Annuities are unfair. They give us a poor income. We should have a choice of what we do with our retirement savings. Well, good news. Since 2019, we have a choice. Thanks to the new United Kingdom pension rules.
We now have much greater freedom over what we can do with our pension pot. In a nutshell, you can withdraw as much of your retirement savings as you like, whenever you want. And what you do with your pension is completely up to you.
You can spend it. Re-invest it to provide an income. Or leave it where it is. Invested in your pension fund. You can buy an annuity still if you want. Or transfer your pension fund to a Qualifying Recognised Overseas Pension Scheme (QROPS). However, with choice comes responsibility. Responsibility for one of the biggest financial decisions you will make.
With the new flexibility, it’s important to remember that your pension fund is for your retirement years. It’s there to provide you with an income for the rest of your life. So whatever you decide to do with your retirement savings you need to consider your options carefully. For expatriates this is especially true. Let us explain.
If you are non-United Kingdom resident and have a United Kingdom pension you need to understand the tax rules in your country of residence. And how they apply to withdrawals you make from your United Kingdom pension. Or income you receive from it.
You may wish to speak to a professional financial adviser who has experience of advising non-United Kingdom residents on pensions. They will be able to help you research the options available to you. And identify the most suitable option for you and your circumstances. The adviser should be authorised and regulated to provide pension advice in the EU.
So, what are the new United Kingdom pension rules? And do they apply to you? A short summary…
Who do the new rules apply to?
The United Kingdom pension changes apply to retirees aged 55 and over with a defined contribution scheme pension. These schemes include individual, group and stakeholder pensions; Self-Invested Personal Pensions (SIPPs); and Small Self-Administered schemes (SSASs).
The changes do not apply to defined benefit schemes (final salary schemes); public sector and state pensions; and annuities.
What options do I have now?
Under the new rules you can:
- Make multiple withdrawals of any amount from your retirement savings, whenever you like
- Withdraw your whole pension fund as cash
- Buy an annuity and receive a secure, regular income
- Use income drawdown to receive a regular income from your pension fund
Any money you do not take from your pension fund remains invested.
What about tax?
In the UK, retirees receive 25% of their pension pot tax-free. After this, withdrawals and income are taxed at your marginal rates of income tax. Up to age 75. If you are aged 75 or over, each withdrawal you make will be taxed at your highest marginal rate. On the full amount of the withdrawal. The hated 55% 'death tax' has been abolished – as long as your funds remain invested in a pension.
If you are a non-United Kingdom resident, you should find out what the tax rules are for where you live. Before you access your United Kingdom pension funds. You may wish to get advice from a professional financial adviser.
What about QROPS?
There are still advantages to Qualifying Recognised Overseas Pension Schemes (QROPS). For example, you can withdraw a cash sum of up to 30% tax free. Compare this to 25% for a United Kingdom pension. And there is no United Kingdom income tax on death with a QROPS.
However, many QROPS do not allow the flexibility for withdrawals that the new United Kingdom pension rules permit. And for certain QROPS, a specific percentage of the transfer value of your pension must provide you with an income.
As always, the suitability of a QROPS depends on your personal circumstances and future plans.
What if I have a defined benefits pension (final salary scheme)?
You can transfer your pension funds to a defined contribution scheme to take advantage of the new United Kingdom rules. However, you could lose valuable benefits. A transfer of this nature is not to be taken lightly. It is recommended that you get advice from a United Kingdom regulated pension transfer specialist first.
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Our advisers believe in establishing long-term relationships with clients built on mutual trust. We explain your options to you carefully and make sure that you are comfortable with any decisions you make.