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Is Brexit good news for expat final salary pensions
| Published: | 29 Dec at 6 PM |
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In the UK, workers approaching retirement are facing scare stories about Brexit’s effect on final salary pension, but expat retirees may find opportunities as a result of the referendum.
Nowadays, a final salary company pension seems essential for a comfortable retirement given the pittance offered by the UK state pension. Increasing numbers of older Brits both with and without occupational pensions are looking to retire to cheaper, warmer countries overseas.
When final salary pensions were first introduced, they earned the nickname ‘golden pensions’, promising retiring employees a generous, guaranteed fixed amount dependent on time served and salary for the entire length of their retirement. Unfortunately, the cost to employers of meeting those promises has soared due to shrinking underlying assets such as UK bonds.
A combination of increasing life expectancy and historically low interest rates has resulted in companies facing significant shortfalls in their ability to fund promised payments. The result may be that larger companies facing deficits of hundreds of millions may actually fail, taking their pension schemes with them.
At the present time, companies under threat are offering final salary pension members buy-out deals calculated as multiples of the promised payments. Some offers known to have been made pre-brexit were as high as 20 times the promised amount but, since the referendum, have now doubled to 40 times. For example, on a final salary of £30,000 a year, an earlier offer might have been £600,000, but would by how have doubled to £1.2 million.
More modest sums might also produce a cash windfall better used for alternative forms of investment. Since its inception, QROPS has been popular both for its tax benefits and for retirees planning to live overseas for the rest of their post-Brexit lives. QROPS have other advantages for those living overseas, but care needs to be taken as regards avoiding scams and advice must be given by a qualified, experienced financial advisor in order to avoid unwelcome communications from the taxman.
Source: Expat Network
Nowadays, a final salary company pension seems essential for a comfortable retirement given the pittance offered by the UK state pension. Increasing numbers of older Brits both with and without occupational pensions are looking to retire to cheaper, warmer countries overseas.
When final salary pensions were first introduced, they earned the nickname ‘golden pensions’, promising retiring employees a generous, guaranteed fixed amount dependent on time served and salary for the entire length of their retirement. Unfortunately, the cost to employers of meeting those promises has soared due to shrinking underlying assets such as UK bonds.
A combination of increasing life expectancy and historically low interest rates has resulted in companies facing significant shortfalls in their ability to fund promised payments. The result may be that larger companies facing deficits of hundreds of millions may actually fail, taking their pension schemes with them.
At the present time, companies under threat are offering final salary pension members buy-out deals calculated as multiples of the promised payments. Some offers known to have been made pre-brexit were as high as 20 times the promised amount but, since the referendum, have now doubled to 40 times. For example, on a final salary of £30,000 a year, an earlier offer might have been £600,000, but would by how have doubled to £1.2 million.
More modest sums might also produce a cash windfall better used for alternative forms of investment. Since its inception, QROPS has been popular both for its tax benefits and for retirees planning to live overseas for the rest of their post-Brexit lives. QROPS have other advantages for those living overseas, but care needs to be taken as regards avoiding scams and advice must be given by a qualified, experienced financial advisor in order to avoid unwelcome communications from the taxman.
Source: Expat Network
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