If you’re looking to start your retirement in pastures new or if you are already an expat living abroad, then a defined benefit pension transfer could help you get the most out of your lifetime income.
After working hard throughout your career, we know you’ll want nothing more than to spend your retirement years relaxing with the help of a well-kept pension pot.
However, it’s more important than ever to consider your financial circumstances and take notice of how your money could be impacted by that exciting move – especially if you’ve had no previous experience transferring funds or have received poor advice from another pension provider.
If you’re looking to transfer your UK pension abroad – whether that’s to consolidate multiple pensions accrued over time, get a helping hand in managing your funds, or make the accessibility easier – we can make sense of the transfer process.
In this guide, we’ll talk about everything you’ll need to know about QROPS and going ahead with a defined benefit pension transfer, covering:
- The definition of a pension transfer and how it applies to defined benefit pensions
- What you can transfer
- Who is best suited for this kind of scheme
- When you can withdraw from a defined benefit scheme
- What financial advice you must get
- Rules and regulations
- The potential benefits of switching to a QROPS
- What to keep in mind
Moving overseas? Discover the potential benefits of a defined pension benefit transfer, learn what you should keep in mind, and explore your pension options with Brite Advisors today.
Let’s dive in.
What is a defined benefit pension?
In a nutshell, defined benefit (DB) pensions are company or workplace pension schemes that can be left with the pension provider should you choose to move abroad.
Your DB scheme offers you an assured lifetime income that rises annually, aiming to protect you against factors such as inflation.
This type of pension may also be paid out at a reduced rate to your partner, should you pass away.
Whether you choose to stay at home or move abroad for your retirement plans, until you choose to draw money or tap into the benefits of your pension, it won’t be affected.
You can however choose to give up a portion of the pension income in return for a tax-free cash lump sum.
Outside of this, you won’t have to make any further decisions or choices as to the flow of money, as it’ll be in the hands of your employer and the pension scheme trustees.
Although you are not charged for being a member of a DB scheme, you will not be able to continue contributing to this pot of money one you no longer work for the employer of the sponsored pension scheme.
So, what is a pension transfer?
A pension transfer is pretty much what it says on the tin: simply moving your defined benefit pension plan from one provider to another. When it comes to pension transfers when moving abroad, however, you have a number of options available to you.
Of course, if you choose to take your retirement outside of the UK, it doesn’t mean you have to take your pension savings with you. You can always leave them in your existing scheme and take an active pension income from it remotely.
However, you could be missing out on a number of benefits that could make your later years much smoother.
How does it apply to my pension?
When you facilitate any kind of pension transfer from a defined benefit pension – whether it stays in place or shifts to foreign soil.
In place of this is a cash lump sum or value, which can then be shifted or used as part of an investment strategy in a new pension scheme elsewhere.
It is important to take note of procedures that are in place when dealing with investment decisions, especially when it comes to a defined benefit pension transfer.
These ‘lifetime pots’ are, understandably, rather valuable – so they are strictly regulated. You can choose to transfer your pension into the following options:
- Defined contribution plan
- QROPS or ROPS
For expats, the latter can be helpful if you are looking to access your pension in the same country you reside in, offering potential flexibility in the same currency.
Making sure that you switch to a qualifying recognised overseas pensions scheme (QROPS) is crucial for retirees looking to get the most out of their savings, as it means you could avoid additional taxes when moving your money abroad.
With any current pension scheme, should you choose to transfer it into a QROPS, your entire pension pot and its benefits will be automatically assessed in line with the Lifetime Pension Allowance.
This determines whether further charges should be placed on your pension when you seek to take it abroad – in what is called a ‘benefit crystallisation event.’
Still not sure if a Defined benefit pension transfer would meet your needs?
Let us go through some of the circumstances where many people might consider this as a solution.
How to determine if you would suit a defined benefit pension transfer
From a financial perspective, a defined benefit pension transfer can bring with it a number of guaranteed benefits.
If you fit any of the following points, you may be a good candidate for transferring your pension:
- If you are not married
- If you have a life-limiting illness or a shorter life expectancy
- If you would prefer to pass your savings to a beneficiary that isn’t a spouse
- If you are keen on controlling your overall income tax liability
- If you have a significant amount of retirement savings
- If you are taking your retirement abroad or are already an expat
However, it’s important to note that pension transfers can come with potential risks, so it’s important that you consult with a qualified pension advisor first to ensure yours goes smoothly.
At Brite Advisors, we can help you determine whether transferring out of your defined benefit pension scheme is the right choice for you.
With a team of professional pension advisors with decades of experience in helping people get the retirements they deserve, we would be more than happy to help.
When can I withdraw and transfer from a defined benefit plan?
If you have a defined benefit pension plan, you can usually begin withdrawing funds from it from the ages of 60 or 65, although some plans can be unlocked sooner.
It’s also important to note that if you are in an ‘unfunded public sector scheme’, such as the NHS Pension Scheme or the Teacher’s Pension Scheme, you may only be able to transfer to a limited number of other defined benefit schemes with are subject to certain rules.
Those who will be able to facilitate a transfer to any kind of pension are those who are in a funded public sector pension scheme or a private-sector defined benefit scheme.
From here, you have the power to switch to any pension type of your choosing, although we ask our clients to remember that you will still have to comply with the regulations of the new scheme chosen.
Choosing to switch pension types will put limits on your existing defined benefit pension, meaning that if you’re still within a DB workplace pension scheme, you are unlikely to be able to transfer your pension until this has concluded.
You might also be limited to what you can do if you have less than one year before you would normally be able to access your pension and begin drawing retirement income.
As such, it’s important that you seek financial advice before making any big decisions, especially if you are planning to move your income to an overseas pension.
What kind of financial advice do I have to get?
Due to the nature of a defined benefit pension scheme, transfers out of this kind of pension pot have to be in line with strict regulatory guidelines.
If your total pension pot comes to over £30,000, it’s key to seek transfer analysis and guidance from a permitted FCA regulated firm.
Once completed, you’ll receive what is known as a ‘cash equivalent transfer value’ (or CETV) in place of the benefits and guaranteed level of income you’d usually get from the scheme.
As such, the main reason you are asked to seek financial advice is to ensure you’re aware of all the potential risks as well as the benefits.
Are you thinking of switching but don’t know where to seek financial advice?
Should you have any queries or need assistance in transferring your pension to a solution that best suits you and your retirement plans, we can help.
At Brite Advisors, our team of international financial experts has specialist knowledge in a number of areas, all in line with UK best practice.
We’re on hand around the clock to help you throughout the transfer process, whether you’re just starting out or require further assistance.
How do I find out my cash equivalent transfer value?
With all defined benefit pension transfers – whether you are planning on staying at home or switching to an overseas pension – you must first find out what the cash equivalent transfer value (CETV) is. This is what your scheme pays for you to give up your entire DB pension rights.
To find out your CETV, you can ask your pension provider or the administrator of your scheme. You will likely need to fill out a form or submit a formal request in writing.
On requesting a CETV, you should receive your transfer value within three months following your request. You’ll be given a written document that gives you all the details you’ll need to begin your transfer.
This is called a ‘Statement of Entitlement’, which will note:
- Details of the benefits accrued from your DB scheme
- The total transfer value
- Any additional information that will be useful to your new scheme
The CETV will be valid and guaranteed for three months from being produced. During this time, you must have withdrawn or no longer be classed as an active member of your previous pension scheme.
Should you decide to switch to a new scheme and the total value of your benefits totals more than £30,000, you will be asked to come up with evidence that you’ve sought regulated financial advice about the transfer to your new pension provider.
Making sure you’ve allowed enough time to chat to an advisor before making any concrete choices is a good move. This gives you ample opportunities to consider your options before making any big decisions and moving forward with the required paperwork.
Once this has been facilitated, you must then pay the total value of the benefits – or CETV – within six months of starting your new scheme.
This period is marked from the very start of your transfer process, meaning that if you fail to finish the transfer in the guaranteed CETV period (which is three months), you will have to request a fresh CETV.
Now that I have my CETV, what else should I know about the transfer process?
To make your transfer as seamless as possible, you must get things moving quickly to avoid additional costs and delays.
You might also be asked to re-seek financial advice so all your information is correct and up to date.
Once you’ve transferred to a scheme of your choosing, you’ll have given up any accessible benefits from your old defined benefit pension.
However, some pension pots may only let you transfer a portion of your benefits – so it’s crucial to check with your provider or seek financial advice to help you get the most out of your savings.
With a defined benefit pension, you should be able to transfer out at any time, as long as it’s up to one year before you’d usually start tapping into your pension income.
However, once you start drawing from your pension, it becomes fixed and you can no longer transfer those funds to another pension pot.
That’s why it is helpful to get a full sense of your retirement plans and start thinking about the right pension solution for you ahead of time – especially if you are planning to, or have already, moved abroad.
In this next section, we’ll touch on what you’ll need to do when it comes to transferring your CETV into schemes based outside of the UK.
How do I transfer out of a defined benefit scheme to an overseas pension?
As we touched on before, if you’re thinking of spending your retirement in a new and exciting country, transfering to a QROPS – or qualifying recognised overseas pension scheme – could be beneficial, offering further flexibility and freedom.
QROPS were specially created to give expats local access to their benefits. With all pensions, a QROPS does have a number of conditions that must be met in order for the process to be successful.
Firstly, you must ensure that the pension you are planning on transferring to qualifies under the scheme regulations as noted by HMRC.
It’s important to note here that the pension will be subject to the taxation regulations in the country where you are spending your retirement, rather than being subject to UK taxes.
As such, the potential benefits of switching to a QROPS include:
- Increased financial freedoms
- Larger income potential
- Decreased tax rates
Defined benefit schemes can be transferred to a QROPS, offering potential flexibility that many expats would struggle to find in their existing pension pot formats.
Of course, before making the decision to transfer your DB scheme to a QROPS, you must seek a full analysis that clearly outlines and compares both choices.
How do I get the best rates for my overseas pension?
At Brite Advisors, we recommend QROPS and ROPS with minimal tax rates so that our customers can enjoy as much of their hard-earned retirement funds as possible.
You can also consolidate multiple transfers within a QROPS, which is helpful if you have several schemes accrued from different providers or workplaces over your lifetime.
Bringing them into one pot can help lower the cost of maintenance fees and help you keep an eye on your funds, as well as simplify the process overall.
At the age of 55, with a QROPS you will be able to withdraw pension income in your chosen currency – as long as it hasn’t been touched previously – unless in special circumstances.
It is important to note that these payments are tax-free in regard to the UK, however may be subject to further taxation in the country where you are retiring.
Which countries can I transfer my defined benefit arrangement to with Brite Advisors?
As international pension experts, we can handle your defined benefit pension transfer from start to finish – and beyond.
We offer unmatched administration and trusteeship solutions in a number of registered jurisdictions across the globe, including Guernsey, Australia, New Zealand, Gibraltar, and Hong Kong.
Although all of these countries offer flexibility for expats and conditions are subject to change depending on where you take your retirement, the usual conditions for QROPS stand.
What should I keep in mind for my QROPS transfer?
If you have a defined benefit pension, the first thing to note for a QROPS transfer is that there is no legal minimum to the amount you can transfer.
It’s also important to remember that QROPS trustees can only accept a transfer through an appointed qualified intermediary.
In addition to this, there are further restrictions that have been put in place on transfers to certain QROPS locations.
This means you may be subject to a potential tax charge of 25% depending on where you are spending your retirement, but it may still offer attractive levels of flexibility and potential investment that make the transfer worthwhile.
You and your pension are in safe hands with Brite Advisors
At Brite Advisors, we can help you discover all of your options should you want to go ahead with a defined benefit pension transfer, whether that’s through a QROPS or another pension alternative.
To give you all the tools you’ll need to make an informed, confident decision about your plans for the future, all of our financial advice is aligned with the latest legislation and regulatory requirements spanning the countries we deal with.
All of our QROPS schemes are officially recognised by HMRC and regulated by their local financial authority. For ten years from your pension being transferred, the QROPS provider must report back to HMRC. This ensures that all compliance is being adhered to across the board and that activity is being monitored.
If you are a British expat or are thinking of moving abroad and are looking to move your defined benefit pension to a jurisdiction overseas, we can help.
We work hard to assist our customers in getting the most out of their money, tap into investment opportunities, potentially benefit from tax efficiencies and, most importantly, enjoy retirement to the fullest.
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