With pension transfer values at record highs from UK final salary schemes, we have seen a huge increase in the amount of enquiries from expatriates living in Spain who are interested in transferring out of what were once branded ´gold plated´ pensions.
However, care has to be taken in this area as a transfer can not always be recommended. In fact the process can now only be carried out overseas by a limited amount of firms due to the restrictions the UK Financial Conduct Authority has put in place. Thankfully we have a robust process for giving advice in this area with all the correct infrastructure to carry out a transfer, if recommended.
But it´s not only the high transfer values that are dictating sentiment. After all, a guarantee of benefits is only of value if that promise can be upheld - and around 75% of the 600 final salary (or defined benefit) schemes in the UK are in deficit. The Pension Protection Fund (PPF) set up by the UK government is supposed to guarantee the members of any scheme in difficulty up to 90%, capped at £30,000 per annum. The issue here though is that the PPF is not funded by the UK government but by the schemes themselves. Furthermore the PPF has a mandate to lower that guarantee should it become unsustainable and there are many schemes who are relying on the PPF now.
Having said that, the main driver is high transfer values. These values are directly affected by the interest paid on government issued bonds (the yield on gilt-edged securities). The lower these yields, the higher the transfer values tend to be - and in our modern world of low interest rates, bond yields have really suffered. At Finance-Spain.com we have a tried and trusted regulated transfer process in place, fully compliant with FCA rules. Importantly, we do not always recommend a transfer away from a DB scheme - it is very dependent on each client's individual circumstances and the particular scheme they are a member of. As always please be aware of pension 'scammers' and make sure you only deal with a regulated, qualified adviser.
Pension benefits if member remains in the scheme
Guaranteed Minimum Pension (GMP) built up after 5 April 1988 - £459.68 a year. Plus scheme pension (over the GMP) built up before 6 April 1997 - £3,331.98 a year. Plus scheme pension built up after 5 April 1997 a year - £6,861.11 a year. Resulting in a total pension from retirement date of £10,652.77 a year The total Scheme pension is increased by a fixed 5% a year. Spouses pension on death of member 50%.
Guaranteed transfer value if member leaves the scheme
Scheme pension built up before 6 April 1997.
Transfer value of GMP £21,554.
Non contracted-out benefits £168,091.
Scheme pension built up after 5 April 1997.
Plus non contracted-out benefits £332,262.
Overall guaranteed transfer value = £521,897.
Patrick Macdonald ASCI
International Financial Adviser