If you have accumulated different pension plans, keeping your pension savings in different plan schemes may result in lost investment opportunities and unnecessary exposure to risk. Making the most of your pension plans now could have a significant impact on your happiness in retirement; getting it right could mean a higher income, or even an earlier retirement date.
The most obvious reason for moving a pension is to obtain better investment performance and lower charges to potentially increase your retirement income. You might well have several different types of pension.
Final-salary schemes pay a pension based on your salary when you leave your job and years of service. But if you’ve got any other kind of pension – a money purchase occupational scheme or a personal defined contribution pension – it may be appropriate to consider bringing your historic pensions into one place. These pensions rely on contributions and investment growth to build up a fund. A key advantage of moving your funds into one pension pot is the ability to monitor fund performance more easily.
Consolidating your pensions into one pension wrapper can make keeping track of your pension savings more easy: you can keep a closer eye on the value of your savings and it could also potentially reduce the amount of management fees you are paying. It will also make things much easier when you eventually retire and want to start drawing on your pension savings.
What is a SIPP?
A SIPP (Self-Invested Personal Pension) is a type of UK-government-recognised personal pension scheme which allows clients and their financial adviser to choose from a wide range of investments that match the member’s individual circumstances. Therefore, a client can freely choose how their money is invested.
How does a SIPP work?
With the help of a financial adviser, a SIPP allows you to decide what type of investments to invest in depending on your risk appetite and timeframe until retirement.
It is likely you would have received UK tax-relief on your contributions to UK pensions when you were a UK resident. Alternatively, you may be a member of a UK Group Scheme or a Final Salary Scheme wishing to transfer to a SIPP so that you can choose your investment strategy, or so you can decide when and how to take your benefits.
It is essential that you start to plan for your retirement as early as possible so that you are able to live comfortably in the knowledge that your lifestyle needs are covered. This will mean careful consideration of your pension fund throughout your working life.
A SIPP gives you control of your pension, whereas most members of a company pension scheme have very little control and almost no idea where their pension money is invested. Also, with many of the UK's largest companies closing their final salary schemes to all members, a lot of individuals are now having to look at taking their pensions into their own hands.
Indeed, there are many reasons why SIPPs are becoming increasingly popular. Some of the key features include:
A SIPP allows the individual along with their financial adviser to decide on the type of investment depending on their risk profile and timescale to retirement.
A wide range of investments are available including stocks and shares, unit trusts, investment trusts and OEIC's. You can sit down with your adviser to discuss your needs and what solutions are available to you. However, it’s important to explore options that diversify your portfolio whilst also offering the greatest prospect of growth for as little risk as possible.
SIPP trustee fees tend to be fairly affordable on an annual basis, sometimes as low as a few hundred pounds per year. Funds, other collectives and shares are generally available via platforms or offshore wrappers, allowing access to a whole range of assets at lower charges than individuals can achieve.
There are a number of people who have several small pensions that they have either forgotten about or the funds are not growing as they should. The National Association of Pension Funds and the Trades Union Congress believes that an average UK person changes jobs eleven times during their career. A SIPP can consolidate all these pensions into one, allowing for easier management and better control.
Members of a SIPP can take income drawdown, meaning that an income can be taken from the fund (subject to certain limits) whilst leaving the remainder of the fund to grow in value. An annuity need not be purchased. The benefits taken each year can vary depending on your individual circumstances and give real flexibility to match your income requirements.
What is QROPS?
A Qualifying Recognized Overseas Pension Scheme (QROPS) is a HMRC-recognised pension transfer scheme that is based in a jurisdiction outside the UK but still keeps the same standards or equivalent as a UK pension.
If you are thinking of moving away from the UK but have a local pension, then those savings are easily transferrable into a QROPS, provided that the overseas scheme of your choice is registered with HMRC and fully compliant with the standards of the jurisdiction it is domiciled in. The popularity of QROPS schemes has risen considerably following the introduction of new pension rules in 2006 by HMRC.
Why should I choose a QROPS?
A QROPS provides you with more control over your pension fund investments. With a QROPS you can also combine various smaller pensions into one large pot. Additionally, you can even do away with purchasing an annuity thanks to this scheme.
QROPS will also let you bestow the rest of the fund to your beneficiaries without any deduction of UK tax upon death, as long as you have spent five years or more living outside the UK.
Is a QROPS suitable for me?
If you have left the UK and plan to retire outside of the UK, a QROPS may be suitable. Whilst there are many benefits of a QROPS, there are tax charges on the transfer value if you live in Switzerland. It’s essential to consult a professional and get the advice you need before taking steps to set up a pension transfer.
Which is the best jurisdiction for QROPS?
The QROPS jurisdiction you choose will vary depending on your individual requirements - however, deVere Switzerland highly recommends Malta and Gibraltar. Malta is an integral member of the EU, with a highly-regulated banking sector and a fully transparent tax system. Meanwhile, Gibraltar's links with the UK make it subject to EU rules and regulations.