The value of your DC pension at retirement is straightforward. It is a combination of how much you or your employer contributed and how well the underlying investments have performed. There are no other factors to consider which makes them more straight forward. This is unlike Final Salary Pension Schemes which have guaranteed and safeguarded benefits
Most expats complete a Defined Contribution pension transfer into an International SIPP (£50-700k pensions) or QROP (EEA residents £700k pension or more). These transfers provide greater control of all their DC pensions as they are able to manage them together in one place. DC pension transfers are an essential area of financial planning. The costs of a DC pension transfer are lower than a transfer from a Defined Benefit pension.
The technical term for this tax-free pension lump sum is a Pension Commencement Lump Sum (PCLS). You are permitted to take the first 25% of your pension without income tax. The remaining 75% will count as income and be taxed at your marginal tax rate. On Defined Contribution schemes, access to your pension is permitted from your 55th birthday.
For example, an individual with a £250k DC pension would be able to draw their 25% (£62.5k) tax-free pension lump sum from age 55. The remaining 75% (£187.5k) would be taxed at their marginal income tax rate in their country of residence.
In 2015, the UK government confirmed that DC pensions would be accessible from age 55 instead of age 60 or 65. This change in legislation is referred to as UK Pension Freedom Rules. As such, if you are 56 you are free to withdraw all your DC pension retirement income. Unless you explicitly need this retirement income we would advise against such withdrawals. You will be better off gradually drawing down your pension income on a regular basis to minimise your tax.
While working in the UK it is likely you had numerous employers. Perhaps you were only employed with some for a few years. Each employer will have set up a company pension scheme for you though. For example, a client could have £200k spread across four previous employers (£19k, £100k, £20k, £61k). You can consolidate all these pensions together in one easy to manage location.
Whether an International SIPP or QROP is the best advice you, both pensions are internationally flexible. As such, if you move country again in your expat career your pension planning will remain in place. There is no need to change it every time you move. Much like our service, we can continue servicing you internationally as your career progresses.
Each of your UK pension pots has its own set of charges and fees. Few people read p.34 of their pension contract when starting a new job. These charges can be excessive though, particularly on older schemes. Consolidating your pensions allows you to eliminate duplicate charges.
Consolidating your DC pension also allows you to have full online access much like your online banking. Helping you monitor your investments more closely at a time that suits you. As DC Pensions are a long-term investment, we do not advise checking them daily but you always have full access.
At Cameron James, all clients receive a quarterly review. This allows their Financial Adviser to update them on the portfolio and provide a general overview. It also provides an opportunity for our clients to update us on any changes in their situation. Such as moving employer, returning to the UK or anything else that might affect their finances. Many clients opt for an in-depth annual or bi-annual review once they feel more comfortable working with us.
With your pension pots consolidated together in one place, your Financial Adviser can provide an accurate estimate of what your pensions will be worth at retirement. In contrast, estimating the growth of four different pension pots with various fees and charges is not an easy task.
Depending on where your DC Pensions are currently located, a DC Pension transfer can provide access to a broader range of investments. Our Advisers are on hand to advise on the portfolio best suited to your needs from a whole of market analysis. This may be different from your existing DC provider who may offer a limited in-house range of model portfolios.
As DC pensions have no guaranteed benefits you are not giving up any rights in transferring it. This is different from Final Salary pensions where a more thorough analysis of your options is required. FCA stipulations on DC pensions transfers are less onerous which removes an additional layer of costs for our clients. View our Transparent Charging Schedule to learn more.
We are only looking to work with clients where we can add value to their financial planning. If you already previously consolidated all your pensions in the UK then you are one step ahead of most people. The costs of transferring your pension to us might not outweigh the benefits. We will always happily review this for you but will be honest if we cannot add any value for you. You may be better off keeping your DC pensions where they are.
Obtaining the transfer value for your DC pension is always the best practice. This allows us to see all possible information pertaining to your policy. However, if you already have the latest valuation this will provide a very accurate estimation of your transfer out value. Remember there are no safeguarded or defined benefits so your transfer value is normally the same as your current value. Also, if you are transferring to an International SIPP we no longer require physical forms as transfers are completed electronically.
A DC pension offers no form of guarantee as to the pension benefits that you will receive at retirement. Your retirement income and tax-free lump sum are only related to the performance of your portfolio (Gov.Uk). This is why DC pensions are considered more straightforward as there are no complicated calculations. Your pension plan value is your transfer value.
The final value of your pension benefits in retirement is important to you. You cannot control what the markets do. There will be recessions like the 2008 Financial Crisis and there will be bull markets like the past decade. What you can control though is ensuring you have a portfolio allocation with a proven track record of outperforming the marketplace. Upon transfer, your portfolio will be updated to ensure it is in line with current market trends and opportunities.
DC pension transfers do not require additional FCA sign-off which keeps the costs low for our clients. Our set-up for portfolios up to £250k is 3%. For portfolios between £250k and £1m this reduces to 2% and for portfolios over £1m it reduces further to 1%. We work on a transparent model of advice for all pension transfer and do not receive any form of hidden commission. So you will know exactly how much your advice is going to cost before you make any decisions or commitments. To learn more about what is included in our service click Our Costs Page.
Nominating your own beneficiaries is a task we complete with all clients before your pension is even transferred. It is a simple form which takes less than 30-seconds to complete. You are also free to decide on the percentages. For example, spouse 100% or son 50% and daughter 50%, you are free to complete this as you wish. You can then rest assured that in a worst-case scenario your financial affairs are simple for your family.
Any pension transfer decision should be considered carefully. For many clients, the advantages of a DC transfer outweigh the costs of completing a transfer. This is always best discussed with your regulated Financial Adviser. The team at Cameron James hope you have found this article useful. You can share the article with any expat colleagues or friends through the social buttons below. Click the link below to talk to an Experienced Financial Adviser in confidence about your DC pension requirements.
The average time for a pension transfer is 3-4 weeks. Depending upon the type of pension with DB transfers taking longer and DC transfers shorter. In our experience, exemplary paperwork and streamlined communication are keys to faster transfers. Errors lead to longer transfer times. International SIPP transfers are generally quicker, while QROP transfers take longer.
Nobody likes surprises. At CJ our clients know exactly how much their financial advice will cost before they proceed. We have initial advice and set-up fee of 1-3% depending on the size of your investment and an ongoing annual management charge of 1% – Our Costs.
Absolutely not. There are no nasty lock-in periods with CJ. If you are ever unhappy with our level of service you are free to leave without cost. This keeps us on our toes to continue delivering our high quality of service.
Your policy will pass directly to your named beneficiaries which you state in your application process. So you have peace of mind that your loved ones will automatically receive your assets. No messing around.