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Pension consolidation for British expats and UK residents

After years of working for a variety of different employers, people accumulate multiple pensions schemes meaning pension pots are spread across different providers and products, potentially making it much harder to manage your retirement funds. Find out about pension consolidation and whether it might be a suitable approach for you.

Written by Lauren Ross on 23 September 2020

Many people find that after years of working for a variety of different employers, they will accumulate multiple pensions schemes. This means that your pension pots are spread across different providers and products, potentially making it much harder to manage your retirement funds – although there are new services available that can bring your pension pots into a single app so you can more easily track their performance over time.

Having multiple pensions schemes can mean that you are paying higher than necessary pension charges and not fully utilising the opportunities available to people with fewer, but larger pension pots – such as investment opportunities and tax benefits.

Ultimately, pension consolidation is when you combine some or all your retirement savings from multiple pensions pots into fewer schemes.

Establishing whether or not pension consolidation is the correct option for you will depend on your circumstances including:

  • The type of pensions schemes you have
  • The total value of your pension schemes
  • The total costs of your pension schemes are, and whether these costs are necessary
  • The investment options and performance of your current pension schemes with specific focus on your ultimate retirement goals

Discussing each of these key factors with an independent financial advisor is essential when considering consolidating your pensions.

Is it possible for expats to consolidate their pensions?

The process of pension consolidation for expats becomes a little more complicated. Expats that have had multiple pensions in one or more jurisdictions may find that consolidating their pensions into a single pension can be time-consuming, expensive as well as risky due to the lack of international financial regulations, especially outside of the EU.

It’s also worth remembering that as pensions are subject to the tax rules where the pension resides and the tax rules of your country of residence, consolidation may be an issue in the short term, but also reduce your tax concerns in the longer term.

As a British expat living abroad, there are typically two primary options to consider for the consolidation of your UK pensions:

  • Consolidation into an UK SIPP (Self Invested Personal Pension) which is best suited for people who plan to return and retire in the UK, but also want more flexibility over the choices of underlying funds in the pension.
  • Consolidation into a QROPS (Qualifying Recognised Overseas Pension Scheme), which is best suited for people looking to consolidate their UK pension pots who are not planning to return to the UK and wish to invest their pension in a local currency and free from UK tax rules. QROPS offer similar management advantages to a SIPP but can also offer greater flexibility with currency options and potentially tax benefits for your pension. However, they may also attract additional fees and charges, such as the 25% QROPS transfer fee if you are transferring to a country you do not reside in, or outside of the EU if you currently live in the EU.

There are many variables to find what is best suited to each individual and the above options are two examples of why it is important to speak to an independent specialist to avoid making costly errors.

Will it give me better access to my money?

Combining your funds can give you an all-round better control of your pension. You could potentially be able to check funds online at your discretion, enabling you to see more clearly how your pension pot is growing and generally have a better understanding of how your pension is performing.

Will it save me any money?

There is a possibility of saving some money when combining your pension pots. Transferring from higher cost schemes to lower cost schemes could mean a potential saving. The type of scheme that is right for you is based on your total funds and the current schemes you are using and can be easily established by working with an independent financial advisor that specialises in pension and retirement planning.

What types of pensions can be combined?

Not all pensions can be consolidated into one scheme. Below is a list of the different types of pension schemes that can be combined:

  • SIPP’s (both international and UK SIPP)
  • Funded public sector pensions (government pensions)
  • Final salary pension scheme
  • Workplace/Personal defined pension scheme
  • QROPS – if you have already transferred one or more scheme out of the UK

However, just because a pension scheme can be consolidated does not mean it should be. For example, defined benefit schemes will need additional analysis into establishing whether it is advisable to transfer funds away from the scheme or not.

What types of pensions cannot be combined?

Below is a list of the different types of pension schemes that cannot be combined:

  • The UK state pension
  • Unfunded public sector
  • Civil service pensions

Exercising caution when consolidating pensions

Quite often some schemes may seem too good to be true, and QROPS have been mis-sold to many expats looking to consolidate their pensions, primarily by “financial advisors” working on large commissions to sell specific underlying funds, regardless of their suitability for the individual.

Ultimately, if you are considering consolidating transferring your pension pots into a QROPS, you need to consider the fees, charges – including the potential 25% QROPS transfer charge - and potential penalties. This is in addition to understanding the underlying funds which your investments will be tied into and the potential risks of these.

Above all, if you are in any doubt it is always wise to seek a second, or third, opinion to establish your best course of action – and never be rushed into making any decision.

How would I benefit from speaking to an independent financial advisor?

Speaking to an independent financial advisor that specialises in pensions and retirement planning will help you establish the most suitable course of action. They will give you a clear explanation of your current pension status and what your predicted funds will be for retirement, and then use this information to show you the benefits (and drawbacks) it could bring you if you are to combine your savings into one scheme.

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