UK Expat Pensions

(New) State Pension

You can claim the UK Basic State Pension if you’re:

• a man born before April 6, 1951
• a woman born before April 6, 1953

If you were born later, you’ll need to claim the New State Pension instead.

Entitlement/Amount

For expats it is relevant to know that only as of 10 years of participation, there will be an entitlement to UK State Old Age Pensions. You’ll need 35 qualifying years to get the full New State Pension.

The possibility to acquire additional UK State Old Age Pension Claims is only available for older residents with a very modest income.

The full amount of New State Pensions is currently annually pre tax £ 8.297,-.

Pension Age

The UK State Pension age is under review and may change in the future. If you would like to check your current retirement age, please visit; https://www.gov.uk/state-pension-age Your State Pension age is the earliest age you can start receiving your State Pension.

Continued Work

Expats sometimes tend to do some kind of flexible consultancy work after retirement age. In that perspective it is relevant to know that you can keep working after you reach State Pension age. ‘Default retirement age’ (a forced retirement age of 65) no longer exists.

Indexation

It can be relevant for expats who reside outside of the UK to know whether or not the UK State Pension will remain to be annually indexated after Brexit. The latest information is that this might continue but we do not believe this is final yet.

Registration Check

If you would like to check your entitlement please contact the UK State Pension Organization, who will gladly send your registered details to your home address. Please mention in the request your ‘Noni’ being your National Insurance Number.

In order to create the optimal pension planning, it is good to take into the equation that the British government has since long shown the tendency to decrease pension favorable legislation. Especially if it is expat tax related.

A good example is the introduction a few years ago of a certain 25% taxation of pension transfers regarding Qrops.

I] National Tax Perspective

As there is a great variety in pension plans and personal situations, we will only mention certain general guidelines:

Personal Allowance

This is not pension related. It regards the amount of annual income that is not taxed. In 2018 it amounts to £ 11.500,-.

Following is the amount of gross income you can have before your Personal Allowance is reduced. The Personal Allowance is reduced by £ 1,- for every £ 2,- over the limit.* The Personal Allowance will only be reduced to the basic Personal Allowance unless income is over £ 100.000,-.

Income Limit (Born after 5 April 1948)                : £ 100.000,-
Income Limit (Born before 6 April 1948) *           : £   28.000,-

LTA Replaced By LSA & LSDBA in April 2024

A] AT A GLANCE

• On 6 April 2024, the lifetime allowance (LTA) will be abolished and a new regime for the taxation of lump sums and lump sum death benefits will be introduced.
• The regime will create a new “lump sum allowance” of £268,275 and a new “lump sum and death benefit allowance” of £1,073,000.

B] WHAT IS HAPPENING?

From 6 April 2024, the LTA will be abolished and a new regime for the taxation of lump sums and lump sum death benefits will be introduced. This is the most significant change to the UK pensions tax regime for nearly two decades.

C] WHAT IS THE LTA?

As a reminder, the LTA is the maximum amount of tax-relieved pension savings that an individual can make over their lifetime. When originally introduced in 2006, the LTA was set at £1.5 million — it is currently £1.073 million. 
When first introduced, and each subsequent time it was reduced, individuals with savings in excess of the LTA (or the reduced LTA, as applicable) were able to apply to retain a higher, “protected” LTA. In some cases (known as enhanced and fixed protection), the individual would lose their LTA protection if they made further pension savings.

The LTA charge is payable when benefits—whose value exceeds the LTA—are taken, and is payable on the value in excess of the LTA. Until 6 April 2023, the LTA charge was 55% where the excess was taken as a lump sum, and 25% where the excess was taken as pension. However, starting 6 April 2023, the LTA charge was reduced to the individual’s marginal tax rate, as a precursor to abolition of the LTA.

D] WHAT WILL REPLACE THE LTA?

On 6 April 2024, a new “lump sum allowance” of £268,275 (i.e., 25% of the current LTA) and a new “lump sum and death benefit allowance” of £1,073,000 (i.e., the current LTA) will be created. Individuals will not pay tax where the non-taxable element of lump sums they receive does not take them above these levels.

To the extent that the otherwise non-taxable element of a lump sum exceeds these levels, it will be taxed at the recipient’s marginal rate (except where LTA protections apply). The allowances will be personal, rather than applying at a scheme level, and will not take into consideration the payment of regular pension income.

Existing LTA protections will remain relevant, as they will give the individual higher lump sum and lump sum and death benefit allowances. Since 6 April 2023, individuals with enhanced or fixed protection will not lose that protection if they make further pension savings, provided they applied for the protection before 15 March 2023.

Annual Allowance

The Annual Allowance is a limit to the total amount of contributions that can be paid to defined contribution pension schemes and the total amount of benefits that you can build up in defined benefit pension scheme each year, for tax relief purposes.

The Annual Allowance is calculated over a year from April 6, 2017 to April 6, 2018. The Annual Allowance is currently capped at £ 40.000,- although a lower limit of £ 4.000,- may apply if you have already started drawing a pension.

The Annual Allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf.

If you exceed the Annual Allowance in a year, you won't receive tax relief -on any contributions you paid that exceed the limit and you will be faced with an annual allowance charge. Individuals with income for a tax year above £ 150.000,- have their annual allowance for that tax year reduced on a tapered basis (a ‘reduced annual allowance’). The annual allowance is reduced by £ 1,- for every £ 2,- of income above £ 150.000,- subject to a minimum reduced annual allowance of £ 10.000,-.

Where the reduction would otherwise take an individual’s tapered Annual Allowance below £ 10.000,- for the tax year, their reduced Annual Allowance for that year is set at £ 10.000,-.

The Annual Allowance charge will be added to the rest of your taxable income for the tax year in question, when determining your tax liability. Alternatively, if the Annual Allowance charge is more than £ 2.000,- you can ask your pension scheme to pay the charge from your benefits. This means your pension scheme benefits would be reduced.

Unless you have a Money Purchase Annual Allowance (MPAA), you may be able to bring forward any unused Annual Allowances from the previous three tax years, to either reduce your Annual Allowance charge to a lower amount or reduce the Annual Allowance charge completely. 

Your pension provider or scheme administrator should be able to give you your pension input amount for that scheme. This refers to the amount of contributions or value of accrued benefits during the pension input period. If you think that you may be getting close to your Annual Allowance, or may have exceeded it, you may wish to consider taking advice.

Money Purchase Annual Allowance (MPAA)

The Money Purchase Annual Allowance was introduced on 6th April 2015 and was set at £ 10.000,- gross p.a. The government has now reduced it to £ 4.000,- gross p.a. which applies to contributions made from 6th April 2017.

If you have taken flexible benefits which include income, such as ‘flexi-access drawdown’, and you want to continue paying contributions to a defined contribution pension scheme, you will have a reduced Annual Allowance of £ 4.000,- p.a. towards your defined contribution benefits.

The reduced allowance will apply if you have withdrawn more than the 25% tax free pension commencement lump sum (PCLS). The reduced amount is known as the ‘Money Purchase Annual Allowance' (MPAA) and includes both your own contribution and any other contribution paid on your behalf, such as an employer or a third party.

You cannot bring forward any unused Annual Allowances from the previous three tax years to warrant a higher contribution than £ 4.000,- towards your defined contribution benefits.

The Money Purchase Annual Allowance will only start to apply from the day after you have taken flexible benefits and so any previous savings are not affected. 

II] International Tax Perspective

Expats with UK Expat Pension Claims often reside outside of the UK at retirement age. Then the prevention of Double Taxation is relevant. Many countries have (OESO based) Bilateral Double Tax Treaties which try to prevent Double Taxation. Or at least try to limit its effect.

As the content of these kind of treaties can be very different from each other, it is advisable to timely check these treaties when planning ahead where to retire.

In case there are no such Treaties, then you have to see if there are any National Regulations which try to prevent or limit the effect of Double Taxation.

Brexit impact on Expat Pensions

By formally invoking article 50, Prime Minister May started the Brexit process. What might be the implications of a Hard/Soft Brexit on Expat  pensions? The UK government has since several years been rather keen on reducing tax benefits on expat pensions. Thus the more strict regime for UK Qrops as of June this year.

Post Brexit the UK government is no longer restricted by EU regulations, they might further introduce new limitations on the expat pension (tax) regime. Regarding UK State Pensions currently UK nationals living in the EU enjoy equal annual indexation thereof but this might change by Brexit. Furthermore a central issue is the mobility of expat pensions Post Brexit.

Currently it is i.e. possible to transfer UK pension capital to a Dutch expat pension plan. Whereas the EU is working on the expansion of the true Pan European Pension Plan (PEPP) and its free mobility within the EU, the mobility of the expat pension plan between the EU and the UK might severly be limited by Brexit. For (UK) expats its seems advisable to pay attention and have several options ready. Feel free to contact us as we are experienced in advising (UK) expats.

Expats from the UK

Expats from the UK, regardless of their nationality, who reside outside of the UK and have pension claims in the UK, might still be subject to UK taxation.

For such expats it might be very attractive to transfer their UK pensions to a Qualifying Recognised Overseas Pension Scheme or Qrops.

Qrops

A Qrops is an offshore pension scheme that has received recognition from HM Revenue & Customs. It is allowed to receive the transfer value of your UK pension funds. Qrops are often based in Malta, Gibraltar, Guernsey or Isle of Man.

Qrops for all kind of Pensions?

It is usually possible to transfer the value of any UK registered private or occupational pension scheme of Defined Benefit or Defined Contribution nature except for:

• UK governmental pension claims
• Insurance company annuities
• Defined Benefit pensions once in payment

Qrops for all your Pensions?

Expats often have several pension claims from different employers in the UK. All these pensions can be consolidated in one Qrops. Which decreases administration costs and allows for one investment strategy.

Qrops Investment Possibilities

Once your UK pension capital has been transferred to a Qrops, your funds have to be invested in a manner which reflects your agreed upon risk profile and investment horizon best. In general Qrops product solutions entail all usual investment categories such as investment funds, equities, corporate/government bonds, real estate and cash.

Often several currency options are possible as this allows a hedge against currency risks.

Qrops and residential Flexibility

Expats prefer to keep all options open. If you might unexpectedly return to the UK, you can keep your Qrops. The capital you originally transferred to the Qrops, becomes once again subject to UK legislation for registered pension schemes.

It is also possible to transfer a Qrops capital to a UK registered pension scheme. Or to another Qrops as depending on your location, one Qrops jurisdiction may be more suitable than another.

Certain trustees have Qrops products in several locations and offer free switches between these schemes. The most suitable option is then always available regardless where you retire. As many and substantial changes in legislation are expected, this is a valuable quality.

Qrops main Advantages

• To substantially reduce the income tax exposure in which execution Double Tax Treaties between the UK and other juridictions have a relevant role.
• Qrops are based in offshore jurisdictions and benefit from zero taxation at source contrary to many residential countries.
• Qrops avoid capital gains tax on asset growth as well as potentially avoiding inheritance tax and its strict UK regulations.
• Qrops do not oblige you to purchase an annuity which is a substantial advantage due to the current historically low interest rate. They also allow you to fully retain ownership of your assets.  You can also opt for a percentage drawdown of up to 20% more than you could get by leaving your pension capital in the UK.
• Freedom to make additional contributions without a Lifetime Allowance limit.
• Qrops offer more next of kin pension options. Which includes passing your assets directly or investing assets for beneficiaries later on. Whereas UK pensions can have severe restrictions as well as being liable to UK Inheritance Tax.
• Qrops can prevent currency risks and can provide the lowest investment costs as they allow for the collection of all pension capital in one efficient portfolio. As return on investment is calculated by compound interest in the long run, this is a valuable quality which substantial effect should not be underestimated.

Qrops Tax Changes 2017

I] Increased Tax Exposure

In the UK pensions have been subjected to increasing tax restrictions as an attempt to reduce the use of pensions for tax relief.

Before 2006 there was no limit on the growth of pension capital. There was only a limit to the amount of contributions.

As of 2006 however due to the as of then installed ‘Lifetime Allowance’ of £ 1.8m, every excess above that amount faced a UK tax charge of 25% for pension annuities and 55% for pension lump sum. Which also applied to not in the UK residing expats.

Recently this Lifetime Alowance has even been reduced to £ 1 m which increased the tax exposure.

II] As of 2017

A fine example of the mentioned new domestic pension legislation are the new tax rules of 2017.

The transfer of UK pension capital to a Qrops used to have no tax charge in the UK regardless of its destination or the residence of the expat.

In the 2017 budget however it was announced that in essence:

• A pension transfer from the UK to a Qrops in one of the EEA countries ( EU plus Norway, Iceland and Liechtenstein) if the pension saver is resident in one of the EEA countries, will not have a 25% tax charge. (As the Brexit is near, this opportunity might end quickly.)
  In other circumstances that tax charge will apply.
• Pension transfers to a jurisdiction where after the transfer both the pension saver and the overseas pension scheme are in the same country, will not have a 25% tax charge. 
  In other circumstances that tax charge will apply.
• If the Qrops is provided by the individual’s employer, there is no 25% tax charge.
• If the Qrops is an overseas public service pension scheme and the member is employed by one of the employers participating in the scheme, there is no 25% tax charge.
• If the Qrops is a pension scheme of an international organisation to provide benefits due to past service and the member is employed by that same organisation, there is no 25% tax charge.
• The tax charge will apply if, within five tax years, an individual becomes resident in another country which renders the exemptions non-applicable.
• If the tax charge has already been paid, it will be refunded if the individual made a taxable transfer and within five tax years one of the exemptions applies to the transfer.
• When the tax charge applies, it will be deducted from the UK pension capital before the transfer is completed. Which is only applicable for pension capital transfer requests made on or after March 9, 2017.

III] Advice seems Appropriate

Qrops are not always transparent and can be complex.

In order for an expat to have the ideal Qrops, he needs to be aware of not only all product distinctions but also of the civil and tax legislation of both the UK as well as the offshore and residential jurisdictions.

An expat now also faces new UK legislation as well as the uncertainty of the Brexit impact.

It is our pleasure to provide advice to expats in order to create a tailormade yet flexible planning.

Qrops affected by Brexit

Expats from the UK with a UK pension scheme might in the near future be severely affected by the Brexit. As EU member the UK is obliged to allow free transfer of pension capital. Which allowes expats to transfer their UK pension capital to another jurisdiction within the EU.

When the Brexit has been implemented, the UK is no longer bound by EU legislation. It is a fact that the UK government prefers Qrops transfers to end as billions of pounds leave the UK with the resulting loss of tax income.

The UK government cannot prevent Qrops transfers until its EU membership ends. But it can implement severe changes in its domestic pension legislation which might make a Qrops transfer very unattractive.

Therefore it seems advisable to take all options into consideration and have a flexible planning.

As the meaning of QROPS is not always clear, hereby a short summary of the essence:

A] Aim: Transfer UK Workplace Pension Claim Offshore

The aim of a QROPS is for people who have a workplace UK pension claim to transfer that claim to an offshore pension provider WITHOUT being taxed by the UK Tax Authority HMRC.

B] Conditions Non UK Taxation At Transfer

• The product has to be officiallly recognized by the UK government
• The owner and new QROPS product are i.e. based in the EEA during the first 5 years after transfer
• During the first 10 years there is no pay-out that would exceed the UK pay-out regime

C] The Set Up Of The QROPS

• Select a Trustee who provides required oversight and who pays pensions
• Select an Investment Platform in which is invested
• Select an Advisor to assist with the above

D] Costs

The three selections as mentioned under C are also the cost elements.

One often reads that to be cost efficient, the capital has to be at least £ 30,000. If you add all costs, it seems better to use a higher limit.

Regarding the Trustee Costs there are special products called ‘QROPS Lite’ which aim to attract smaller capitals. This can be attractive but also be aware of the related limitations.

Regarding Trustee Cost Comparison, please compare equal numbers:

• Are there start-up fees?
• Are there exit fees?
• Is there an annual trust fee?
• Is there an annual administration fee?
• Are there annual management charges?
• What is the amount of the standard annual fund costs?

Regarding Investment Platform costs, please check all cost elements besides the fixed annual fee.

E] Investment Wrapper Or Fund

Be aware that an Investment Wrapper is meant for the long term and that often there is no quick exit strategy. If you have a short investment horizon, opt for the Investment Fund.

F] Tax

Please include the effect of Double Tax Treaties when you select the location of a QROPS and think of where you plan to retire...

Qualifying Non-UK Pension Scheme

In General

A QNUPS is a pension scheme based outside of the UK that qualifies for an exemption from the UK Inheritance Tax (IHT).

These schemes were created due to the Inheritance Tax Regulations 2010. They add to the retirement planning solutions available. They are open to UK residents, including those permanently residing in the UK, and overseas residents, including UK domiciled individuals.

QNUPS can be an attractive additional retirement savings plan if individuals have already reached the permitted limit of their domestic pension contributions. Therefore, UK resident individuals who have already used their annual and lifetime allowances, but who still prefer to make further provision for their retirement, might choose a QNUPS.

QNUPS may also provide attractive pension planning for non-UK resident and non-UK domiciled individuals who might decide to move to the UK. Or UK expats who might wish to return to the UK in the future.

QNUPS versus QROPS

QNUPS has become market terminology to describe an overseas pension scheme that meets the QNUPS regulations but is not a Qualifying Recognised Overseas Pension Scheme (QROPS). A QROPS however will always meet the QNUPS definition.

QROPS and QNUPS are highly similar and related pension schemes. Which one is more appropriate for an individual depends on their financial circumstances and the country in which they are domiciled and/or resident:

• Expats who reside abroad but are domiciled in the UK would benefit from a QNUPS;
• Expats resident and domiciled overseas, but who also have UK based pension assets that they wish to transfer, would benefit more from a QROPS;
• Furthermore QNUPS offer a wider range of asset classes than QROPS.

Qualification Requirements

For a pension scheme to be recognised as a QNUPS, it has to meet rather strict HMRC guidelines. This does require companies providing QNUPS to reveal certain information to HMRC.

For a pension scheme to be considered a QNUPS, it has to meet these criteria:

• The scheme must have the same retirement age as would apply in the U.K.;
• It must only provide income after retirement;
• It must be available to the local population in the jurisdiction in which it is located;
• It must be recognised for tax purposes in the jurisdiction in which it is located.

QNUPS Usual Structure

Local jurisdiction states how local pension schemes should be structured. Many schemes follow this general structure:

• There is a Master Trust created which appoints a Corporate Trustee (the QNUPS provider) and their roles, powers and responsibilities regarding administering the QNUPS;
• The Trustee must be based outside the UK for the scheme to be a QNUPS;
• There are wide investment powers allowing flexibility for the Trustee to invest in assets like cash, bond, property, hedge, equity and commodity funds;
• The Trustee holds these investments on the member’s behalf and has investment powers;
• They will appoint an Investment Manager to see to optimal investments;
• The Trustee is responsible for making benefit payments from the QNUPS to the member.

QNUPS attractive for you?

Due to all the legal, tax and product demands, this requires specific advice about your personal situation. Feel free to contact us about your situation and whishes.

SIPP/Self Invested Personal Pension

In case Standard Pension Plans or Qrops might have lost their appeal in certain circumstances, a Sipp might be an interesting alternative for you.

More Investment Options

A Sipp is a type of UK government-approved Personal Pension Scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC). The HMRC rules allow for a greater range of investments to be held than standard Personal Pension Schemes, notably equities and property.

Investors may make choices about what assets are bought, leased or sold, and decide when those assets are acquired or disposed of, subject to the agreement of the Sipp Trustees (provider).

Tax Regulations

In essence a Sipp is a "tax wrapper", allowing tax benefits on contributions in exchange for limits on accessibility. Rules regarding for example contributions and benefit withdrawal are equal to those of other Personal Pension Schemes.

All assets are permitted by HMRC. However, some less standard investments like residential property, wine, stamps, vintage cars and art will be subject to tax charges.

Transfer to Sipp

As most providers are member of the standard in this respect, it should not be difficult nor costly to transfer an existing UK pension capital to a Sipp if all legal and tax requirements are met.

Beware of Costs

It is our experience that you do have to watch for the additional costs for this increased investment capability. In case the extra costs are too high, that is very expensive in the long run due to the substantial effect of compounded return of investments.

Beware of Communications

Due to the relevance of pensions and as they are always somewhat technical, we prefer Sipps that make an effort to provide simple and complete communications.

In the past we have seen to many Sipp providers who try to create a certain fog through which it is hard to see what is really happening. This does not exactly create trust. If a product is great, they will show it in full detail.

Flexibility Advantage

A Sipp can also help to make optimal use of the flexibility as offered under the new rules. Like regular onshore pension schemes, the tax-free lump sum amounts to 25% of the fund. The transfer charge as levied on some transfers to a Qrops does not apply to a SIPP no matter where the expat resides.

Structure

In standard Personal Pension Plans, the provider as Trustee has ownership and control of the assets.

In a Sipp the Member may have ownership of the assets as long as the Scheme Administrator is a Co-Trustee to exercise control. In reality, most Sipp’s have the provider as Sipp Trustee.

The role of the scheme administrator in this situation is to control what is happening and to ensure that the requirements for tax approval continue to be met.

Sipp Variations

In essence you can distinguish the following type of Sipp’s:

1) Deferred: The assets are generally held in Insured Pension Funds even though several providers offer direct access to Mutual Funds. Self-investment or income withdrawal activity is deferred until an indeterminate date. Newer schemes provide over a thousand fund options.

2) Hybrid: While some of the assets must always be held in conventional Insured Pension Funds, the remainder of the capital can be Self-Invested. This has been a standard offering from basic personal pension providers, who require Insured Funds in order to derive their product charges.

3) Pure: Schemes which offer unrestricted access to all allowable investment asset classes. The Sipp as it was meant originally.

4) Lite/Single Investment: A trend towards much lower fees for investments that are typically placed in one asset. For which one platform is classed as a single investment. If a future upgrade to a Pure Sipp is allowed depends on the scheme. As cost reduction can have a very substantial impact on the height of the final pension capital, this can be a good option. If coupled with optimal investments.

5) Expat Sipp: Specifically designed for the expat who leaves the UK and would like his already existing UK pension claim to be invested according to his own vision. Make sure that this does not result into a too high cost level.

Sipp Pay-Out

When you reach your 55th birthday (or your 57th from 2028), you’re free to start withdrawing capital from your SIPP. Even if you’re still working. You can usually take up to 25% of your pot tax free. The rest of your withdrawals will be taxed as income.

In perspective of pension optimization it is advisable to start paying taxes as late as possible in order for that capital to create additional return on investment.

A] Difference With SIPP

The only different aspect of the I SIPP versus the SIPP is that whereas a SIPP can only be acquired by a UK resident, an I SIPP can be acquired by persons residing outside of the UK.

Thus the I SIPP might give more investment and pay-out flexibility for Expats with Occupational UK Pension Claims without having to ‘Go QROPS’.

Which might be a good aspect taking into account for example the tax issues related to QROPS. Which aspect is too often forgotten by advisers.

B] Costs

An I SIPP can have the following type of costs:

• A set up fee ranging from € 0,- to €400,- ;
• An annual fee ranging from € 200,- to € 600,- ;
• An establishment of benefits fee ranging from € 0,- to € 300,- ;
• An income drawndown fee ranging from € 80,- to € 360,- ;
• A termination fee ranging from € 0,- to € 1.200,- .

C] I SIPP Versus QROPS Regarding Investments

Within a QROPS the owner can decide for himself how to invest but cannot directly implement the investment himself. This is possible and thus less expensive within an I SIPP.

D] I SIPP Not For Large Capitals?

You can often read that for large capitals you are better of with a QROPS than an I SIPP. There is no logical bases for that statement. Large capitals can use an I SIPP just fine.

Of course you do have to take into account the UK tax limitation and effect of the Life Time Allowance (LTA). Meaning that if your workplace pension capital in total is more than rounded  £ 1.000.000,- substantial additional tax exposure is created for both annuity and Lump Sum.

E] Product Specifications

• Certain products only accept non UK resident.

I. In General

A SSAS is a Defined Contribution (DC) or investment based Occupational Pension Plan that provides a high level of control regarding the manner of investing the pension capital. It offers options (like investing in real estate, crowdfunding and capital pooling) that most other type of Occupational Pension Plans do not offer. In this regard, it is like a SIPP.

A SSAS is often managed independently by a company’s directors without any pension provider. It provides retirement benefits to these directors as well as other senior staff and sometimes also to certain family members regardless if they work for the company.

Each member usually becomes a trustee and influences how to invest. The maximum number of participants is 11. Thus they're common in family-run businesses and start-ups.

II. The Business SSAS

‘The Business SSAS’ is another common reference for the SSAS as it is permitted to loan up to 50% of the total fund value to the business in order to use as business capital.

For business owners this is a key attraction of the SSAS as it avoids banking costs and affording considerable tax advantages.

As per HMRC rules, you set your own interest rate for repayment of the loan. Which must be at least 1% above the average base lending rate of the high street. As you are paying this interest back into your own pension, it may make sense to increase the rate.

Profitability within the company is thus reduced, so less corporation tax due and the payments received into the pension scheme are tax free if still within the Life Time Allowance (LTA).

III. Tax Benefits & Requirements

A SSAS can provide interesting tax benefits:

• Employer and participant contributions qualify for tax relief if they meet certain requirements.
• Investment income and gains are usually exempt from UK Income Tax and Capital Gains Tax.
• Lump Sum benefits on a member’s death is usually exempt from Inheritance Tax.
• A tax-free Lump Sum of up to 25% is usually available, depending on the participants remaining Life Time Allowance (LTA).
• Please do not forget the HMRC requirement for tax benefits which means that there needs to be a skilled pension person associated with the plan and that it has been registered at HMRC.
• Provided that the participants are also trustees, there is a lesser regulatory requirement than if all participants were not trustees. This is because the participants are deemed to be investing the funds for themselves.

IV. Target Group

A SSAS can be an interesting option for:

• Business owners who focus on succession planning as the benefits of the plan can be passed down to future generations.
• Entrepreneurs who prefer to invest their personal pension capital into their own company.
• High Net Worth Individuals seeking pension investments that are independent of the pension provider.
• Persons who prefer pension capital access to more unusual investments.
• By transferring dormant workplace or personal pensions to a SSAS, you can gain control of how your funds are managed and invested.

V. Starting Your SSAS

Setting up a SSAS is not that difficult. But as the plan is self-administered, it is relevant that unless you are conversant in tax/pension law, it is advisable to ensure responsibility for safeguarding against inappropriate use of or distribution of funds and investments is in place.

It is advisable to get the correct level of support from the start. Many turn to a ‘SSAS Practitioner’ offering often attractive fees to set up their SSAS. But the Practitioner role is not a responsible role and may not deliver ongoing knowledge, support and advice.

A Full SSAS Service will offer not only set up support but also the provision of a Corporate Trustee to ensure the SSAS complies with HMRC rules and a Scheme Administrator to carry out compliance duties to ensure the plan does not encounter penalties.

A Full SSAS Service will also understand your situation and present the information to build a solid long-term investment strategy to ensure your SSAS success.

I. In General

FURBS stands for Funded Unapproved Retirements Benefits Schemes. EFRBS stands for Employer Financed Retirement Benefit Schemes.

FURBS and EFRBS are trusts used for saving for retirement with fewer restrictions than approved occupational pension schemes.

Until their replacement by EFRBS in 2006, FURBS were retirement benefit schemes set up by employers for senior staff members whose remuneration packages exceeded the approved scheme limits and who were caught by the pensions cap. The employer entered into a contractual commitment to pay a pension at retirement and made payments to fund that pension promise.

II. Tax

FURBS

FURBS were not capable of being approved by HMRC and attracted only limited tax relief.

The tax advantages of FURBS have been eroded in recent years as part of a program to make the use of trusts less tax-efficient. Thus funds held within these trusts are now taxed in line with general trust rates.

EFRBS

There's no tax relief for employee contributions to an EFRBS and such schemes do not get any of the explicit tax advantages that registered schemes get.

When benefits are taken from an EFRBS, any Lump Sum is treated as employment income and taxable on the employee primarily under PAYE.

III. Winding Up Of Plan

A scheme wind up is where the scheme ceases to exist. The scheme assets will either be transferred to other pension schemes or used to buy annuities to provide the members with their benefits.

As you can no longer set up new FURBS, advisers are regularly approached by trustees of existing schemes particularly when they want to make payments to beneficiaries.

Advisers can provide professional trusteeship which enables advisers to guide other trustees on their duties by sharing responsibility.

Advisers can produce financial statements, submit tax returns and do general administration including helping to process investment transactions.

Advisers are also often engaged to help an existing set of trustees who want to distribute funds to the beneficiaries and then close down the FURBS.

I] Prelude

Until 2000 many UK Occupational Pension Plans had a guaranteed Defined Benefit (DB) nature. This means that the kind and amount of pay-out has been guaranteed. That is the amount the pension provider is legally obligated to pay to the participant.

Many participants preferred such a guaranteed claim. Contrary to the now usual Defined Contribution (DC) investment based plans, there is no high investment risk nor any interest rate risk as of retirement age.

And it might even be possible that the claim would also receive an annual (conditional) indexation until pension age and maybe even also as of retirement age.

What more can you desire? But then reality sets in: The risk of undercapitalization.

II] What is undercapitalization?

A pension provider has on the one hand a capital which consists of its own capital and the annual compounded return on investment. On the other hand there are the legal pension pay-out obligations.

The set-up is thus that the provider beforehand makes sure that it can meet all future legal pay-out obligations. Which is monitored by the governmental supervisory organizations.

If the pension provider does not have the by law required total capital in order to meet all current and future pay-out obligations, this is called ‘Undercapitalization’ or Pension Deficit.

The number of DB Pension Providers with undercapitalization has been growing in recent years as well as the height thereof.

III] Reasons for undercapitalization

• The historically extremely low interest rate;
• The more than expected increased longevity;
• Negative investment results.

IV] Impact of Undercapitalization

Of course undercapitalization is not positive. But it does not always mean that the provider is going to fail. Once the deficit is reported to The Pensions Regulator, the sponsoring employer will have to create a plan to close the deficit. Which will often require a substantial amount of time.

The additional costs can be very substantial for the employer. If it fails, the scheme will be accepted under the Pension Protection Fund. This does not almost provide complete guarantees that the participants receive all the pay-out to which they are entitled.

Finally it is well known that several oil companies pensions like BP/Shell and several FTSE 100 companies like BT/BAE Systems have undercapitalization.

V] The Options

If you are a participant in a DB Pension Plan with undercapitalization, you have the following options:

• Remain participant if you believe that all will be well and restored in the future.
• Request to receive a Cash-Equivalent Transfer Value. The scheme calculates this based on what they would need to reserve if they needed to buy the income for life on behalf of the participant. Some schemes offer enhanced terms when calculating the CETV to thus lose the future liability. Be aware that you are entitled to a free CETV calculation each year with many plans.
• Request a transfer of value to your new active DB Workplace Pension Claim when you have a new job.

VI] Conclusion

DB Workplace Pension Plans have been out of fashion for many years. We expect that they will disappear in the near future. Especially if the low interest rates remain intact in the future. As then such a plan is just way too expensive and not realistic.

I] Prelude

The UK Oversight on Workplace Pension Plans is a combined effort of:
• The Pensions Regulator;
• The Financial Conduct Authority.

II] The Pensions Regulator (TPR)

In General

TPR is a non-departmental public body. It holds the position of the regulator of workplace pension plans in the UK.

TPR is created under the Pensions Act 2004 and replaced the Occupational Pensions Regulatory Authority (OPRA). It has wider powers and (as one can also see in other countries with such agencies) a new more proactive and risk-based approach to regulation and oversight.

TPR Objectives

• To improve confidence in workplace pensions by protecting the benefits of scheme members;
• To reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund (PPF);
• To promote good administration of workplace pension schemes;
• To maximize employer compliance with employer duties and with employment related safeguards.

TPR Approach

• TPR employs a risk-based approach, concentrating its resources on schemes which pose the greatest risk to the security of members’ benefits;
• TPR also promotes high standards of scheme administration and works to ensure that those involved in running pension plans have the required education and skills.

Critical Perception of TPR in 2018

After the collapse of the Carillion company in January 2018 with extensive pension liabilities, TPR faced criticism that it should be replaced by a more powerful body. The report of the Parliamentary inquiry into the collapse of Carillion described TPR as "feeble":

"The Pensions Regulator’s feeble response to the underfunding of Carillion’s pension schemes was a threat to impose a contribution schedule, a power it had never—and has still never—used. The Pensions Regulator failed in all its objectives regarding the Carillion pension scheme. Scheme members will receive reduced pensions. The Pension Protection Fund and its levy payers will pick up their biggest bill ever. The Regulator should not be spared blame for allowing years of underfunding by the company."

After MPs' criticism of The Pensions Regulator, CEO Lesley Titcomb announced she would step down at the end of her four-year term in February 2019. In June 2018, TPR's non-executive chairman, Mark Boyle, accepted the MPs' criticism but said the organisation's culture had changed. While it had been "business friendly", "insular" and "isolated" from key stakeholders, the regulator had become clearer, quicker and tougher in its dealings with employers and pensions trustees, he said.

On 25 June 2018, TPR announced it was considering issuing a contribution notice – a legally enforceable demand for a financial contribution to the pension deficit – against former Carillion directors.

TPR’s Future

Finally we are highly interested to see if or how TPR will use its existing legal authority in the near future and if it will indeed protect employees as required by law.

New Website TPR

http://www.thepensionsregulator.gov.uk/

III] The Financial Conduct Authority (FCA)

In General

The FCA is a financial regulatory body in the UK. It operates independently of the UK Government and (like in other countries with equal agencies) is financed by charging fees to members of the financial services industry. The FCA is accountable to the Treasury and to Parliament.

FCA’s Objectives

• To regulate financial firms providing services to consumers;
• To maintain the integrity of the financial markets in the UK;
• To promote effective competition in the interests of consumers.

FCA’s Approach

• It focuses on the regulation of conduct by retail and wholesale financial services firms.

FCA’s Authority

• The structure of the FCA’s regulatory authority takes in the Bank of England’s Prudential Regulatory Authority and the Financial Policy Committee;
• It has the power to regulate conduct related to the marketing of financial products;
• It is able to specify minimum standards and to place requirements on products;
• It has the power to investigate organisations and individuals;
• It is able to ban financial products for up to a year while considering an indefinite ban;
• The FCA supervices Banks, Mutual Societies and Advisors;
• The FCA oversight towards Advisors means that they provide to consumers unbiased and unrestricted advice based on comprehensive and fair market analysis;
• The FCA is responsible for the conduct of around 58,000 businesses which employ 2.2 million people and contribute around £65.6 billion in annual tax revenue to the UK economy.

Critical Perception of FCA in the past

The FCA was criticised in 2013 by the Parliamentary Commission for Banking Standards, in their report "Changing Banking for Good". It stated:

“The Interest Rate Swap Scandal has cost small businesses dear. Many had no concept of the instrument they were being pressured to buy. This applies to embedded swaps as much as standalone products. The response by the FSA and FCA has been inadequate. If, as they claim, the regulators do not have the power to deal with these abuses, then it is for the Government and Parliament to ensure that the regulators have the powers they need to enable restitution to be made for this egregious mis-selling.”

FCA Website

https://www.fca.org.uk/

I] Defined Contribution Pension Claims

Due to the historically low interest rate, increased longevity and additional legislation demands from the UK and EU, the guaranteed Defined Benefit (DB) plans have become too expensive for many UK companies. Likewise for many Hybrid plans which have DB/DC aspects.*

Thus they switched to Defined Contribution (DC) plans. Which have experienced substantial growth, both in terms of membership and assets under management.

A DC pension claim means that the employee is not entitled to a guaranteed amount of pension at pension age. Instead he is only entitled to annually receive a guaranteed amount of pension premium which he has to invest himself until retirement age.

For the employer, the positive aspects of a DC plan are:

• No very high additional costs due to the low interest rate or increased longevity;
• The costs are very predictable which makes budgetting less difficult.

For the employee, the negative aspects of a DC plan are:

• At retirement age he will have to see how much capital he has for his retirement;
• In case he would like to buy an annuity, at pension age he will have to see if the market interest rate is high/moderate/low which highly effects the amount of his annuity.

There are a wide range of DC pension schemes in the UK. They can be organised as:

• Occupational Schemes, typically run by a Board of Trustees;
• Contract Based, usually provided by an Insurance Company;
• They can be sponsored by the employer, where the employer contributes into the scheme or runs the scheme on behalf of a group of employees (such as Group Personal Pensions and Group Stakeholder Pensions);
• Or they can be taken out by individuals as Individual Personal Pensions. (For example a SIPP)

Defined Benefits Aspects

The funding position of a DB scheme: It is measured as the ratio of the assets held in the scheme compared to the liabilities owed to current and future pensioners for service completed to the date of the valuation. The funding position provides a snapshot of the situation at a given point in time.

In recent years, trustees and sponsors of DB schemes have adopted a wide range of strategies to help mitigate the increased costs and risks associated with DB pension provision:

1) Improving the scheme funding position

By increasing contributions to the scheme or by assigning contingent assets to increase the security of members’ benefits.

2) Changing benefit structures

Changes in the structure of private pension provision have been significant in recent years. Only 16% of DB schemes were still open to new members in 2011, compared to 36% in 2007.

3) Changing investment strategy

DB schemes may change their asset allocation as a way to achieve diversification in their portfolios and reduce some of their investment risk. Schemes may also change their asset allocation to reduce risk by better matching their liabilities.

DB schemes have been moving away from equities towards investing in bonds, which better match their liabilities. Another strategy to better match liabilities is to use derivatives-based techniques such as Liability Driven Investment (LDI).

4) Reducing liability risks

Two of the most common strategies to reduce liability risks are the use of incentive exercises such as Enhanced Transfer Values (ETV) and Pension Increase Exchanges (PIE).

An ETV allows deferred members to transfer out of the scheme in exchange for a statutory amount plus an enhancement in respect of the pension given up.

A PIE involves exchanging some of the member’s right to a pension that increases in line with changes in prices for a higher but non-increasing or fixed-increasing pension.

5) Transferring risks to insurers

Active Membership of Defined Benefit schemes is currently concentrated in a small number of large schemes.

II] Life Cycle Investment Method For DC Pension Plans

Life Cycle Funds are Investment Mix Funds that automatically reduce the risk as the owner ages. The central approach is the longer the investment horizon, the higher the acceptable risk. The positive aspect of these funds is that thus you have no risk problem if you forget to pay attention to your portfolio.

Life Cycle Funds are not suitable for ‘investors’ who like to prevent any kind of risk. For them there is only the savings account with its current rounded 0% interest rate and 1,4% annual inflation.

Investment Categories

The type of investment categories that can be used in the Life Cycle Funds, depend on the risk profile of the owner. In theory there are 6 investment categories:

1] Derivatives

• Extremely high risk which only aims at change in value and not to buy a certain object itself.
• For example Options/Warrants/Futures.
• Thus only for those with a Very Offensive risk profile and a high level of knowledge.

2] Equity/Stock

• High risk even though the exact amount of risk can be different due to the kind of sector and global location.
• Equity requires in general an investment horizon of at least 7 years.
• For those with a (very) offensive risk profile, a slightly shorter period might be acceptable.

3] Real Estate

• Depending on the type of Real Estate, similar or slightly less risk than Equity.
• Thus requires an investment horizon of in general at least 5-7 year.
• For those with a (very) offensive risk profile, a slightly shorter period might be acceptable.

4] High Yield Bonds

• As these kind of Bonds go for the higher return on investment and risk, they require in general an investment horizon of at least 5 years.
• For those with a (very) offensive risk profile, a shorter period might be acceptable

5] Solid Bonds

• As these kind of Bonds aim for a regular return on investment and risk, they require in general an investment horizon of at least 3 years.
• For those with a (very) offensive risk profile, a shorter period might be acceptable.

6] Savings

• No real investment risk as long as not at a fixed term

Risk Reduction

One of the most relevant aspects of Life Cycle Funds is if they indeed reduce in the most optimal manner risk as age increases.

A standard example is the following fund:

First Phase: 2017-2037: A fixed spread of:

• Equity 90%
• Bonds 10%

Second Phase: 2037-2062: Increasingly a shift towards lower risk and at the end:

• Equity 50%
• Bonds 40%
• Cash 10%

Third Phase: 2062-2069: Increasingly a shift towards lower risk and at the end:

• Equity 30%
• Bonds 50%
• Cash 20%

Difference in Risk Reduction

While comparing Life Cycle Funds risk reduction, we have seen that regarding a neutral risk profile, funds had the following different implementation:

                    Start Risk Reduction                           Equity Age 60                                     Equity Age 65  

Fund A                 Age 50                                                  23%                                                         5%

Fund B                 Age 53                                                  33%                                                       12%

Fund C                 Age 55                                                  50%                                                       35%

Conclusion

The fact that a Life Cycle Fund promises to provide optimal risk reduction fitting to your risk profile, does not automatically result in the best implementation. Sometimes we see funds that according to our client protective stance, keep the risk level too high for too long and too near retirement age.

I) Prelude

Pension optimization starts with acquiring the correct information about all your pension claims. As Expats often relocate and thus might have lost track of their UK pension claim, it is advisable to still go after the information before retirement age.

II) Which Action Can You Take?

• The first step is to contact the pension provider and request the information.
• If you do not have that information, you can contact the HR department of your previous employer.
• If that does not work, you can contact the Pension Tracing Service.

III) Pension Tracing Service

The Pension Tracing Service provides services free of charge. It has a database in which it can search for more than 200,000 Occupational/Private Pension Plans.

You can find more information about this service on the following link:
https://www.gov.uk/find-pension-contact-details

To contact them by phone     : 0800 731 0193
To contact them online          : https://www.findpensioncontacts.service.gov.uk/

I) Nature Of GPP

Like the SIPP for individuals, the GPP provides an investment based Defined Contribution (DC) pension plan for employees.

Even though it is a Group Plan, it still provides each participant with a personal pension account. Due to the investment base, it is relevant that each participant makes sure that the investment fits his Personal Risk Profile.

If you might have any doubts about your own profile, feel free to use our standard form:
https://expatpensionholland.nl/sites/default/files/eph-personal-risk-profile.pdf

II) Structure Of GPP

• The employer chooses a pension plan provider, who manages the plan.
• Each participant has an individual contract with the pension plan provider.

III) Creation Of Pension Capital

The individual account can have the following elements:

• Employer contributions*;
• Employee contributions;
• Tax benefits;
• Investment result.

* The pension premium as paid by the employer might depend on how much the employee is investing himself. It also might increase as the participant ages.

IV) Tax Benefits

The GPP is tax facilitated which is very important for the employee.

The pension plan provider claims tax relief at the Basic Rate on participant’s contributions and adds it to each Personal Account. If a participant has a higher or additional tax rate, the participant should claim the additional tax benefit through his annual tax return.

V) Options At Retirement

Due to the legislation and depending on the specific product, you have a broad choice regarding pay-out options:

• Lifelong Annuity;
• Total one time Lump Sum;
• Lifelong annuity plus first a 25% one time tax free Lump Sum;
• Flexi Draw Down for flexible taking capital when needed which can also be combined with first a 25% tax free Lump Sum.

VI) Options During Job Change

Most of the time when you leave a company while you have participated into a GPP, the pension plan provider will automatically convert your account into a Personal Pension. Often you can , after the job switch, continue to infuse additional premium.

Please compare this option with the situation that you can participate in the pension plan of your new employer which might also (partially) be paid by the employer.

In that case you can transfer the GPP value into the new plan or keep it on separately until retirement age.

I) Nature Of Plan

Many companies have their own occupational pension plan for just their employees.

Other companies instead prefer to participate in a Multi Employer Pension Scheme, which functions as an ‘umbrella’ for many companies to participate. Such a plan can have many different kind of companies as participant.

Companies who prefer to participate in such a collective MEPS plan, can choose between many different type of plans. It is for the employer to make this choice.

II) Nest

Nest is the Multi Employer Pension Plan that has been created by the government.

Nature Of Plan

Nest provides an investment based Defined Contribution (DC) pension plan for employees. Nest gives the same access to a workplace pension scheme to all members, whether their employer is a small business or a multi-national and regardless of their contribution level.

Even though it is a Group Plan, it still provides each participant with a personal pension account. Due to the investment base, it is relevant that each participant makes sure that the investment fits his Personal Risk Profile.

If you might have any doubts about your own profile, feel free to use our standard form:
https://expatpensionholland.nl/sites/default/files/eph-personal-risk-profile.pdf

Simple Implementation

Nest offers an easy implementation. They provide one retirement account for life. Each participant can keep this same account using a single login and account however many times the employee changes jobs, stops working or becomes self-employed.

Thus participants can contribute to their pot to help it grow. If the participant moves to a new employer that also uses Nest, then they can make contributions to the already existing retirement account.

Type Of Investments

If the participant does not choose an own investment approach, Nest will implement according to the Default Life Cycle Investment approach. Which means that the risk will automatically decrease as the participant ages. Which can be a fine approach if implemented correctly.

If the participant prefers to invest his capital by himself, he can choose between a number of (global) funds.

Amount Of Costs

Nest has two type of charges:

I]          : A onetime charge of 1,8% of the deposited premium;
II]         : An annual management charge of 0,3% of the pension capital value.

Online Account

The personal portal provides the participant 24/7 total access to all parameters and values. Thus the participant can also directly make changes himself.

Website

For more information, please visit: https://www.nestpensions.org.uk/schemeweb/nest.html

I) Nature Of Plan

Stakeholder Pensions provide a personal investment based Defined Contribution (DC) pension plan for employees and self employed. Due to the investment base, it is relevant that each participant makes sure that the investment fits his Personal Risk Profile.

If you might have any doubts about your own profile, feel free to use our standard form:
https://expatpensionholland.nl/sites/default/files/eph-personal-risk-profile.pdf

II) Structure Of Plan

Stakeholder Pensions are Personal and have the intend to provide Maximum Flexibility and the Least Barriers for participation.

Thus they have:

• Flexible minimum contributions (as required by law);
• Maximized and low charges (as required by law);
• A Default Investment approach to avoid confusion (as required by law);
• They can be started by the employer or by the employee or by the self employed;
• When started by the employer, he selects the provider and might contribute;
• The pension provider claims tax relief at basic rate and adds it to the personal fund;
• If the participant pays a higher tax rate, he claims the extra tax benefit through his tax return;
• When you switch jobs you can compare adding premium to the Stakeholder Pension versus joining the new company plan with possible contributions by the new employer;
• The capital can be accessed as of age 55 even if you are still working. Please take tax rate aspects into account when planning your pension optimization.

III) Conclusion

Due to their flexibility, low minimum contributions and capped charges, they can be of particular benefit for the self employed or low income persons.

I) Prelude

As of 2018, all employers must provide a workplace pension scheme. This is called ‘automatic enrolment’.

II) When Auto Enrolment?

Your employer has to automatically enrol you into a workplace pension scheme if:

• You’re classed as a ‘worker’;
• You’re aged between 22 and your State Pension Age;
• You earn at least £ 10,000 per year;
• You ‘ordinarily’ work in the UK.

III) No Auto Enrolment

Your employer usually does not have to automatically enrol you if any of the following does apply:

• You’ve given notice to your employer that you’re leaving or they’ve given you notice;
• You have evidence of your lifetime allowance protection ( a certificate from HMRC);
• You’ve already taken a pension that meets the automatic enrolment rules and your employer arranged it;
• You get a one-off payment from a workplace pension scheme that’s closed (a ‘winding up lump sum’) and then leave and rejoin the same job within 12 months of receiving the payment;
• More than 12 months before your staging date, you ‘opted out’ of a pension arranged by your employer;
• You’re from another EU member state and are in a EU cross-border pension scheme even though this might be affected by Brexit;
• You’re in a limited liability partnership;
• You’re a director without an employment contract and employ at least one other person in your company.

Finally you can usually still join their workplace pension plan if you would like to. Your employer cannot refuse.

IV) Auto Enrolment In Practice

Your employer must write to you when you’ve been automatically enrolled into their workplace pension scheme.

They must provide the following information:

• The date they have added you to their pension scheme;
• The type of pension scheme and which provider implements it;
• How much they’ll contribute and how much you’ll have to pay in;
• How to leave the scheme, if you would want to;
• How tax relief applies to you.

V) Delaying Auto Enrolment Date

Your employer can delay the date they must enrol you into a pension scheme by up to 3 months.

In some cases they may be able to delay longer if they’ve chosen either:

• a ‘Defined Benefit’ pension plan;
• a ‘Hybrid’ pension plan (a mixture of guaranteed Defined Benefit and Defined Contribution pensions) that allows you to take a Defined Benefit pension.

In case of delay, your employer has to:

• Inform you about the delay in writing;
• Let you join in the meantime if you would ask to.

VI) Amount Of Pension Premium

There is a minimum amount of annual premium:

• It amounts to 5% from the employee and 3% from the employer;
• Which percentages regard the income as of £6,240 up to £ 50,000 in 2020/2021;
• There is also a minimum amount of governmental provided tax benefits.

VII) No Option For The Employer

• To unfairly dismiss or discriminate against you for being in a workplace pension scheme;
• To encourage or force you to opt out.

VIII) Opting Out By Employee

The employee has the choice to opt out after he has been enrolled. Before doing so, the employee probably should pay attention to the following aspects:

• By opting out the employee will lose the employer’s contribution to his pension as well as the government’s contribution in the form of tax relief. This seems very unadvisable.
• The employee who has opted out can re-join his employer’s workplace pension scheme at a later date.
• By law the employer must re-enrol the opted out employee back into the scheme approximately every three years as long as the employee meets the requirements.

Regarding the NHS Pension Claim we have noticed that expats sometimes have difficulty with understanding the total entitlement and taxation.

We see in general that there is often an entitlement to a tax free Lump Sum deposit. Once the expat applies to receive this capital, the often also existing entitlement to an annual pension annuity starts as of that very same moment. And with that also the related taxation.

Regarding the moment to apply for the mentioned claims, there is a certain flexibility which does not have to result in losing any pension claims.

So please distinguish between the tax free Lump Sum and the taxable annual annuity.

Whether or not to transfer corporate pension claims to or from the UK is a technical and sometimes complex issue.

Besides the legal, actuarial and product specifications also the special British tax regulations have to be taken into the equation.

Therefore we caution you to get advice before making any permanent decisions.

It is our standard practise to have a Power of Attorney from our clients, which we hand over to related parties in order to represent our clients in the correct legal manner.

Most British insurance companies and such do not provide information by phone or mail after having received such a perfectly in order power of attorney but instead mail the required information to  our client.

We hope you understand that we cannot help this delay.

LTA Replaced By LSA & LSDBA in April 2024

A] AT A GLANCE

• On 6 April 2024, the lifetime allowance (LTA) will be abolished and a new regime for the taxation of lump sums and lump sum death benefits will be introduced.
• The regime will create a new “lump sum allowance” of £268,275 and a new “lump sum and death benefit allowance” of £1,073,000.

B] WHAT IS HAPPENING?

From 6 April 2024, the LTA will be abolished and a new regime for the taxation of lump sums and lump sum death benefits will be introduced. This is the most significant change to the UK pensions tax regime for nearly two decades.

C] WHAT IS THE LTA?

As a reminder, the LTA is the maximum amount of tax-relieved pension savings that an individual can make over their lifetime. When originally introduced in 2006, the LTA was set at £1.5 million — it is currently £1.073 million.

When first introduced, and each subsequent time it was reduced, individuals with savings in excess of the LTA (or the reduced LTA, as applicable) were able to apply to retain a higher, “protected” LTA. In some cases (known as enhanced and fixed protection), the individual would lose their LTA protection if they made further pension savings.

The LTA charge is payable when benefits—whose value exceeds the LTA—are taken, and is payable on the value in excess of the LTA. Until 6 April 2023, the LTA charge was 55% where the excess was taken as a lump sum, and 25% where the excess was taken as pension. However, starting 6 April 2023, the LTA charge was reduced to the individual’s marginal tax rate, as a precursor to abolition of the LTA.

D] WHAT WILL REPLACE THE LTA?

On 6 April 2024, a new “lump sum allowance” of £268,275 (i.e., 25% of the current LTA) and a new “lump sum and death benefit allowance” of £1,073,000 (i.e., the current LTA) will be created. Individuals will not pay tax where the non-taxable element of lump sums they receive does not take them above these levels.

To the extent that the otherwise non-taxable element of a lump sum exceeds these levels, it will be taxed at the recipient’s marginal rate (except where LTA protections apply). The allowances will be personal, rather than applying at a scheme level, and will not take into consideration the payment of regular pension income.

Existing LTA protections will remain relevant, as they will give the individual higher lump sum and lump sum and death benefit allowances. Since 6 April 2023, individuals with enhanced or fixed protection will not lose that protection if they make further pension savings, provided they applied for the protection before 15 March 2023.

UK State Pension 2024: £13,000 ‘in 5 years’

The UK state pension could pay out more than £13,000 a year by 2030 if the current triple lock rules remain in place, analysis by AJ Bell has found. Pensioners with a full National Insurance contributions record can currently get £10,600 a year (£203.85 per week). 

From April, this will rise 8.5% to £11,502 annually (£221.20 a week) in line with the rapid increase in earnings registered last summer. It has led to warnings that some pensioners could be landed with an unexpected tax bill in 2025 due to the freeze on the income tax allowance. 

It is understood that Labour is likely to commit to maintaining the policy in its next general election manifesto. There have also been indications that the Conservative Party, which introduced the triple lock in 2011, will pledge to continue with it – although the party has indicated it may scrap it in the long term. 

It comes amid mounting concerns over the affordability of the commitment. In February, former pensions ministers David Gauke and Lord (David) Blunkett both said the triple lock should be scrapped. Last summer, the Office for Budget Responsibility (OBR) identified the commitment as a “fiscal risk. Chancellor Jeremy Hunt is unlikely to announce pension reforms in the Spring Budget. The speech is expected to focus on tax cuts and government spending announcements.

UK Pensions: DC Schemes Urged To Offer More Choices At Retirement

Only 11 per cent of Defined Contribution (DC) pension plans offer members a full suite of options to access funds at retirement, despite this delivering the best outcome for members.

Members with access to a full range of flexibilities at retirement, including access to flexible drawdown, a cash lump sum or an annuity, are more likely to make choices that allow them to maximise the funds that they can access.

38% of members who went through a pension scam identification interview said that the reason they transferred their DC benefits was because their scheme did not offer full flexibilities, whilst 21 per cent blamed a lack of investment options.

Indeed, the research suggested that a lack of choice can cause more scheme members to make choices that could result in an “unnecessary and premature erosion” of their savings as a result of high fees.

In particular, it found that 66% of members are choosing to transfer to their pension to an alternative product, with 76% of these switching to self-invested pension plans (SIPP).

Whilst a SIPP may be suitable for some retirees, for others the additional charges could result in them running out of funds eight years earlier than would have had they chosen a low-cost receiving vehicle such as a master trust.

UK Pension Tax Change Proposals: 'Tragic'

Rumours that the Treasury is planning to raid pensions have been branded “tragic” by experts who warned that any reforms harming incentives to save could undo the work put in to boost retirement standards.

Pensions Expert reported in June on the rumours that Treasury officials have drawn up a list of three reforms to the way pension contributions are taxed, with the aim being to find the money to pay the costs of the coronavirus pandemic and lockdown policies:

1] The first proposal is reported to be a reduction in the lifetime allowance from just more than £1m to £800,000 or £900,000.

2] A flat-rate tax proposal has also been made. Currently, higher earners get a tax relief rate of 40%, while lower earners get 20%. The suggestion is that this be changed to around 30% for both.

It is thought this would simplify the tax system, lower the cost of administering all of its many top-ups, and see only higher-rate taxpayers lose out.

3] The third proposal is for a new tax on employer contributions.

UK Pensions: Pension Deficit Increases Sharply As UK Exits EU

A recent Risk Survey shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £40bn at the end of December 2019 to £57bn on 31 January. Liability values increased by £34bn to £916bn compared to £882bn at the end of December.

The increase was primarily driven by falls in corporate bond yields. Asset values were £859bn (an increase of £17bn compared to the corresponding figure of £842bn at the end of 2019).

Although funding positions have deteriorated this month, there are reasons to be optimistic about the outlook for pension schemes. The Bank of England just announced that it will not reduce interest rates this month due to signs that the economy is picking up.

Many schemes are reducing interest rate and inflation risks, and even reducing longevity and equity market risks down to minimal levels. This is good news. But we shouldn’t be complacent, there are still many potential pitfalls ahead. Trustees should be alert to market opportunities to take risk off the table.

FTSE 350 DB Deficit Rises To £ 57 BILLION

The accounting deficit for guaranteed Defined Benefit (DB) pension plans at the UK’s top 350 organisations increased by £5 billion between April 2019 and May 2019, rising to £57 billion.

The Pension risk survey, which analyses the pension deficit calculated using the approach FTSE 350 organisations have to adopt for their corporate accounts, also found that liability values increased by £11 billion in May 2019, totaling £856 billion.

Amazing. The increasing DB deficit is waiting for…………?

Expats: Beware of QROPS Pension Consultancy

Expats are often actively contacted by financial organizations that advise them to switch to QROPS. They provide a long but standard report 'for free' which states that 'there are tax benefits and it is great for your investments'.

When checked by an expert, these benefits very often do not exist.

I will be frank. I seriously dislike such an approach and contempt for the financial interest of private clients and families. Amazing that the financial supervisory agencies are not yet on to them like a hawk.

If I would work there.....

UK PENSIONS: 250,000 NHS Workers Opt Out Of Pension Plan

A quarter of a million NHS workers have opted out of the NHS pension scheme in the past three years, according to Freedom of Information data gathered by the Health Service Journal and Royal London. 

Royal London says the opt out rate is far higher than other public sector schemes and could have dire consequences for the workers. The long term squeeze on public sector pay and higher contribution rates could be to blame, it believes. 

Royal London says that a typical nurse earning £25,000 a year would save £1,420 by opting out but would lose pension rights worth around £13,000 when they do due to giving up the employer contribution into their pension. 

Royal London says the NHS needs to take action to tackle the “epidemic” of opting out, otherwise large numbers of NHS staff risk poverty in retirement.

I. End Of Passporting

‘Passporting’ allows cross border transactions between EU Member States through shared financial regulation.

Until 2020 it was towards the UK possible because the UK Financial Conduct Authority was bound by the same rules as other regulators within the EU.

But once the UK left the EU as of 2021, the regulation of financial activity and consumer protection does not continue to line up on both sides. Thus unless a mutual deal is agreed on financial services, the EU will not permit ongoing passporting arrangements for UK financial businesses and advisers as of 1 January 2021.

Some UK financial firms have already put arrangements in place to be able to continue working in an EU country post Brexit. But others have not. We have seen letters from UK financial institutions to clients within the EU, advising them that they will be withdrawing services and advising they make arrangements with an alternative provider who can support them in the EU as of 2021.

II. The Limits Of UK Consultancy

If you still have UK based investments, a UK based adviser may still be able to continue supporting you.

But if you hold savings and investments with an EU based institution, as of 2021 they may not accept instructions from a UK adviser. The financial regulator in Germany has already stated that it will be illegal for German financial institutions to do business with a provider who is not authorised in the country or within the EU.

We can expect similar positions to be taken by other EU regulators seeking to protect consumers in their country, so this could limit the planning opportunities for expats using UK-based advisers.

AA: Annual Allowance

You can get tax relief on the money you save into your pension pot as long as the amount of money you save isn’t above the annual allowance in any given tax year.

Which amount of money includes the money you contribute from your wages as well as the money your employer contributes and the tax relief you’ve gained so far.

The standard limit is £ 40,000 but may be lower depending on how much you earn. High earners may get a lower annual allowance and if you earn less than £40,000 the tax relief you can get is based on how much you earn. The limit also depends on whether you’ve already taken any money out of your pension savings.

AVC: Additional Voluntary Contributions

This stands for any additional money you might have paid into your Occupational Pension Plan. It can be a tax efficient method of increasing your retirement savings as any additional voluntary contributions you make to your pension are deducted from your wages before tax (within certain limits).

BCE: Benefit Crystallisation Event

Usually a test has to be done every time pension claims are transferred from a registered pension plan. This to make sure that the income tax charge is applied if the Life Time Allowance might be exceeded. The moments when these kind of tests are carried out are called Benefit Crystallisation Events.

CETV: Cash Equivalent Transfer Value

The CETV is the onetime gross Lump Sum amount a DB Pension Plan will give to a Member who requests to leave the Pension Plan. It should represent the total future gross cash value of the benefits given up.

The CETV value can fluctuate substantially depending especially on the height of the applied interest rates. Low interest rates will increase the CETV value (substantially).

The standard multiplier for a CETV is 20 times the existing future annual gross pension claim.

Some plans like to encourage members to leave the plan and thus might offer a CETV that is as high as 40 times the existing future annual gross pension claim.

Most Pension Plans will give members a CETV update on request for free every 6/12 months which tends to remain valid for 3 months.

FCA: Financial Conduct Authority

It is the governmental oversight body for Financial Services and Financial Markets within the UK as well as the Prudential Supervisor.

GMP: Guaranteed Minimum Pension

It is the minimum pension which a UK Occupational Pension Plan has to provide for those employees who were contracted out of the State Earnings Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997.

The amount is said to be equivalent to the amount the member would have received had they not been contracted out. It is a defined benefit. The amount payable is calculated by HMRC and does not depend on investment returns.

HMRC: Her Majesty's Revenue and Customs

This stands for the UK Tax Authority.

LTA: Life Time Allowance

It is the maximum amount of Total Gross Occupational Pension Claims that a person can acquire within the UK without being taxed by HMRC. This includes both DB and DC claims but does not include State Pension Claims.

This amount has been decreasing substantially during the last 10 years. Currently it amounts to £ 1,073,100. Anything over this amount is taxable at 55% if taken as a Lump Sum and at 25% if taken as an Annuity or Flexi Draw Down. Mind you. This is on top of income tax at your marginal rate. You only pay these extra taxes when you take money out of your pension.

To see if you are at risk of exceeding your LTA, you need to calculate the value of all your UK Occupational Pensions. The value is calculated differently depending on whether they are of a DB/DC nature.

For an investment based DC pension, the value is all the capital in your pensions that goes towards funding your retirement. For a guaranteed DB pension, the value is usually 20 times the annual gross pension you get in the first year plus your one time tax free Lump Sum.

PCLS: Payment Commencement Lump-Sum

This is a UK tax free amount that can be taken from DB/DC schemes (not State Pension) up to 25%. If taken from a DB Pension Plan, the member will see a reduction in their benefits and if taken from a DC Pension Plan the member will see a reduction in their capital value.

PPF: Pension Protection Fund

It is a statutory UK fund intended to protect pension plan members if their guaranteed Defined Benefits (DB) Pension Fund becomes insolvent.

It was created under the Pensions Act 2004. It is funded by all the pension plans which are still solvent that would fall into the PPF if they became insolvent.

The Board of the PPF is a statutory corporation responsible for managing the Fund and for making payments to members.

QROPS: Qualifying Recognised Overseas Pension Scheme

It is an overseas pension plan that meets certain UK requirements. The intention of a QROPS is to transfer occupational pension value out of the UK without incurring UK tax at the moment of the transfer. As of 2017 a 25% tax at the moment of the transfer is possible in certain circumstances.

A QROPS can be appropriate for British citizens who have left the UK to emigrate permanently and intend to retire abroad while having built up a British Occupational Pension Claim.

Alternatively, a person who is born outside the UK having built up benefits in a UK registered Occupational Pension Plan can move their pension offshore if they want to retire outside the UK.

A QROPS does not have to be established in the country where one retires. Rather, a person can move the pension to another jurisdiction and have the benefits paid into their country of choice.

SIPP: Self Invested Personal Pension

It is an investment based personal pension plan that holds investments until you retire and start to draw a retirement income. Thus it works in a similar way to a standard personal pension.

The main difference is that with a SIPP, you may have more flexibility with the investments you can choose.

More than half of our clients have UK based pension claims. Due to our knowledge and experience regarding UK pensions, we twice a year organize individual meetings with Expats at a Heathrow Conference Center. During each consultation we focus on the particular situation of the (potential) client.  

Which events are often combined with presenting workshops for companies about Global Expat Pensions in London.