The simplest description of a pension plan is style of savings vehicle with favorable tax treatment that allows UK residents to save money for their retirement. Pension benefits is a term commonly used by people to collectively describe all of their pensions.
To qualify for the tax incentives, relevant UK individuals (UK tax payers) need to fund pensions using relevant UK earnings (earnings from UK employment).
Most major companies have always offered pensions in the UK for their employees with more recent introductions such as auto enrolment meaning now even more employees offer schemes.
Pensions are either private or occupational and there are two main types. Private pensions are known as money purchase schemes which are also referred to as defined contribution schemes. Occupational pensions are either in the form of money purchase schemes or final salary schemes which are also referred to as defined benefit schemes.
Money purchase schemes are literally a pot of money and final salary schemes is basically a promise from an employer.
Popular with expats are QROPS and International SIPPS which are types of personal pensions, usually with contributions coming in a lump sum via transfer from previous pensions. More on that later.
QROPS stands for ‘qualifying recognized overseas pension schemes’ with most popular jurisdictions being Malta, Gibraltar, the Isle of Man and Guernsey. and SIPPS stands for ‘self – invested personal pension schemes’ which is a highly flexible personal pension UK pension.
You could stay with your current arrangements or transfer your benefits to a SIPP or QROPS.
You might consider transferring your final salary pension to a SIPP / QROPS if you want to retire early or just spend your money in your younger years. You may want to make a large purchase or investment. It maybe for succession reasons as you’d prefer leaving a lump sum to your loved ones. It may be that the QROPS offers tax advantages over your UK scheme
It’s important to note that you cannot transfer back to a final salary scheme once you have transferred out.
You might consider transferring your occupational money purchase pension to a SIPP / QROPS to facilitate a more personalized investment strategy due to their ability to invest in a far wider range of asset classes. A QROPS may also be more tax advantageous when it comes to drawdown.
It’s wise to review your pension benefits on an annual basis regardless but now even more so than ever.
Pensions have been overhauled in the last few years with changes to access and lifetime allowance to name just two which could have affected you
Depending on a few factors and it may be possible to withdraw your pension monies out of the pension system which can come with serious income tax benefits.
There have been some very high-profile companies that have gone into bankruptcy and which has caused problems for the pension scheme of that company.
In this low interest rate environment transfer values of final salary schemes have remained at extremely high levels meaning your ‘buy out’ offer may never be better than it is today.
To learn more, download our guide to final salary pension transfer by clicking the button below.