Behind all the doom and gloom for expats uncertain about the future of their final salary pensions, some good news is finally lurking.
Companies are so keen to get rid of retirement savers on these gold-plated schemes that many are offering to buy them out of their schemes on favourable terms.
Some workers are being offered massive lump sum payments as a golden goodbye.
Employers see the big payments as a way of reducing their pension fund liabilities – reportedly increasing at £2 billion a day for FTSE 350 companies.
Pension black holes are deepening as returns from gilts – government-backed bonds – are dropping like a stone with even more quantitative easing from the Bank of England.
Switching to a QROPS
A pension buy out gives expats the chance to transfer a large lump sum into a Qualifying Recognised Overseas Pension Scheme (QROPS).
Companies do not want to admit they are offering cash to retirement savers, but IFAs report clients are coming to them with offers of lump sums of up to 35 times predicted pension income.
Deciding whether to take the offer is a trade-off.
Although a cash offer is a temptation aimed at luring retirement savers to give up their pension rights, making the move has to be considered against each individual’s personal financial circumstances.
A final salary pension offers a guaranteed retirement income for life based on length of service and average earnings over the years approaching retirement.
Other benefits may also be rolled up in the pension, such as a guaranteed annuity rate.
Tax and financial benefits
Funds moved out of one of these pensions go into a direct contribution pension, such as a QROPS or onshore SIPPs.
DC pensions offer a retirement income based on financial market performance.
The huge cash offer is meant to compensate for any potential gap between a guaranteed pension and a QROPS pension pay out.
QROPS can have many financial and tax advantages for expats – including more flexible investment opportunities, tax-free cash lump sums of up to 30% of fund value and benefits paid in a range of major currencies.
More than 1,200 QROPS offshore pensions are available in 42 financial centres around the world, such as Malta, Gibraltar, the Isle of Man and Australia.
Further QROPS Information and Guidance
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
