Taking "extra" pension as a lump sum

[Bobbsy]

A bit of background:

 

I worked for many years in the UK for a company with an excellent final salary pension scheme. However, in 1999, they were bought out by a competitor and, after much wrangling, I ended up leaving them.

 

For the next two years I worked for a small company that, while not offering a company pension, did contribute towards a private pension scheme set up by a financial adviser they had employed. So far so good and the investments have done pretty well.

 

However, after two years in this scheme, my health deteriorated and I ended up taking early retirement using the final salary scheme from the first company I mentioned. Although much reduced compared to continuing to contribute and waiting for normal retirement age, it's enough to live on fairly comfortably (just showing what a good scheme it was).

 

Anyway, the investment from the two years with the small company is just sitting there right now. The value has grown to around 32,000 pounds and, under it's terms, I can take it as a pension any time after age 60 (which I am now).

 

However, I'm happy with my monthly pension from the final salary scheme and would much rather take the other investment as a lump sum. I understand that, because of the way I'd opted out of the UK government pension, this wouldn't normally be possible, but...

 

-I've been a permanent resident in Australia since August 2007.

 

-I'm registered for Australian tax and benefits and pay no UK tax or NI.

 

-I have no expectation of a UK government pension.

 

I've asked the question of the company handling the investment (Clerical Medical as it works out) but have only received links to a bunch of generic brochures on setting up a retirement annuity. These brochures are clearly aimed at conventional UK residents, not overseas customers, and, even so, are somewhat contradictory. One pamphlet says you can only take lump sums if your fund is under £2000; another section implies that a lump sum of up to 50% of the fund might be possible. Neither make any mention of overseas customers and neither mention how I could set up a UK annunity from Australia. Even if I could set up such an annuity, the amount would be small enough to barely make the money transfer costs worthwhile.

 

Any experts have any thoughts? Thanks in advance for reading my long, boring screed!

[Notts]

As you have found, taking it all as a lump sum is not possible. Such a payment would be unauthorised under UK tax rules, and would attract a hefty tax charge (55% or so). The rules are the same whether you are in the UK or not. Most schemes allow you to take up to 25% free of UK tax - but I don't know what the Aus tax treatment would be.

[Andrew from Vista Financial]

A bit of background:

 

I worked for many years in the UK for a company with an excellent final salary pension scheme. However, in 1999, they were bought out by a competitor and, after much wrangling, I ended up leaving them.

 

For the next two years I worked for a small company that, while not offering a company pension, did contribute towards a private pension scheme set up by a financial adviser they had employed. So far so good and the investments have done pretty well.

 

However, after two years in this scheme, my health deteriorated and I ended up taking early retirement using the final salary scheme from the first company I mentioned. Although much reduced compared to continuing to contribute and waiting for normal retirement age, it's enough to live on fairly comfortably (just showing what a good scheme it was).

 

Anyway, the investment from the two years with the small company is just sitting there right now. The value has grown to around 32,000 pounds and, under it's terms, I can take it as a pension any time after age 60 (which I am now).

 

However, I'm happy with my monthly pension from the final salary scheme and would much rather take the other investment as a lump sum. I understand that, because of the way I'd opted out of the UK government pension, this wouldn't normally be possible, but...

 

-I've been a permanent resident in Australia since August 2007.

 

-I'm registered for Australian tax and benefits and pay no UK tax or NI.

 

-I have no expectation of a UK government pension.

 

 

I've asked the question of the company handling the investment (Clerical Medical as it works out) but have only received links to a bunch of generic brochures on setting up a retirement annuity. These brochures are clearly aimed at conventional UK residents, not overseas customers, and, even so, are somewhat contradictory. One pamphlet says you can only take lump sums if your fund is under £2000; another section implies that a lump sum of up to 50% of the fund might be possible. Neither make any mention of overseas customers and neither mention how I could set up a UK annunity from Australia. Even if I could set up such an annuity, the amount would be small enough to barely make the money transfer costs worthwhile.

 

Any experts have any thoughts? Thanks in advance for reading my long, boring screed!

 

 

 

Hi Bobbsy

 

 

Where were you prior to August 2007?

 

Why do you not have expectations to a UK Government Pension? You will still be entitled to a Basic State Pension based on the number of qualifying years you have.

 

50% lump sum from a UK scheme does not seem right generally 25% lump sum is the maximum.

 

These points aside theoretically you may be able to access 100% of your funds if transferred to Australia but there are potential implications and restrictions around this.

 

I'll try to give a general overview of this:

 

HMRC allow UK Pensions to be transferred to QROPS schemes.

 

The rationale behind QROPS is to allow people looking to retire outside of the UK the ability to take their retirement monies with them

 

The spirit behind QROPS is that you are able to access your retirement monies in a similar manner that you would have been able to had they remained in the UK and that these monies are used for providing a retirement income.

 

HMRC have certain rules around UK Pension Transfers mainly being:

 

 

• a 10 year reporting rule whereby the receiving QROPS provider must report to HMRC when withdrawals, benefit payments etc are made;

• an unauthorised payment charge of up to 55% (as Notts is referring to) can be charged for unauthorised payments made if the member is UK resident or has been UK resident in any of the previous five UK tax years.

 

 

 

Transferring UK Pensions to Australia and then drawing 100% of the monies is not a practice that I advise on as I believe that these monies should be used for retirement purposes but I can understand why some people might want to access more than 25%-30% for one reason or another.

 

I have had clients that wish to do this in the past and so from a due diligence point of view I have advised then to write to HMRC to clarify the above points and to understand whether they will be liable to a charge so as to satiisfy themselves if this is a path they wish to go down.

 

On every occasion HMRC have confirmed the above points in writing.

 

 

Now to Australia, monies in Superannuation are generally not able to be accessed until a condition of release is met.

 

If someone is less than age 65 and not fully retired from the workforce then they may be able to access 10% of the capital if over age 55.

 

If over age 55 and fully retired from the workforce then access to 100% is allowable.

 

 

Bobbsy, I hope this helps.

 

 

Please note that the above comments are general information only and should not be taken as financial advice (sorry but I have to have this disclaimer!!!)

Edited June 17, 2013 by Andrew from Vista Financial

[Bobbsy]

Sorry, missed that there had been more traffic on this query.

 

Anyhow, I've been taking advice from the pensions adviser who set up the scheme in the first place. He basically agrees with what Andrew from Vista financial said and we're working out what's my best option even as I type.

 

For Andrew, the reason I say that I have no expectation of a UK government pension is that I'd signed papers to opt out for the company scheme I'm now living on. I was on this opt out for the entire time (31 years) I spent working in the UK.

 

...which answers the other question. Prior to August 2007 I was in the UK for 31 years and prior to that I was in Canada.

[Gbye grey sky]

I suspect that you will find that you opted out of SERPS which was the state earnings related pensio which is essentially a top up to the basic state pension. You will still be entitled to your basic state pension. I suggest you seek a pension forecast to check this.