I think you will spend 405 seconds reading this post
by Andrew & Rachel Ketley
Disclaimer: This information is based on our experience and research and does not constitute financial advice!
Originally published on https://britishingermany.org
- Defined Benefit (DB)
Your employer guarantees a percentage of final or career-average salary on retirement, with the exact percentage dependent on years of service. DB schemes typically reward long service with one employer, and may provide other benefits such as inflation-protection on pension payments. DB schemes can usually only be moved by conversion to DC.
- Defined Contribution (DC): You pay your contributions each month. What you get on retirement depends on investment returns over the life of the scheme and annuity rates available on retirement. Modern ‘stakeholder’ DC schemes are designed to be easy to move and can be consolidated; older ones may impose exit charges.
- The scheme holder and scheme are both in the EEA;
- The scheme holder and scheme are both in the country;
- You work abroad and the scheme is your employer’s occupational scheme.
- HMRC maintains a list of registered schemes. This list has only a semi-official status: A scheme on the list has provided information to HMRC that it conforms to requirements and has obtained a reference number, but HMRC makes no guarantee that any given scheme is a valid QROPS.
- The originating scheme’s transfer paperwork must be completed. The scheme will have separate forms for QROPS transfers than for UK transfers. Not all staff necessarily understand this, so it is important to be very explicit when requesting the paperwork. This must be completed partly by the pension-holder, and partly by the recipient scheme.
- The recipient scheme will have an application form which needs to be completed.
- The originating scheme will almost certainly want to see the recipient’s QROPS registration number, and may ask for further information, such as the recipient scheme’s governing rules.
- A completed form APSS263 must be submitted to the originating scheme.
- The two scheme administrators must then complete the transfer.
Why Should You Transfer?
- Eliminate currency risk during the investment phase – there is a significant risk that sterling will continue to decline in the longer term.
- Eliminate currency risk during the pension phase – if you transfer you scheme to a euro-area country, you will take your eventual pension in euros, not sterling.
- Eliminate political risk – the UK government is not above taking a goose-plucking approach to taxation (‘the most feathers for the least hissing’), and pension schemes of overseas citizens, especially ones who cannot vote, may be a tempting target. Once the UK is outside the common market, EU financial market regulation no longer applies to UK schemes.
- After Brexit, the 25% exit charge may apply to transfers to EEA and EU countries.
- The historically low interest rates can lead to unusually high valuations for DB schemes.
- The UK is a very competitive financial market place. Germany is not. Pension scheme administration expenses are much higher in Germany, which can significantly reduce investment returns, lowering eventual pension payments.
- If you move to another country (particularly a non-EEA country) after transferring, this could invalidate the transfer and trigger a tax charge. Theoretically, the EU and EEA constitute a single jurisdiction for the purpose of this rule, but how the rules will be interpreted after Brexit is unknowable.
- Losing a DB guarantee may be too high a cost, especially if DB pension payments are inflation-protected.