Will BREXIT have an effect on your Pension Plans?
By Susan Worthington - Topics: BREXIT, Defined benefit pension scheme, Final Salary Pension, final salary schemes, Mallorca, Pensions, QROPS, Spain, Uncategorised, United Kingdom
This article is published on: 20th October 2016
Brexit could have an effect on your Pension whether it is a Private Plan or Final Salary Scheme that is waiting to be paid. There are many various pension plans these are just two examples
Do you have a Private Frozen Pension in the UK?
Pensions are driven by HMRC ruling not EU Membership and a QROPS (Qualifying Recognised Overseas Pension Schemes) which allows you to transfer your pension overseas. This option may not be available in the future as there is talk that HMRC may pull the plug, make restrictions or even insert transfer tax.
Do you have a Final Salary Pension Scheme in the UK?
There have been a number of recent changes within the UK economy and UK pension world that make a review of any pension(s) essential for those living or planning to live outside the UK.
Final Salary pension schemes (also referred to as Defined Benefit schemes) have long been viewed as a gold plated route to a comfortable retirement, however there are likely to be large changes ahead in the pension industry. The key question is; will these schemes really be able to provide the promised benefits over the next 20+ years?
Why Review now?
Record high transfer values
- Gilt rates are at an all-time low. This has caused transfer values to be at an all-time high, some transfer values have increased by over 30% in the last 12 months.
- Recent examples show that very large deficits in pension schemes cause a number of problems, in particular no one wants to purchase these struggling companies as the pension deficits are too big a burden to take on
- Could the Government be forced to change the laws to allow schemes to reduce benefits? A reduction in the benefits will reduce the deficits and make the companies more attractive to purchasers
Pension Protection Fund (PPF)
- This fund has been set up to help the schemes that do get into financial trouble, two points are key. Firstly it is not guaranteed by the Government and secondly the remaining final salary schemes have to pay large premiums (a levy) to the PPF in order to fund the insolvent schemes. As more schemes fall into the PPF there are less remaining schemes that have to share the burden of this cost.
- It is likely the PPF will end up with the same problems as the final salary schemes, they won’t have the money to pay the “promises” for the pensioners
- In April 2015 unfunded Public Sector pension schemes have removed the ability for transfers, so schemes for nurses, firemen, army personnel, civil service workers etc. can no longer transfer their pensions. Now these are blocked, it will be easier to make changes to reduce the benefits and no one is able to respond by transferring out of the scheme
Autumn Statement (Budget)
- This is on 23 November 2016. Could the Government make any further changes to Pension rules? When Public sector pensions were blocked there was a small window of time to transfer, however most people couldn’t get their transfer values in time as the demand was so high. People who review their pensions now may at least have time to consider options
What could happen in the Future?
- An end to the ability to transfer out of such schemes
- Increase the Pension Age, perhaps in line with the increase of the State Pension
- Reduction of Inflation increases, (already started as many now increase by CPI instead of RPI)
- Reduction of Spouse’s benefit
- Increase of contributions from current members
- Lower starting income
Act now! Review your pensions
Susan Worthington of The Spectrum IFA Group has been giving investment advice here in Mallorca and Menorca since 1994.
If you wish to have a chat with Susan about any frozen or paid-up pension.
Contact: firstname.lastname@example.org or telephone 670 308987.