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Final salary pension transfer boost good news for expat retirees
| Published: | 26 Jan at 6 PM |
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Tagged: Money, Pension Transfer
Would-be expats transferring from a final salary scheme are getting some 40 per cent more than in 2015 due to falls in gilt yields and interest rates.
Would-be expats transferring from a final salary scheme are getting some 40 per cent more than in 2015 due to falls in gilt yields and interest rates.
Final salary pensions, also known as defined benefit pensions, have historically been regarded as generous, with financial advisors mostly telling clients they’re better served by staying in.
Based on employers’ payments of retirement incomes taking into account a multiple of years served and a percentage of workers’ final salaries, these benefits have proved popular over the years.
Defined contribution pensions are another story entirely, as retiring employees simply receive a sum of money representing the amount paid in and defined by stock market returns.
Employees in such schemes are allowed to transfer out and are provided with a transfer value based on a calculation of the cost of purchasing the same income on the open market via an annuity.
A person with a defined contribution pension of £5,000 a year would need around £100,000 to invest in order to buy the same amount as an annual income through an annuity, a somewhat unattractive scenario given that annuity rates link to guilt yields and interest rates, both of which are close to all-time lows.
In these days of instability due to Brexit and the Trump presidency, those with defined contribution schemes are the losers and those on final salary DB pensions are far ahead on points due to the manner in which the schemes are constructed. Leaving aside recent warnings that many employer-based pension schemes may pay out less than promised or even be cancelled, the added bonus of increased value on final salary payouts is a welcome surprise.
One pension advisor calculated that, in one case, a client expecting £380,000 had seen the value of his DB pension soar to £520,000 within a 15-month period.
Whether this was fake news or not, it still seems that transferring out of final salary schemes right now isn’t the sensible option as sterling is expected to take another fall once Article 50 is activated.
Source – expatpensions.com
Would-be expats transferring from a final salary scheme are getting some 40 per cent more than in 2015 due to falls in gilt yields and interest rates.
Final salary pensions, also known as defined benefit pensions, have historically been regarded as generous, with financial advisors mostly telling clients they’re better served by staying in.
Based on employers’ payments of retirement incomes taking into account a multiple of years served and a percentage of workers’ final salaries, these benefits have proved popular over the years.
Defined contribution pensions are another story entirely, as retiring employees simply receive a sum of money representing the amount paid in and defined by stock market returns.
Employees in such schemes are allowed to transfer out and are provided with a transfer value based on a calculation of the cost of purchasing the same income on the open market via an annuity.
A person with a defined contribution pension of £5,000 a year would need around £100,000 to invest in order to buy the same amount as an annual income through an annuity, a somewhat unattractive scenario given that annuity rates link to guilt yields and interest rates, both of which are close to all-time lows.
In these days of instability due to Brexit and the Trump presidency, those with defined contribution schemes are the losers and those on final salary DB pensions are far ahead on points due to the manner in which the schemes are constructed. Leaving aside recent warnings that many employer-based pension schemes may pay out less than promised or even be cancelled, the added bonus of increased value on final salary payouts is a welcome surprise.
One pension advisor calculated that, in one case, a client expecting £380,000 had seen the value of his DB pension soar to £520,000 within a 15-month period.
Whether this was fake news or not, it still seems that transferring out of final salary schemes right now isn’t the sensible option as sterling is expected to take another fall once Article 50 is activated.
Source – expatpensions.com
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