Philippines expats are receiving offers of huge cash buy out bonanzas if they agree to drop out of guaranteed final salary pensions.
For employers, paying a golden handshake to tempt staff to leave is cheaper than finding the billions needed to fund the expensive pension promises.
Once, a company pension offered a guaranteed pension linked to the cost of living, a 50% spouse pension and sometimes other benefits.
Decades later, these pension promises are in ruins as underfunded schemes struggle to keep up with their liabilities.
In some cases, pension benefits are cut as companies go to the wall and the government backed Pension Protection Fund takes on their schemes.
What to do with your buy out offer
Keeping track of a British pension from overseas is hard work, so if you are a British expat in Manila or elsewhere in the Philippines with an offer on the table, here’s what to do:
- Speak to a regulated and qualified international IFA who has the knowledge and experience to advise about final salary pensions in the UK and a Qualifying Recognised Overseas Pension Scheme (QROPS) in the Philippines.
Although The Philippines has no QROPS providers, companies in other financial centres, such as Malta have QROPS that offer all the tax and financial advantages of the offshore pensions in any other country
- Ask your company pension provider for a copy of the offer with the full transfer value of the fund available to transfer out
Request a list of any other final salary pension benefits, such as guaranteed annuity rates and widow’s pensions
- Talk to the IFA about your retirement plans. Consider issues like where you will be tax resident, how much income you want for retirement and how to plan your estate to give an income to your spouse or loved ones from your QROPS
Moving a final salary pension to a QROPS is not necessarily a risk – yes you will lose the guarantees written into the company scheme, but you will gain other benefits from a QROPS.
QROPS v company pensions
For example, pension protection means at least a 10% benefit cut and a ceiling on annual pension payments of £37,420 for a 65-year-old. Retiring earlier means a lower cap – scaling down to £28,414 for someone aged 55.
QROPS do not come with guarantees or index-linking, but the lifetime allowance does not apply to fund growth after transfer and pension payments are not capped.
A recent rewrite of inheritance rules lets spouses receive up to 100% of an unspent fund from a QROPS, compared to a 50% widow’s payment from a final salary pension.
Managing retirement finances in the UK is not easy from the Philippines, but discussing the options with a licensed IFA can make those difficult retirement decisions less complicated.