Pension Fears

Sandy King

With a ban on transfers looming, coupled with concerns over political instability, expats-to-be have been urged to seek advice.

Time is running out for public sector workers – such as soldiers, doctors and nurses – in unfunded defined benefit pension (DB) schemes who may wish to transfer their pension overseas when they retire.

Changes to UK legislation that come into force from April 6 mean those in such DB schemes should act fast if they want to move their money into a defined contribution (DC) scheme, which would allow them to move their pension overseas when they retire. The same deadline looms if they want to move their pension directly overseas.

It was announced in the Budget that those in DC schemes will be able to take their entire pension pot as a lump sum at age 55, with 25pc tax-free and the remainder taxed at their marginal income tax rate for the tax year that they withdraw it.

This does not apply to those in unfunded DB schemes where the contributions today go to pay pensioners directly tomorrow. And those in unfunded DB schemes will soon be banned from transferring their pensions “to protect the Exchequer and taxpayers”, according to the Government.

This means that retiring overseas would continually expose them to currency risk from their UK pension as payments need to be transferred from sterling to the local currency. This could affect their quality of life in retirement. Experts warned that those affected by the ban should seek advice as soon as possible.

This comes after a warning about DB schemes – also known as final salary schemes – from Alan Rubenstein, chief executive of the Pension Protection Fund. He said that five in six schemes have fallen into deficit and that 11m people expecting a guaranteed inflation-linked pension may find themselves with less than expected in retirement.

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