explain a bit around why these statements are being made as well as outlining the potentially problematic proposals to the UK pension system and to give a rounded view of the situation and potential implications.

 

 

Market Linked (Defined Contribution) Pensions

Changes were first announced back in March of this year as part of the UK budget, (thread from PIO at the time - Massive shake up for UK Pensions) which in the main seemed to be very positive changes most notably allowing people the ability to access up to 100% of their pension pots at retirement for those with Market Linked (Defined Contribution) Pensions.

 

 

Government Final Salary (Defined Benefit) Pensions

The concerns for those that have Government Final Salary (Defined Benefit) Pensions i.e NHS, Police and Teachers’ Pensions etc is that the proposals went on to say that these pensions would no longer be able to be transferred to Market Linked Pensions.

 

The reason behind this is that the government are fearful that a large number of Final Salary Pension members would move their Pensions to Market Linked Pensions so that they also could access up to 100% and this would expose the Exchequer to significantly higher costs on a current year basis.

 

For people who have Final Salary Pensions living and planning on retiring in the UK then this isn’t such an issue as generally it is unwise to transfer from a Final Salary Pension to a Market Linked Pension (although some individuals circumstances may justify a transfer).

 

However for people who have made the move to Australia or are contemplating a move to Australia the proposal to ban Public Sector Final Salary Pensions being transferred to Market Linked (Defined Contribution) Pensions may mean that they are unable to move their Pension to Australia.

 

 

Private Sector Final Salary (Defined Benefit) Pensions

 

The question is whether it is possible to extend the kind of freedoms given to Market Linked Pension members to members of private sector defined benefit pension schemes. In principle, the government would like to find a way to do so.

 

However, in practice this decision is finely balanced and the government intends to proceed with caution.

 

Specifically, the government is concerned that a large scale transfer (or anticipated transfer) of members of private sector defined benefit schemes to defined contribution schemes could have a detrimental impact on the wider economy.

 

Whilst the government would in principle welcome the opportunity to extend greater choice to members of private sector defined benefit pension schemes, it will not do so at the expense of significant damage to the wider economy – for instance, if doing so were to make it materially harder or more expensive for UK companies to finance long-term investment.

 

 

Consultation Period

 

A consultation began on March 19 2014 through to June 11 2014 as changes will have implications for a wide range of parties with an interest in pensions, including employers, consumer groups, the pensions industry, providers of existing retirement income products and individuals themselves.

 

The government was therefore keen to hear from all stakeholders as part of the consultation process. The government was also keen to engage with interested parties on how best to achieve its policy aims through legislation and intends to publish the draft legislation for a short technical consultation prior to introduction of the legislation that will enact these changes.

 

A decision is expected to be announced before July 22 2014.

 

 

Conclusion

 

Within the proposals with regards to Government Final Salary Schemes being banned from transfers to Market Linked Schemes it did state that they would be allowed under ‘very limited circumstances’.

 

Therefore it is not clear at this time whether as of April 2015 transfers to Australia will continue to be allowed for Government Final Salary Pensions however it is possible these Pensions may continue to be allowed to be transferred to Australia under the ‘very limited circumstances’ exception.

 

Should you act now?

 

Whilst having retirement funds (Superannuation/Pensions) in Australia could offer some attractive benefits and therefore a Pension Transfer may be beneficial equally a Pension Transfer could also be detrimental particularly if transferring from a Final Salary Pension.

 

To act purely on the news so far is certainly in my opinion not the right approach and many companies are jumping on this with misleading headlines.

 

Certainly if you are considering a transfer anyway then continue to investigate/take advice accordingly.

 

If you are still unsure but do not wish to be in a position whereby you do not have the option to transfer at a later date then it could be prudent to wait until the finer details are fully understood.

 

However even if a ban is due to come into effect (which would be from April 2015) then it would still be advisable to thoroughly investigate (recommended by taking professional advice) the implications of both scenarios (leave or transfer) so that a full understanding of how your retirement might look can be ascertained.

 

 

Quite a lot of the companies involved with this type of marketing offer “Free Advice”, think carefully about these offers as generally the advice is in relation to how a transfer to Australia works and is not personal advice taking into account all of your personal details and goals and objectives instead it is mainly a generic report generally with a heavy bias towards transferring as this is where they will be remunerated.

 

Please also see this post relating to UK Pension Transfers: UK Pension Transfer Information Thread

 

I will keep members abreast of updates as they come through.

 

 

Regards

 

Andy

[Slean Wolfhead]

Hi, is it clear yet whether the April 2015 "ban" date is for completion of transfers, or for new transfer requests to be submitted?

 

We have two Local Government final salary scheme pensions, currently in deferred benefits state..about 25 years contributions each. We've been waiting for 6 months for the cash transfer values to be calculated, before we can investigate with professional advice as to whether it's a good idea to transfer to a QROPS or not, either in Australia or somewhere like Cyprus or Malta.

We're permanent residents and are not looking to return to the UK.

[Gbye grey sky]

I asked for the cash transfer value of my civil service final salary pension at least 2 months ago. Have you any idea why it is taking so long to get an answer. 6 months is ridiculous.

 

Anyway I have come to the conclusion since that the value is likely to exceed the maximum transfer value anyway ( I have 30 years of contributions) especially as since leaving the civil service I took out a defined contributions pension through my employer and have been contributing as much as I can to that. Have decided it is that pension I will transfer.

[Slean Wolfhead]

I asked for the cash transfer value of my civil service final salary pension at least 2 months ago. Have you any idea why it is taking so long to get an answer. 6 months is ridiculous.

.

 

It's quite unusual, they were at first insisting that we tell them which QROPS scheme we were transferring to, before they would give us the value. I had to explain repeatedly that we hadn't chosen one yet, but just needed the figures to help calculate if it was going to be worthwhile.

Then waiting for details from previous employer that hadn't been forwarded, plus some info they needed from HMRC.

I'm sure they're not stalling on purpose, but who knows eh?

[Andrew from Vista Financial]

Hi, is it clear yet whether the April 2015 "ban" date is for completion of transfers, or for new transfer requests to be submitted?

 

We have two Local Government final salary scheme pensions, currently in deferred benefits state..about 25 years contributions each. We've been waiting for 6 months for the cash transfer values to be calculated, before we can investigate with professional advice as to whether it's a good idea to transfer to a QROPS or not, either in Australia or somewhere like Cyprus or Malta.

We're permanent residents and are not looking to return to the UK.

 

The date that the ban is due to come into effect is April 2015 (as said though there is no certainty that transfers to Australia will be banned), whether this means that any request to transfer has to be done before this date or the actual transfer itself has to be done is unclear as the finer details are yet to be released.

 

Asking for a QROPS certificate for the receiving scheme when requesting a Cash Equivalent Transfer Value (CETV) to be produced is common practice.

 

On another note are you unclear whether you will be retiring in Australia hence why you are thinking of QROPS outside of OZ?

 

Regards

 

Andy

Edited June 29, 2014 by Andrew from Vista Financial

[Slean Wolfhead]

On another note are you unclear whether you will be retiring in Australia hence why you are thinking of QROPS outside of OZ?

Regards

 

Andy

 

Whatever's best really, no preference. If it can go somewhere else that gives benefits or flexibility (or prevents potential problems if being banned from removing from the UK), we'd examine that option.

We're set on Australia but might want to try New Zealand one day, though this might just be an aspiration rather than a plan.

[winter1]

Hi, is it clear yet whether the April 2015 "ban" date is for completion of transfers, or for new transfer requests to be submitted?

 

We have two Local Government final salary scheme pensions, currently in deferred benefits state..about 25 years contributions each. We've been waiting for 6 months for the cash transfer values to be calculated, before we can investigate with professional advice as to whether it's a good idea to transfer to a QROPS or not, either in Australia or somewhere like Cyprus or Malta.

We're permanent residents and are not looking to return to the UK.

 

I had 21 years in an indexed final salary deferred benefits in a UK local government scheme. When I went to a CPA accountant/FA he said I would be mad to give that up and move it to a defined contributions scheme.

What I did was to leave it and I am now drawing it, but at the same time I salary sacrificed into my employers industry based scheme. I feel that the mix of the two types of pension is the best of both worlds.

 

 

However everybody is different and take advice for your circumstances.

Edited June 29, 2014 by winter1

[Slean Wolfhead]

I had 21 years in an indexed final salary deferred benefits in a UK local government scheme. When I went to a CPA accountant/FA he said I would be mad to give that up and move it to a defined contributions scheme.

What I did was to leave it and I am now drawing it, but at the same time I salary sacrificed into my employers industry based scheme. I feel that the mix of the two types of pension is the best of both worlds.

 

However everybody is different and take advice for your circumstances.

 

That is a good option. I reckon we've got 15 years working in Australia to build up another pot, but if the British value is predictable, we can adjust the Australian input to suit.

 

Is the British pension index linked now that you're drawing from it, or does it remain fixed from the date you first drew down?

[winter1]

That is a good option. I reckon we've got 15 years working in Australia to build up another pot, but if the British value is predictable, we can adjust the Australian input to suit.

 

Is the British pension index linked now that you're drawing from it, or does it remain fixed from the date you first drew down?

 

The Local government pension is indexed linked in Australia and they even have to make up some of the loss from the aged pension but only a small amount from the GMP Guaranteed Minimum Pension component.

 

this is the link for the Kent scheme but also applies to all other similar schemes.

 

https://shareweb.kent.gov.uk/Documents/council-and-democracy/pensions/LGPS/LGPS%20NEW/guide-effect-state-pension-LGPS.pdf

[Gbye grey sky]

I asked for the cash transfer value of my civil service final salary pension at least 2 months ago. Have you any idea why it is taking so long to get an answer. 6 months is ridiculous.

 

Anyway I have come to the conclusion since that the value is likely to exceed the maximum transfer value anyway ( I have 30 years of contributions) especially as since leaving the civil service I took out a defined contributions pension through my employer and have been contributing as much as I can to that. Have decided it is that pension I will transfer.

 

Update: I received the valuation today. It is based on 30 years service. Without giving the actual numbers after I take out the lump sum entitlement at maturity from the transfer value the amount I would get in transfer value would be the equivalent of 15 years pension payments however those payments would be index- linked so probably less than 15 years. This was much as i had anticipated. Of course transferring it to Super would mean ultimately drawing down tax free whereas I will be taxed on the pension and may lose out in future exchange rate fluctuations. That said the value exceeds the amount that can be transferred to a QROP in a single transaction so probably rules out that option for me.

 

I will be considering advice at the appropriate time for me but thought the calculation may be of interest to others.

 

It took over 2 months to arrive but I did not have to give any information about particular schemes. I can ask them twice for a valuation within 12 months and the valuation is valid for 3 months.

[Phoenix16]

OK I'm really quite clueless about pensions although I do have a 23 year paid final salary pension from my years as a LG Officer in UK. Supperannuation, we call it! I've worked sporadically here, no real super to be honest but it's with HESTA, I've often wondered if I should move my. Final salary one over but always 'ignorantly' believed its a good one and should leave it in UK, I reckon I need serious advice, could anyone recommend someone in the fremantle area?

[Andrew from Vista Financial]

Update: I received the valuation today. It is based on 30 years service. Without giving the actual numbers after I take out the lump sum entitlement at maturity from the transfer value the amount I would get in transfer value would be the equivalent of 15 years pension payments however those payments would be index- linked so probably less than 15 years. This was much as i had anticipated. Of course transferring it to Super would mean ultimately drawing down tax free whereas I will be taxed on the pension and may lose out in future exchange rate fluctuations. That said the value exceeds the amount that can be transferred to a QROP in a single transaction so probably rules out that option for me.

 

I will be considering advice at the appropriate time for me but thought the calculation may be of interest to others.

 

It took over 2 months to arrive but I did not have to give any information about particular schemes. I can ask them twice for a valuation within 12 months and the valuation is valid for 3 months.

 

 

Hello

 

Going on that level of CETV (15x times after lump sum) I assume you are not too far away from retirement?

 

That does seem to be a generous amount which is not too much of a surprise as they are currently at a high level.

 

You say that it would therefore last 15 years or less with the inflationary increases, this is true if you were to leave the transferred money under the mattress however the money would be invested.

 

Therefore if it achieved the same return as inflation RPI or CPI depending on what the pension payments are linked to it would last 15 years factoring in inflationary pension increases.

 

So depending on what the inflationary increase on the pension is (the government’s inflation target is 2% http://www.bankofengland.co.uk/Pages/home.aspx a lot of pensions are linked to this perhaps with a minimum 2.5% built in) it could be possible to earn almost double that on Term Deposits alone (http://www.canstar.com.au/term-deposits/compare-100k-term-deposit-rates/) then of course it would last longer than 15 years.

 

Most retirees that have monies in Account Based Pensions here continue to invest into Growth assets varying in general between 25% - 65% allocation (and achieve 0% tax on earnings and income if over age 60) therefore the potential return now increases further still meaning that the 15 years is potentially expanded again.

 

The above is looking at things on a like for like basis in a way but there are still other additional factors that could increase or decrease the life of the transferred monies (if transferred) compared against the annual pension (if left), for example continuing fluctuations in exchange rates, tax in Australia (depending on the amount of pension income), Australian Age Pension benefits and life expectancy and death benefits.

 

 

KR

 

Andy

[Gbye grey sky]

Hello

 

Going on that level of CETV (15x times after lump sum) I assume you are not too far away from retirement?

 

That does seem to be a generous amount which is not too much of a surprise as they are currently at a high level.

 

You say that it would therefore last 15 years or less with the inflationary increases, this is true if you were to leave the transferred money under the mattress however the money would be invested.

 

Therefore if it achieved the same return as inflation RPI or CPI depending on what the pension payments are linked to it would last 15 years factoring in inflationary pension increases.

 

So depending on what the inflationary increase on the pension is (the government’s inflation target is 2% http://www.bankofengland.co.uk/Pages/home.aspx a lot of pensions are linked to this perhaps with a minimum 2.5% built in) it could be possible to earn almost double that on Term Deposits alone (http://www.canstar.com.au/term-deposits/compare-100k-term-deposit-rates/) then of course it would last longer than 15 years.

 

Most retirees that have monies in Account Based Pensions here continue to invest into Growth assets varying in general between 25% - 65% allocation (and achieve 0% tax on earnings and income if over age 60) therefore the potential return now increases further still meaning that the 15 years is potentially expanded again.

 

The above is looking at things on a like for like basis in a way but there are still other additional factors that could increase or decrease the life of the transferred monies (if transferred) compared against the annual pension (if left), for example continuing fluctuations in exchange rates, tax in Australia (depending on the amount of pension income), Australian Age Pension benefits and life expectancy and death benefits.

 

 

KR

 

Andy

 

 

Hello Andy

 

Yes, I certainly oversimplified the figures there. I am going to PM you the actual numbers etc as you may find them of interest. Please do not feel that you have to respond though.

 

KR

David

[FrankFinancial]

In my years in this business I have yet to find a strong enough case to transfer out of a defined benefit scheme. It provides a guaranteed income stream that is normally indexed and puts the risks on the provider. That is gold, in an age of uncertainty in relation to longevity risk and low interest rates. The only exception to this is if you are concerned with the financial strength of the provder of the annuity. If your employer is not financially strong it can be a deciding factor to commute.I found that the clients that have ignored my advice and transferred into personal super/pension funds have regretted it and continue to do so for years and years. Best of luck Frank

[Guest sturry]

Thanks for the valuable information.

[Gbye grey sky]

In my years in this business I have yet to find a strong enough case to transfer out of a defined benefit scheme. It provides a guaranteed income stream that is normally indexed and puts the risks on the provider. That is gold, in an age of uncertainty in relation to longevity risk and low interest rates. The only exception to this is if you are concerned with the financial strength of the provder of the annuity. If your employer is not financially strong it can be a deciding factor to commute.I found that the clients that have ignored my advice and transferred into personal super/pension funds have regretted it and continue to do so for years and years. Best of luck Frank

 

I know exactly what you mean. From my perspective I felt it was important to establish the transfer value anyway and then crunch the numbers. There is a degree of risk in considering this route but I was conscious that the pension is indexed in one country which may have a different inflation rate to the one I am living in. On top of this I have to pay to exchange the pension into AUD effectively and pay tax on both the lump sum and the pension. But if I live a long time (which is the plan after all) the defined benefit scheme must win out.

[Andrew from Vista Financial]

Update: http://www.pomsinoz.com/forum/money-finance/216138-uk-pension-transfers-ban-update.html

[jayrigg]

Hi Andrew,

 

I served for 13 years in the British Forces and got a preserved a military pension which I can claim when I am 60.I emigrated to Australia in 2006, 7 years after I left and that is where I reside now.I have been contacted by quite a few Aussie companies, who have told me it would be better to transfer my preserved pension over to my super.I have ignored this advice because my Brit pension is guaranteed, however after this latest announcement I am unsure.

 

Any advice would be welcome,

 

Thank You,

 

Jason Archer

[winter1]

Hi Andrew,

 

I served for 13 years in the British Forces and got a preserved a military pension which I can claim when I am 60.I emigrated to Australia in 2006, 7 years after I left and that is where I reside now.I have been contacted by quite a few Aussie companies, who have told me it would be better to transfer my preserved pension over to my super.I have ignored this advice because my Brit pension is guaranteed, however after this latest announcement I am unsure.

 

Any advice would be welcome,

 

Thank You,

 

Jason Archer

 

I transferred my UK Armed Forces pension to a UK local government pension. I left the Local Government pension in the UK and am now drawing it. The advice I was given was leave it alone. The employer or the UK government take all the investment risk also there may be other support mechanisms for Armed Forces pensioners. There is also a widows pension associated with this.

Google Armed forces pension scheme the gov.UK websites give more info.

 

I have a mix of this and an industry super so I feel I have the best of both worlds which might also be the position you are in.

 

Take advice though for your particular situation but not from firms that do the transfers they will only have their interests at heart.

 

 

 

 

 

.

[FrankFinancial]

Jason,The current proposed legislative change has no impact on your plans to receive a pension. The question for you remains are you confident that the UK government will be in a position to fund your pension. If yes, which is a reasonable conclusion, I would not make any change to your sensible plans. kind regards Frank

[Andrew from Vista Financial]

Hi Andrew,

 

I served for 13 years in the British Forces and got a preserved a military pension which I can claim when I am 60.I emigrated to Australia in 2006, 7 years after I left and that is where I reside now.I have been contacted by quite a few Aussie companies, who have told me it would be better to transfer my preserved pension over to my super.I have ignored this advice because my Brit pension is guaranteed, however after this latest announcement I am unsure.

 

Any advice would be welcome,

 

Thank You,

 

Jason Archer

 

Hi Jason

 

The announcement does not endanger the benefits you have accrued in any way.

 

However what it does mean is that as an unfunded scheme (http://www.bbc.co.uk/news/business-11446834) you will potentially no longer have the option or transferring out the pension (unless you meet the limited circumstance definition (of which the explanation seems to be elusive)).

 

Anyone company telling you it is better to transfer without having conducted a full fact find in relation to your current (financial) situation, goals and objectives and without having conducted the appropriate research and financial modelling (if necessary) should not be telling you this.

 

Alternatively it is not possible to advise against a transfer again without following the same rigorous process.

 

I agree that a final salary scheme should not be given up lightly but there can be circumstances whereby people believe it is in their interests to transfer.

 

In actual fact there is never a right or wrong decision mathematically as there are too many unknown variables that could affect the eventual outcome.

 

Also there can generally be an argument for and against for every objection that is raised when looking at transferring or not.

 

For example a counter argument against your guaranteed pension income concern could be that it would be possible to be provided with a guaranteed (rising) income in Australia via purchase of a lifetime annuity. Obviously the merits of this would have to be explored in much more detail however this is purely to demonstrate my above statement.

 

In the end you have to do what is right for you but armed with thorough knowledge of each system and the (projected) merits of each scenario it will certainly be easier for one to make an informed decision for their own circumstances.

 

For me taking advice on a paid basis regardless of whether a transfer occurs or not should be the minimum consideration for people with final salary schemes or certainly for anyone unsure of whether to transfer or not.

 

 

Kind regards

 

 

Andy

[becky2011]

My partner has a police pension (only for a couple of years service). Apologies for my ignorance, but does a transfer ban mean he loses this pension (small that it would be) altogether if he does not transfer before the ban or does it just mean he will be paid from the UK when he retires?

 

Thank you

[mr luvpants]

I have been thinking about this subject for the last two weeks. I have 18 years pension payments in a UK fire service pension. It is a defined benefits scheme. I have done my homework and if I transfer it over now to a OZ QROPS and draw on it when I am 60, the yearly figure I have been given is just under what the Fire service pension people say they will pay me BUT the fire service pension figure is at todays rates. In 13 years time when I am 60 it will have gone up as it is index linked. I won't pay a lot of tax on it as I will be entitled to a full tax allowance in the UK despite living in Oz. I also have a Super account over here so in my mind I have the best of both worlds. The main reason that a pension transfer to Oz appealed to me is that I can have full access to it when I am 60. But I intend on living a full and long retirement so have decided not to transfer. Just my thoughts.

[Gbye grey sky]

I have been thinking about this subject for the last two weeks. I have 18 years pension payments in a UK fire service pension. It is a defined benefits scheme. I have done my homework and if I transfer it over now to a OZ QROPS and draw on it when I am 60, the yearly figure I have been given is just under what the Fire service pension people say they will pay me BUT the fire service pension figure is at todays rates. In 13 years time when I am 60 it will have gone up as it is index linked. I won't pay a lot of tax on it as I will be entitled to a full tax allowance in the UK despite living in Oz. I also have a Super account over here so in my mind I have the best of both worlds. The main reason that a pension transfer to Oz appealed to me is that I can have full access to it when I am 60. But I intend on living a full and long retirement so have decided not to transfer. Just my thoughts.

 

Don't make this the over-riding factor but you need to take account of the fact that the pension will be treated as taxable in Australia as you are tax resident there. (It is possible, even likely, that the UK tax allowance will not exist in the near future for non-residents anyway). Your fire service pension would also pay an initial lump sum which would be tax free if you were a UK taxpayer but taxable if you are an Australian taxpayer. One way of avoiding that tax hit (if the lump sum is large enough) might be to live and become tax resident in the UK in the year that the lump sum is taken (may not suit everyone but if you are considering an extended trip to Europe at some point anyway, worth considering).

 

Also, should you die, your spouse is likely to receive half of your pension and that ends when she dies. If the money is in the Super and you die your spouse would get all the money and any dependants/beneficiaries should benefit too.

 

I am wrestling with the same questions at the moment and it is not straightforward but I have 30 years Civil Service pension and will be 55 next year so my equation may be a little different. With low inflation presently I do not expect the initial payment to rise much in the next 5 years but obviously it is index-linked for the rest of my life and, like you, I am hoping and planning on a long one.

 

It is a closer call perhaps than you may realise but there is a greater element of risk potentially in transferring to a private pension and it would be wise to leave as it is if there is any chance at all that you may one day return to the UK.

[Gbye grey sky]

My partner has a police pension (only for a couple of years service). Apologies for my ignorance, but does a transfer ban mean he loses this pension (small that it would be) altogether if he does not transfer before the ban or does it just mean he will be paid from the UK when he retires?

 

Thank you

 

The ban is to prevent people with pensions such as a police pension transferring the cash value of that pension into a private scheme. I am surprised that a couple of years service even qualifies for a pension at all tbh. The amount would be so small that having it paid out and converted to dollars when he is finally entitled to it may be quite costly in relation to the amount. I would wonder if it is a pension worth having really - if it were me I would probably look to transfer it into my private pension/Super. Just my opinion - please don't treat as advice as I am not qualified anyway and do not know enough about your circumstances.