UK Pension - consolidation and future transfer thoughts

[Ferrets]

Hi there,

Working through a few bits and pieces at the moment, and one of those is what I should do with my UK pension pots.  No rush, as I'm a few years off 55, but wanted to start the thought process going.

• We've been in Australia for 7 years, and no current intention to return to the UK other than for occasional holidays.
   
• I've currently got 3 UK pots; a defined benefit and two definded contribution shemes (regular schemes not SIPP).  The cashout value for the defined benefit is 19 x the annual pension, with a retirement age of 65.
   
• The current thought process is that when possible I would like to bring my UK pensions out to Australia, with the potential for reduction of tax at point of withdrawal and overall simplification.  This may include consolidating all of the existing pots under a single personal pension.
   
• We are at the threshold where it makes sense to move our Australian superannuation pots into a SMSF (potentially QROPS qualifying).
   

Questions I had;

• In the future would I be able to transfer my defined benefit scheme at Cash Equivalent Transfer Value directly to a QROPS SMSF or does it need to go via a personal pension scheme? 
   
• If we were to move to an SMSF now in Australia, is it straightforward to adjust the deed to make it QROPS compliant at the appropriate time to support transfer. 
   
• I'm trying to get my head around whether it's worth taking the cash value from the defined benefit sheme now to move into a defined contribution / SIPP scheme and potentially grow that further whilst also protecting the value of the pot for my spouse & family; the value of any residual reduces by 50% in the event of my death.  My gut feel is that given the 19 x payback period this makes sense.

Any thoughts and opinions greatfully recieved.

Cheers,

Ferrets

 

 

 

[InnerVoice]

2 hours ago, Ferrets said:

Hi there,

Working through a few bits and pieces at the moment, and one of those is what I should do with my UK pension pots.  No rush, as I'm a few years off 55, but wanted to start the thought process going.

• We've been in Australia for 7 years, and no current intention to return to the UK other than for occasional holidays.
   
• I've currently got 3 UK pots; a defined benefit and two definded contribution shemes (regular schemes not SIPP).  The cashout value for the defined benefit is 19 x the annual pension, with a retirement age of 65.
   
• The current thought process is that when possible I would like to bring my UK pensions out to Australia, with the potential for reduction of tax at point of withdrawal and overall simplification.  This may include consolidating all of the existing pots under a single personal pension.
   
• We are at the threshold where it makes sense to move our Australian superannuation pots into a SMSF (potentially QROPS qualifying).
   

Questions I had;

• In the future would I be able to transfer my defined benefit scheme at Cash Equivalent Transfer Value directly to a QROPS SMSF or does it need to go via a personal pension scheme? 
   
• If we were to move to an SMSF now in Australia, is it straightforward to adjust the deed to make it QROPS compliant at the appropriate time to support transfer. 
   
• I'm trying to get my head around whether it's worth taking the cash value from the defined benefit sheme now to move into a defined contribution / SIPP scheme and potentially grow that further whilst also protecting the value of the pot for my spouse & family; the value of any residual reduces by 50% in the event of my death.  My gut feel is that given the 19 x payback period this makes sense.

Any thoughts and opinions greatfully recieved.

Cheers,

Ferrets

I think your questions go well beyond what can be covered by general advice. You should definitely consider getting professional advice from an organisation with expertise in both UK and Australian tax affairs, in my opinion.

Coincidentally, I was in exactly the same situation as you pension-wise. I had a defined benefit and two defined contribution schemes, which I consolidated into a single SIPP prior to leaving the UK in 2011. I recall the cash-out value on the defined benefit scheme was about 20x, and my IFA advised me to cash out and consolidate my pensions into a single on with significantly lower fees, which is what I did. I was about 45 at the time so a long way off retirement so plenty of opportunity for those funds to grow, but I think you are likely to receive different advice based on your age. Giving up a guaranteed income for live is a decision that should never be taken lightly. My IFA went away and modelled the possible outcomes first, which I believe is a requirement in this situation. It' isn't something that should ever be left to 'gut feeling'.

[Marisawright]

1 hour ago, InnerVoice said:

Giving up a guaranteed income for live is a decision that should never be taken lightly. 

So true.   It's not something that really hits you until you retire:  the fact that your superannuation pot has to provide a pension for the rest of your life, but you don't know how many years that will be.  When you do the calculations, you realise that though the balance sounds impressive, it's not going to feed and clothe you for 35 years (if you're lucky enough to live to 100).   Of course there's the govt pension to fall back on, but governments can't afford to be generous with pension increases.

@Ferrets, for that reason, I don't think 'simplification' is a good enough reason to give up a defined benefits pension.  It's like an insurance policy, in case you live to a very old age.

One other point:  you say you have "no current intention" to leave Australia.  I wouldn't touch your UK pensions until you're able to say, "We are absolutely sure we will live in Australia till the day we die".  

I say that for two reasons.  One, once you've transferred the pensions to the Australian system, you can't transfer them back again.  Two, if you have an SMSF, you'll have to wind up the fund if you return to the UK, or appoint someone else as trustees.

Edited July 9, 2023 by Marisawright

[Parley]

10 hours ago, Marisawright said:

So true.   It's not something that really hits you until you retire:  the fact that your superannuation pot has to provide a pension for the rest of your life, but you don't know how many years that will be.  When you do the calculations, you realise that though the balance sounds impressive, it's not going to feed and clothe you for 35 years (if you're lucky enough to live to 100).   Of course there's the govt pension to fall back on, but governments can't afford to be generous with pension increases.

@Ferrets, for that reason, I don't think 'simplification' is a good enough reason to give up a defined benefits pension.  It's like an insurance policy, in case you live to a very old age.

One other point:  you say you have "no current intention" to leave Australia.  I wouldn't touch your UK pensions until you're able to say, "We are absolutely sure we will live in Australia till the day we die".  

I say that for two reasons.  One, once you've transferred the pensions to the Australian system, you can't transfer them back again.  Two, if you have an SMSF, you'll have to wind up the fund if you return to the UK, or appoint someone else as trustees.

There is no reason why it shouldn't last until you die if you are sensible. Don't forget you should continue to invest it in growth investments so as well as drawing down 4 to 5% a year to spend it will also be growing by a similar if not greater amount.

Having your home paid off when you enter retirement is critical though.

The other point is if your balance does drop, the Age Pension will kick in as a safety net. Many retirees live a good life on their super and a part pension. 

Even people on the full age pension with little other assets get over $1000 a fortnight for singles and over $1600 a fortnight for couples. If home is paid off this is quite liveable while not intended to fund a lavish lifestyle.

Studies show a lot less super is needed than people think due to the influence of the age pension.

[Marisawright]

27 minutes ago, Parley said:

There is no reason why it shouldn't last until you die if you are sensible. Don't forget you should continue to invest it in growth investments so as well as drawing down 4 to 5% a year to spend it will also be growing by a similar if not greater amount.

Maybe, provided there isn't a stock market crash or a global depression or a war or natural disasters.   

27 minutes ago, Parley said:

The other point is if your balance does drop, the Age Pension will kick in as a safety net.

Now, yes.  But what if someone is planning their retirement 15 or 20 years in the future? Should they blithely assume the age pension will still be available at a similar level y the time they're 80 and funds are running low?  

Edited July 9, 2023 by Marisawright

[Parley]

3 minutes ago, Marisawright said:

Maybe, provided there isn't a stock market crash or a global depression or a war or natural disasters.   

Now, yes.  But what if someone is planning their retirement 15 or 20 years in the future? Should they blithely assume the age pension will still be available at a similar level?  

Yes they can.

[Tulip1]

18 minutes ago, Marisawright said:

Maybe, provided there isn't a stock market crash or a global depression or a war or natural disasters.   

Now, yes.  But what if someone is planning their retirement 15 or 20 years in the future? Should they blithely assume the age pension will still be available at a similar level y the time they're 80 and funds are running low?  

I’d say so yes.  In the UK there has been talk for years of the state pension stopping/being changed but I’m sure in either country they’re not going to leave old people starving with no income. It might be named something different one day but those with no means get hand outs and I cannot see that stopping. 

[Tulip1]

54 minutes ago, Parley said:

There is no reason why it shouldn't last until you die if you are sensible. Don't forget you should continue to invest it in growth investments so as well as drawing down 4 to 5% a year to spend it will also be growing by a similar if not greater amount.

Having your home paid off when you enter retirement is critical though.

The other point is if your balance does drop, the Age Pension will kick in as a safety net. Many retirees live a good life on their super and a part pension. 

Even people on the full age pension with little other assets get over $1000 a fortnight for singles and over $1600 a fortnight for couples. If home is paid off this is quite liveable while not intended to fund a lavish lifestyle.

Studies show a lot less super is needed than people think due to the influence of the age pension.

Sensible but not too sensible.  I’ve every intention of spending and enjoying mine and should I live a long life it’s possible it may one day look a little desperate.  Theres no point in being the richest man in the graveyard.  

Edited July 9, 2023 by Tulip1

[Parley]

7 minutes ago, Tulip1 said:

Sensible but not too sensible.  I’ve every intention of spending and enjoying mine and should I live a long life it’s possible it may one day look a little desperate.  Theres no point in being the richest man in the graveyard.  

Yes good idea. In fact it is a problem here that people are hoarding their super in retirement and not spending it as is supposed to happen.

No one likes seeing their account balances reducing too much i expect. 

[Tulip1]

24 minutes ago, Parley said:

No one likes seeing their account balances reducing too much i expect. 

I expect you’re right.  I’d see it as a sign of a good and enjoyable retirement.  

[Blue Manna]

3 hours ago, Parley said:

Yes good idea. In fact it is a problem here that people are hoarding their super in retirement and not spending it as is supposed to happen.

No one likes seeing their account balances reducing too much i expect. 

If only they could tell us how long we were going to live!

[Blue Manna]

3 hours ago, Tulip1 said:

I’d say so yes.  In the UK there has been talk for years of the state pension stopping/being changed but I’m sure in either country they’re not going to leave old people starving with no income. It might be named something different one day but those with no means get hand outs and I cannot see that stopping. 

Sorry, who's been talking about stopping the UK state pension? I imagine they would get voted out sharply if they did. The grey vote is not to be messed with. They have delayed the qualifying age a few times, but I've never heard mention if them stopping the pension. I don't think they have even stopped the triple lock.

[Tulip1]

2 hours ago, Blue Manna said:

Sorry, who's been talking about stopping the UK state pension? I imagine they would get voted out sharply if they did. The grey vote is not to be messed with. They have delayed the qualifying age a few times, but I've never heard mention if them stopping the pension. I don't think they have even stopped the triple lock.

It being means tested then which would stop it for many.  Also something about those who haven’t paid National Insurance contributions, or not enough.  Over the years there’s been the odd thing like these thrown out.  Many countries, Australia included don’t give it to those who don’t meet a criteria which includes having enough of their own money to not need it.  It’s not inconceivable that the UK will follow.  

Edited July 9, 2023 by Tulip1

[Blue Manna]

You're just making stuff up now. There's been no mention of means tests. There would be outrage. UK pensions have always been subjected to paying NI. That's sort of the point of this. If you are going to make these sorts of claims can you please offer some sort of verification?

[Ferrets]

21 hours ago, InnerVoice said:

I think your questions go well beyond what can be covered by general advice. You should definitely consider getting professional advice from an organisation with expertise in both UK and Australian tax affairs, in my opinion.

Coincidentally, I was in exactly the same situation as you pension-wise. I had a defined benefit and two defined contribution schemes, which I consolidated into a single SIPP prior to leaving the UK in 2011. I recall the cash-out value on the defined benefit scheme was about 20x, and my IFA advised me to cash out and consolidate my pensions into a single on with significantly lower fees, which is what I did. I was about 45 at the time so a long way off retirement so plenty of opportunity for those funds to grow, but I think you are likely to receive different advice based on your age. Giving up a guaranteed income for live is a decision that should never be taken lightly. My IFA went away and modelled the possible outcomes first, which I believe is a requirement in this situation. It' isn't something that should ever be left to 'gut feeling'.

Thanks for that - gut feel comes before advice, and the mechanics to withdraw from the defined benefit have a few hurdles to formalise any thought process.

Whilst I said a few years off 55, I meant a good few years, so interestingly in almost the identical position to you in 2011.  With inflation indexation at around 3%, I would imagine that a well performing SIPP consolidated with other pots has the potential to outperform.  Similarly I remain concerned around the residual benefit to my spouse of the current defined benefit vs a SIPP. 

A few things to think of (alongside making sure my NI contributions are up to date), thanks for your feedback!

[Ferrets]

20 hours ago, Marisawright said:

So true.   It's not something that really hits you until you retire:  the fact that your superannuation pot has to provide a pension for the rest of your life, but you don't know how many years that will be.  When you do the calculations, you realise that though the balance sounds impressive, it's not going to feed and clothe you for 35 years (if you're lucky enough to live to 100).   Of course there's the govt pension to fall back on, but governments can't afford to be generous with pension increases.

@Ferrets, for that reason, I don't think 'simplification' is a good enough reason to give up a defined benefits pension.  It's like an insurance policy, in case you live to a very old age.

One other point:  you say you have "no current intention" to leave Australia.  I wouldn't touch your UK pensions until you're able to say, "We are absolutely sure we will live in Australia till the day we die".  

I say that for two reasons.  One, once you've transferred the pensions to the Australian system, you can't transfer them back again.  Two, if you have an SMSF, you'll have to wind up the fund if you return to the UK, or appoint someone else as trustees.

Thanks Marisa,

This has highlighted to me this is more of an immediate question on the vehicle used in the UK at the moment vs moving it to Australia; that part is quite a few years away for me anyway, and would become a technical solution at that point - we'll have been in Australia almost two decades at that point so should be in a good position to answer the question of staying with full certainty

Cheers again for the feedback!

[Marisawright]

10 hours ago, Parley said:

Yes they can.

You have more confidence in governments than I do.

[Marisawright]

2 hours ago, Blue Manna said:

 There's been no mention of means tests. There would be outrage. UK pensions have always been subjected to paying NI. That's sort of the point of this. If you are going to make these sorts of claims can you please offer some sort of verification?

No one is saying they are actively considering the removal of pension or introducing means tests in the UK right now.  I'm talking about a person in their 40s today -- should they be confident it will be the same in 40 years' time?

There has been widespread discussion for years, in all countries, about how governments are struggling to meet pension costs as people live longer and have much longer retirements.   That's why governments started encouraging, or mandating, private pension schemes - the goal was to make people self-reliant so they don't need government pensions. 

When pensions were first introduced in the early 20th century, most people didn't live past 70, so people worked for 45 years then got a pension for 5 years.  Now, people work for 45 years then get a pension for 20 years.  Therefore the argument that you've paid for your pension through NI contributions is false. You've paid something towards it, but it's very easy to calculate that small NI contributions for 45 years are not nearly enough to pay your pension for 20 years, even with good investment returns.  Successive governments have been too chicken to increase NI to compensate.  

https://au.news.yahoo.com/pensions-triple-lock-could-be-means-tested-as-rich-oa-ps-dont-need-it-senior-tory-says-173546983.html

 

[Marisawright]

Food for thought:   Most retirement calculators rely on you (or the calculator) choosing a nice, steady rate rate of return and a nice, steady rate of withdrawal over the years of retirement (adjusted for a nice, steady rate of CPI).   We all know life isn't like that.   Apart from anything else, CPI isn't a true reflection of inflation.

The tool below is easy to use, but bases its predictions on a much more complex and realistic analysis of the past:

https://firecalc.com/

Tip:  there's a very simple calculator on the front page, but it assumes your annual expenditure never changes.  To get the full benefit from the calculator, use the tabs at the top of the page. 

Edited July 10, 2023 by Marisawright

[Andrew from Vista Financial]

On 09/07/2023 at 05:37, Ferrets said:

Hi there,

Working through a few bits and pieces at the moment, and one of those is what I should do with my UK pension pots.  No rush, as I'm a few years off 55, but wanted to start the thought process going.

• We've been in Australia for 7 years, and no current intention to return to the UK other than for occasional holidays.
   
• I've currently got 3 UK pots; a defined benefit and two definded contribution shemes (regular schemes not SIPP).  The cashout value for the defined benefit is 19 x the annual pension, with a retirement age of 65.
   
• The current thought process is that when possible I would like to bring my UK pensions out to Australia, with the potential for reduction of tax at point of withdrawal and overall simplification.  This may include consolidating all of the existing pots under a single personal pension.
   
• We are at the threshold where it makes sense to move our Australian superannuation pots into a SMSF (potentially QROPS qualifying).
   

Questions I had;

• In the future would I be able to transfer my defined benefit scheme at Cash Equivalent Transfer Value directly to a QROPS SMSF or does it need to go via a personal pension scheme? 
   
• If we were to move to an SMSF now in Australia, is it straightforward to adjust the deed to make it QROPS compliant at the appropriate time to support transfer. 
   
• I'm trying to get my head around whether it's worth taking the cash value from the defined benefit sheme now to move into a defined contribution / SIPP scheme and potentially grow that further whilst also protecting the value of the pot for my spouse & family; the value of any residual reduces by 50% in the event of my death.  My gut feel is that given the 19 x payback period this makes sense.

Any thoughts and opinions greatfully recieved.

Cheers,

Ferrets

 

 

 

 

Taking out of the equation the other points mentioned/raised in all of the previous posts and this is not to say that they are not relevant or valid points but to solely focus on answering your questions.

Questions I had;

• In the future would I be able to transfer my defined benefit scheme at Cash Equivalent Transfer Value directly to a QROPS SMSF or does it need to go via a personal pension scheme? 

Potentially, however if the pot of money excluding the Applicable Fund Earnings (AFE) is more than the Non-Concessional Contribution Cap (currently $330,000 if utilising the bring forward rule) then this would create a breach. That may or may not be an issue depending on other factors at the time.

• If we were to move to an SMSF now in Australia, is it straightforward to adjust the deed to make it QROPS compliant at the appropriate time to support transfer. 

I'd say that yes this is fairly straighforward (so long of course as the criteria of QROPS is met).  

• I'm trying to get my head around whether it's worth taking the cash value from the defined benefit sheme now to move into a defined contribution / SIPP scheme and potentially grow that further whilst also protecting the value of the pot for my spouse & family; the value of any residual reduces by 50% in the event of my death.  My gut feel is that given the 19 x payback period this makes sense.

Formal Advice would be required on this to answer that question and it is actually a mandatory requirement anyway (from an FCA stance) if looking to transfer out of a DB Scheme.

Regards

Andy

 

Edited July 10, 2023 by Andrew from Vista Financial

[Ferrets]

4 hours ago, Andrew from Vista Financial said:

 

Taking out of the equation the other points mentioned/raised in all of the previous posts and this is not to say that they are not relevant or valid points but to solely focus on answering your questions.

Questions I had;

• In the future would I be able to transfer my defined benefit scheme at Cash Equivalent Transfer Value directly to a QROPS SMSF or does it need to go via a personal pension scheme? 

Potentially, however if the pot of money excluding the Applicable Fund Earnings (AFE) is more than the Non-Concessional Contribution Cap (currently $330,000 if utilising the bring forward rule) then this would create a breach. That may or may not be an issue depending on other factors at the time.

• If we were to move to an SMSF now in Australia, is it straightforward to adjust the deed to make it QROPS compliant at the appropriate time to support transfer. 

I'd say that yes this is fairly straighforward (so long of course as the criteria of QROPS is met).  

• I'm trying to get my head around whether it's worth taking the cash value from the defined benefit sheme now to move into a defined contribution / SIPP scheme and potentially grow that further whilst also protecting the value of the pot for my spouse & family; the value of any residual reduces by 50% in the event of my death.  My gut feel is that given the 19 x payback period this makes sense.

Formal Advice would be required on this to answer that question and it is actually a mandatory requirement anyway (from an FCA stance) if looking to transfer out of a DB Scheme.

Regards

Andy

 

Thanks Andy,

I can see how the AFE caculations would work for the existing defined contribution schemes, i.e. value at time of transfer less value at time becoming a resident.  How would the AFE calculations value a scheme that be a defined contribution at the time of transfer but was originally a defined benefit scheme, or does this create a barrier?

Does the $330k represent a hard ceiling for the value, or can it be repeated, i.e. $330k transferred in year 1 (using the bring forward), $150k transferred in year 4?

Some of these technical points start firming up whether it's actually viable!

Cheers

 

 

[Andrew from Vista Financial]

Hi

So effectively the NCC cap resets itself following the two financial years that were brought forward.

If the strategy is a series of partial transfers then this typically involves having to use two or more SIPPs so as to ensure that the AFE can be taxed concessionally (15%) as opposed to the individuals MTR (that would need to be explored at the appropriate time).

Regards the assessment of AFE, any previously exempt fund earings (PEFE) which is typically if there has been a previous pension transfer are calculated as part of the AFE calculation. Being a defined benefit pension does not create a barrier (just perhaps a different method of ascertaining the historic valuation/benefits).

 

Regards

Andy   

[Ken]

To answer a question you seem to have left hanging in the title of this thread "Consolidation" I would advise against Consolidating any pension funds in the UK if you plan to bring them over to Australia. You will save on some day-to-day fees in having the funds consolidated, but you will have a much bigger and more unwieldy amount. Separate funds will all be taxed separately when transferred and this will allow you to better time the transfer to minimise tax, in particular by transferring them in different years to maximise the amounts you can get tax free.

[Andrew from Vista Financial]

22 hours ago, Ken said:

To answer a question you seem to have left hanging in the title of this thread "Consolidation" I would advise against Consolidating any pension funds in the UK if you plan to bring them over to Australia. You will save on some day-to-day fees in having the funds consolidated, but you will have a much bigger and more unwieldy amount. Separate funds will all be taxed separately when transferred and this will allow you to better time the transfer to minimise tax, in particular by transferring them in different years to maximise the amounts you can get tax free.

Hi Ken

Where you say, "to minimise the amounts you can get tax free" do you mean if a person transferring wanted to declare AFE at their MTR (if they had no other income for example)?

 

[Ken]

23 hours ago, Andrew from Vista Financial said:

Hi Ken

Where you say, "to minimise the amounts you can get tax free" do you mean if a person transferring wanted to declare AFE at their MTR (if they had no other income for example)?

 

I actually said "to maximise the amount you can get tax free", but otherwise yes. You don't need to declare the AFE of separate funds that you aren't transferring until a later year when you do so, and by then you'll have more tax free and low tax allowances and Concessional Super Caps available.