In April new pension rules come in to play in the UK, and according to recent analysis of the pension and annuity market by The Scotsman newspaper, many would-be retirees have put their pension plans on hold over the last year in anticipation of the massive changes they are hoping to benefit from in April.  Among those who have postponed accessing their pensions are thousands of expats.

Instead of buying an annuity and pegging their future retirement to a fixed investment path, soon-to-retire pension account holders are putting off making any decisions until after April’s new changes come in to effect.  However, will the reality of the new rules match the anticipated benefits?  Not for expats…

Any expat with a defined contribution pension scheme in the UK could be in for a nasty shock if they believe their pension will suddenly become a flexible investment vehicle.  That’s according to expert opinion.  There are many pitfalls to the new rules that expats need to be aware of.

For a start, a pension consultancy polled multiple scheme managers in the UK to ask them if their schemes were ready to be compliant with April’s changes.  The most significant of which is that any account holder can in theory access their entire pension as a cash lump sum.

Shockingly only 2% of all schemes polled were going to be able to offer this option from April.

Even more shocking is the fact that some schemes may never offer this option simply because the way their pension is managed and run prevents this from being an option…

So, anyone with a pension in the UK who’s hoping to be able to access it all as a big lump sum from the age of 55 needs to think again…and contact their pension provider ASAP to discover what their options will really be.

Experts are also warning expats to be aware of several other issues that may affect any pension they leave in the UK : –

1) Currency conversion costs and fluctuations may erode the value of a lump sum taken and transferred overseas.

2) A non-resident who takes a cash amount over the 25% tax-free sum allowable will become liable for tax on the difference.  And an emergency tax code could be applied further significantly eroding a pension’s value.

3) Whilst lost monies may be recouped in time after a potentially protracted battle with HMRC, there’s nothing to say where currency exchange rates will be at that time.

4) Schemes may not be willing to make payments into foreign bank accounts.

5) Even expats who retain accounts in the UK may lose out as schemes may not pay into the accounts of non-residents because of tax concerns.

It is therefore critical that any expat with a pension invested in the UK seeks clarification about their position from their current pension provider.

Furthermore, there may be benefits to be considered and obtained from making a transfer into a qualifying recognised overseas pension scheme (QROPS).

Advice about such schemes is available from international financial advisers.  To find such an adviser who is qualified, regulated and independent, please contact us and we will put you in touch with someone who can help.