Transferring UK Pensions
Pension benefits in the UK are provided in one of two ways, Defined Benefit (DB) or Defined Contribution (DC). A DB scheme will provide a transfer value which broadly is the current capital cost of the future pension entitlement. This will be calculated using factors set down by the actuary to the scheme and will also be affected by the general level of interest rates. Transfer values are normally only guaranteed for a period of 3 months from the date the transfer value is calculated.
Death and Inheritance Tax in the UK
Death- If the client dies under a defined benefit scheme, there will generally be a spouse’s pension payable of 50% of the deceased benefit (can be as high as two thirds depending on the rules of the scheme). Under a DC scheme, the benefit will depend on the type of annuity secured. For example, this could be no spouse’s pension or 50% of the annuity. Under both schemes there is generally a guaranteed period of a maximum of ten years where, in the event of both parties dying, a lump sum payment will be made to the estate.
Inheritance tax- If the client leaves the pension in the UK this could be considered retaining ties to the UK. On death, inheritance tax of 40% will be levied on their worldwide assets (less the exempt amount of £285,000). This may also affect future generation’s inheritances. This will be affected if the client has written the pension subject to what we know as a testamentary trust.
Approved Superannuation Schemes
Transfers to unapproved schemes or those who lose approved status, could mean a 55% reduction in pension transfer value from charges and taxes. Approved status can be lost if a provider fails to provide the correct reports to the UK authorities or breach the terms of the agreement. This could include, releasing funds prior to retirement without proper justification. Clients will be required to certify to certain information to ensure that our reporting to the UK authorities is accurate.
Should you be, or know anyone that is or has arrived from the United Kingdom, they should be speaking to us.
