So you are an expat in Australia with an offer of a golden handshake pension buy out from a former employer – what do you do next?
This is a problem for many expats confused by what’s happening in a pension market half a world away that they left sometimes a decade or more ago.
Back in Britain, some of the biggest companies made pension guarantees to employees in the past that they can no longer keep without breaking the bank.
To try to climb out of the mire, the firms are offering cash bonanzas to buy out their promises.
The proposition is simple – take the money and leave the scheme or stay put and take your chances.
Cash on the table
The pile of cash on the table for expats who give up their final salary pension rights is tempting – sometimes up to 30 times the value of projected pension rights.
Making the right financial decision is a tough call.
One solution is to take the money and transfer the cash into a Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS give a host of tax and financial opportunities to expats ranging from bigger tax-free lump sum, pension payments in local currencies and the ability to leave 100% of the unspent lump sum to a spouse or close family.
On the other hand, QROPS pensions pay out according to investment performance and offer no guarantee of an income in retirement.
A final salary workplace pension does give the guarantee of a cost of living linked pension and often comes with a guaranteed annuity rate that beats anything on the open market and a 50% widow’s pension.
Comparing the benefits is not an easy job.
For instance, many expats like the idea of a 50% widow’s pension leaving a partner with a retirement income.
But new pension inheritance rules that include QROPS allow retirement savers to pass on their entire unspent funds to a spouse, rendering the 50% promise a little jaded and cheap.
If you are a British expat with a final salary pension buy-out offer, do not make a decision without speaking to a regulated and qualified IFA who understands UK final salary pensions and QROPS.
The IFA will tailor a personal pension strategy for you and explain the pros and cons of leaving a final salary scheme in favour of a QROPS.