Navigating the Pensions Minefield!
During our life journey, many of us contribute to a pension of some kind, whether it be a company scheme, a private scheme or the new NEST pensions now mandatory for UK employers to offer as a minimum. Gone are the days where we might work for the same company for 20 years or more and build up one pension. Now, as we move from job to job, the type of pension we have is also likely to change, and by default this can leave many people with a number of different pension ‘pots’ by the time they reach an age where their thoughts move from building a career and enjoying life, to thinking ahead towards retirement.
The UK State Pension also plays a part, and for those who have contributed to the Spanish social security system the Spanish State Pension will also be a consideration and possibly one of those ‘pots’ that we’re expecting to draw when we hit retirement.
But how do we know if we have built up enough to achieve our plans for retirement? The important thing to remember is that everyone is individual and has their own story, so naturally the solution needs to be tailored to each individuals needs too!
As a Chartered Insurance Institute Qualified Pension Specialist, whenever I’m approached to provide advice in respect of pensions, my starting point is to gather information from each provider in order that we can analyse what you have in place. This needs to be thorough and includes obtaining a UK State Pension forecast, as this can help reduce the income you require from other pensions once it kicks in, albeit at the later age of 67, or 68 for those who have not yet reached middle age!
In addition to looking at any State Pension entitlement, the benefits and the drawbacks of each pension you have should be considered in order to decide on the best course of action for you. This may mean leaving the pensions as they are, or bringing them all together into one place in order to make the care and administration and importantly your retirement planning easier. Often, when approaching different providers we find little anomalies that can have a massive impact on your situation and our advice.
For instance, a company pension (typically known as a defined benefit scheme) typically only offers a reduced pension to a spouse or children under age 21 in full time education, usually half the pension you were receiving, or 1/3rd for each child. So if you’re divorced, not married, and your children are grown up the pension dies with you and ceases. If you want to make sure that your partner is ok financially in the event of your death irrespective of whether you are married or not, or that your grown-up children can benefit from your pension this needs to be taken into consideration as although a company scheme offers valuable guarantees which should not be given up lightly, there are instances where the guarantees don’t fit in with individual circumstances and preferences, and there are alternatives that allow you to leave a ‘pot’ to those you love on death irrespective of whether you are related and offer you the opportunity to take a larger income when you need it most, reducing it when your State pension kicks in. Whilst a guaranteed income for life is perfect for many, the biggest issue I find people have with a company pension is the lack of flexibility as the income cannot be adjusted as you continue on your life journey.
There are many reasons to be cheerful if you’re an expat enjoying the climate and lifestyle of living abroad. If you’re one of many expats who have taken the plunge and now have Spanish residency, or are in the process of making that permanent move to Spain, when reviewing your pensions you might want to consider QROPS. This stands for Qualifying Recognised Overseas Pension Scheme. Sometimes also referred to as ROPS (Recognised Overseas Pension Scheme).
There are a number of reasons why QROPS might be a suitable option for many people intending moving abroad, or already living abroad. Here’s a few:
Potentially reduced income tax on income from your QROPS pension – in Spain typically 3% marginal income tax is your only tax liability. Whereas a private or company UK pension will always be taxed under PAYE irrespective of where you live!
No ‘cliff edge’ at age 75 (beneficiaries receiving the proceeds from your UK pension are always taxed under PAYE on pension funds they receive from you if you die after reaching age 75) … a QROPS is always paid gross to beneficiaries on death irrespective of your age.
Any UK pension savings above the Lifetime Allowance (£1,073,100 from 6 April 2021) will be liable for a tax on the excess called the Lifetime Allowance Charge. So if you are likely to exceed this level in pension savings you will be charged 25% on any excess taken as income and 55% on any excess taken as a lump sum. By comparison, when you move to a QROPS one last lifetime allowance test is completed. If you’re below that level happy days, if you’re above, the excess is taxed but only at 25% as it’s deemed that you will take the pension as an income not a lump sum once transferred. So, if you’re nearing the lifetime allowance or already above it, don’t let the monster get even bigger … a move to a QROPS will cap any potential tax liability and once moved, irrespective of the future value, there is no Lifetime Allowance Charge!
To summarise, obtaining the right advice in respect of planning your retirement is crucial. Check the level of qualification the adviser has (level 3 being the minimum and level 7 being the highest). I’m level 7, and also make sure that they are fully regulated to provide the advice.
At Speed Financial Solutions, our focus is to ensure that our clients are able to enjoy life knowing that they are set up in the most tax efficient way for their particular circumstances. If you are wondering about any of your pensions and would like a qualified pension specialist to review them, or would like to review your whole financial structure and consider alternatives to make sure that you are set up in the most tax efficient way please contact firstname.lastname@example.org
Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your pension planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, Taxation and Trusts, and a qualified Pension Specialist. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII (Level 7) and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels. Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
This communication is for information purposes only based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
28 January 2022