Transferring UK Pension funds

[HoneySuckleDreams]

While not strictly France related, I have a question about moving funds from a UK pension.

 

I have two UK pensions from two different employers.

The 1st pension was contracted out and I get yearly updates (from Scottish Widows) about their worth. Basically, the contracted out bit will give me a yearly pension of 5quid, the main portion a yearly pension of 1500quid....sod all basically.  They both have a transfer value.

So...questions...in case someone out their in forum land has done something similar.

do I

1) leave them untouched (my thinking is that there could be some sort of  "death" benefit to the Mrs if I do push off earlier than her

2) transfer them into the 2nd employers pension in the UK (which is slightly better). My simple thinking is that the bigger the pot the better the investment will be.

3) move them to a private pension in France or Luxembourg

I do admit that I don't really plan for the future too much but as I've now turned 50 I thought I would dig out some paper work and add something else to my list of "things-to-sort-out-over-winter"

 

[andyh4]

Cannot help on 1 or 2, but regarding 3, you will need a QROPS (google it) approved scheme for HMRC to approve the move abroad.

My experience is that abroad means generally Isle of Man or one of the Channel Islands.

Generally the companies are not interested unless you have at least 40k to move. So as described this would be a no-no, but maybe combining all of the funds would work.

One of the advantages of QROPS was that it meant you got out of the clutches of the annuity systems in the UK, but that is not going to be the case for much longer, so the benefits are somewhat reduced.

The downside of moving the money (if you want to consider it a downside) is that you become personally responsible for the investment decisions. If it all goes t*ts up you cannot blame an insurance company - or even the advice you got on the investments.

[AnOther]

Unless it's changed recently the general advice is that a QROPS is not reckoned to be viable for pots under about 100k.

What to do with your funds depends primarily on any exit charges levied by the current providers which range between 0 and 30%.

Assuming nil charges because they are so small it would probably be best to transfer them to another scheme if you have one, that way you at least eliminate their annual charges which in some cases can exceed the growth !

From the figures you give I would expect both your pots to fall under the 'trivial commutation' rules which mean that from age 55 you can take them wholly in cash and tax free (UK wise that is) but that's 5 years down the road and a lot can happen in that time.

[tinabee]

A lot of the information I have read regarding QROPS and their associated fees seem to indicate that anything less than £200,000 would not be cost effective.

Another option would be to wait until you are 55 and then just withdraw cash from the small pot and reinvest here in France or elsewhere, whilst making sure you are minimising French tax on the withdrawals, and that the dual tax treaty rules regarding pension withdrawals have been clarified.

From next year, the UK pension rules are changing substantially regarding tax and inheritance of pots, so probably not really worth doing anything major until the dust from the changes has settled.

My personal opinion regarding size of pot and investment potential is a bit different. Bigger pot, possibly bigger gains, but then again, possibly bigger losses. The phrase all eggs in one basket comes to mind.

I have a similar problem and each year I look at it, I end up putting it on the "too difficult" or "who can you trust?" pile. My experience of financial advisers over the last 25 years has not resulted in a resounding accolade for the profession.

One thing you can check is that you have properly filled in an "Expression of wish" form for each pension, which basically states who you want to inherit whatever is allowed (lump sum probably, or annuity possibly) depending on the particular rules of your pension scheme.

[HoneySuckleDreams]

Many thanks for the feedback, some interesting points.

I will ask Scottish Widows what sort of costs are involved in moving the funds if I do feel it necessary. However, as has been mentioned above, the rules are changing next year. So I will sit and wait for now.

I actually like the idea of removing the money and re-investing, there won't be much, but I could make better use of it. Even putting it into Premium Bonds would be better than where it is at the moment. 

Or just blow the lot on a night out on the Reeperbahn.

[woolybanana]

Just a thought, HSD, as you seem to be a French resident, the act of getting your hands on the money might excite the predatory interest of the French tax man, even if you reinvest it immediately, so be careful.

I do know that lump sums from pension pots have been treated as income and taxed heavily, so better check first what the situation is.

Scottish Widows were recently taken over by Aberdeen Asset Management, which might improve the returns on funds a bit though it might be too late for your particular funds to make much difference.

[HoneySuckleDreams]

good point WB - however, at the moment I am tax resident in Luxembourg. I will still need to look into the tax impact here though.

[tinabee]

[quote user="HoneySuckleDreams"]good point WB - however, at the moment I am tax resident in Luxembourg. I will still need to look into the tax impact here though.[/quote]

you could always ask J-C Juncker if he'll do you a deal on the tax [;-)]

[vivienz]

Under UK law, if you die before you have done anything with your funds then the whole of the fund will pass to your chosen beneficiary, free of any tax of any kind.  I can't say how the money received by your beneficiary would be treated by any other country, but there is no issue from a UK point of view.

The earliest age that you can draw your pension (in most cases) under UK law is 55 so you have a few years to check out your options.  If the proposed pension changes come fully into force next spring in the way that they are drawn up at the moment, you will be able to do as you please with the pots, including drawing the whole lot out in one go.  The major downside to this is that HMRC will let you have 25% of it tax free and the rest will be subject to income tax and added on to any other income that you have for that year and taxed accordingly.  Again, I don't know how the tax system in Luxembourg works and they may treat pension withdrawals differently.

Between now and age 55, the main things are to ensure that your expression of wish is lodged with the pension providers (as previously stated), to make sure that the funds are invested appropriately for the timescale that you have planned and to make sure that you aren't paying through the nose for the plans that you have.

QROPS are very expensive to put in place and gain advice on; you have to ask whether the advantages of moving the fund to a different jurisdiction would offer a large enough reward to make it worth your while.  One of the rules of QROPS is that whatever overseas scheme you move to should have similar restrictions to UK pensions - you may be taking options away from yourself in light of the changes coming in next year if you transferred.