Pensions & Retirement

Plan for your retirement

With state benefits decreasing and being granted at much later ages, it is even more crucial than ever to plan for your retirement.

Thankfully, it is never too late to improve the quality of your retirement plan. Planning for retirement means making the most of your pension options to make sure you can retire when you want. Many people who are about to retire regret not having planned better. This rings particularly true for those looking to retire overseas.

Planning is important, regardless of whether you plan to retire in your home country or as an expat. Our services have helped many of our existing clients to combine and consolidate their pensions, to really get the most out of them.

To plan for your retirement as an expat it’s important to understand what type of pension will fund your future.

Types of Pensions

The most common types of pension plans that people use to save towards their retirement are:

Defined Contribution Pension
Defined Benefit Pension

What is a Defined Contribution Pension?

This pension is often known as a personal pension, group personal pension, money purchase pension or stakeholder pension. A Defined Contribution Pension, to use its most formal terminology, operates as follows: an individual puts aside a sum of money that gets invested every month by a trustee or life insurance company. The amount grows yearly until the individual has reached their retirement age (55 as a minimum in the UK). The pot of money always has a value as the benefit is derived from the investment returns and accumulated savings. At retirement age, there are several different ways in which you can claim pension benefits by way of lump sum and or regular income.

Key features of a Defined Contribution Scheme

Most often the contributions are paid by the individual
Determined by the level of input and investment growth, there are no guarantees of benefits
Usually, you can take a lump sum from the pension with the remaining element provided as an income
Greater investment control for the individual
Greater flexibility of contribution and retirement age
Access from age 55 without penalty
Ability to pass the full benefit to spouse and children upon death

What is a Defined Benefit scheme?

Often referred to as an occupational pension or final salary scheme, these vehicles are a bit more complicated than defined contribution plans. With a defined benefit pension, your employer will accumulate a pension benefit value for you depending on the level of your salary and the number of years you are a member of the scheme. When you reach the set retirement age, most often at the age of 65, the trustees of the programme will mathematically produce a defined benefit that you will receive. These benefits are guaranteed and will pay out through retirement for the remainder of the beneficiaries’ lives. Often the benefits will continue, at a lower rate, for the remainder of the spouses life also.

Key features of a Defined Benefit Scheme

Set retirement age from the outset
Guaranteed benefits at retirement
Death in service benefits during participation
Premiums contributed or paid wholly by the employer
Widow’s benefit upon the death of scheme member

Both pension schemes are important tools in planning for your retirement. There are various advantages to each type of pension scheme. Discovering which is best for your needs is vital.

Pension Transfers

As an expat retiree you will require access to your funds wherever you are in the world, so transferring your pension is a key stage in living out your retirement dreams. To get the most out of your pension while abroad there are two key schemes to investigate: QROPS and SIPPs.

If you decide to retire internationally it’s essential that your pension is portable, so that you can access your funds offshore and enjoy your new lifestyle.

What is a QROPs?

A QROPS (Qualifying Recognised Overseas Pension Scheme) allows you to transfer and consolidate your UK pension(s). This transfer often includes frozen pensions. Frozen pensions, also known as preserved pensions, are pensions you have accumulated from previous employments of which you no longer contribute to. Therefore, the pensions you have amassed over your lifetime, can be consolidated in one place to be accessed overseas.

QROPs tend to work more favourably with pensions over £1,000,000. There are various criteria for using a QROPs so ensure you speak to your financial advisor for personal advice.

What is a SIPP?

A SIPP (Self-Invested Personal Pension) is a pension scheme that allows the policyholder great control over their pension. A SIPP offers a variety of investment options and has no limit to the amount that can be withdrawn (subject to tax) once reaching retirement age. SIPPs are available in the UK. However, as an expat you can benefit from an International SIPP which will allow for the same benefits of a UK SIPP as well as further investment options.

Again, be sure to speak to your advisor for tailored retirement planning and pension transfer advice.

Pensions and Retirement Planning FAQs

How are Pension Transfers calculated?

A pension transfer amount is know as a CETV (Cash Equivalent Transfer Value).

In the case of a defined benefits pension, the CETV is calculated by working out the lump sum that will be required to provide an equivalent pension to the scheme pension at your retirement age. This lump-sum is then reduced or discounted depending upon your age and how far away from retirement you are.

As for a defined contribution scheme, the transfer value is the value of the assets within the scheme less any charges and costs for transfer.

How are Pension Transfers affected by exchange rates?

Most pension transfers would not be affected at the time of transfer by exchange rates as the receiving scheme would most likely be denominated in sterling. You should then seek to discuss with your financial adviser a plan of how and when you will need to utilise your pension savings. This way the relevant exchange into the currency you wish to spend in retirement can take place.

What issues could I face when retiring overseas?

The number one issue expats face when retiring offshore is having full access to their hard-earned money. Since many people have built up pensions within multiple companies throughout their career, it can become difficult to keep on top of and/or access these different pots. Managing these funds under different countries’ regulations and employer systems can make things uneasy and unreliable for expats.

The solution – A Retirement Planning Review.

Am I too late to start a pension?

It’s never too early or too late to begin planning for your retirement. With that said, the later you start the harder your pension must work for you. So, getting expert advice is highly recommended.

Galileo Wealth and your Pension and Retirement Planning

Galileo Wealth offers a free, no-obligation, pension analysis service, with over 25 years of experience in both onshore and offshore retirement solutions.

We will be able to tell you, with your help, precisely what your pensions are worth (including state schemes) and how much you will likely have to sustain your retirement years.

From here we can provide you with a saving roadmap, recommend a drawdown schedule and make your pension work hard for you.

Get in touch now and speak with one of our qualified financial advisers.