As a deferred member of a UK pension fund, what are your options?

The press is full of reports surrounding the transfer of Defined Benefit/Final Salary Schemes to Defined Contribution/Personal Pensions, and the current generosity of the transfer values on offer from Occupational Schemes together with the standards surrounding what the Financial Conduct Authority (FCA) considers to be suitable regulated advice.

What has, I believe, been massively overlooked is Trustee responsibility to deferred members who are no longer UK resident.

The UK has a tradition of employing migrant workers not just from the EU but globally. A large number of them return home after a period in the UK, either to retire or carry on with careers elsewhere with no intent to return - as residents - to the UK. With the onset of Brexit, there may be an even larger number returning to the EU.

So, as deferred members of UK pension funds, what are your options?

Most will leave their deferred benefits in the UK until reaching retirement age, with the fund denominated in GBP. Most Occupational Schemes do not offer the facility for deferred members to select the currency of their underlying investment portfolio.

Some will transfer out to a QROPS (Qualified Recognised Overseas Pension Scheme), although with the new Overseas Transfer Charge (OTC) this is more complicated and certainly not available to all.

  • Americans cannot transfer to a US 401K or IRA.
  • Canadians cannot transfer to RPSs, nor Indians to Indian pension schemes.
  • Even within the EU, a number of jurisdictions are no longer on the published QROPS list.
  • Some might transfer to a UK SIPP (Self Invested Personal Pension) or other personal pension arrangement, the majority of which are also denominated in GBP.

A cursory look at the currency markets over the last year or two, will show you how GBP has fared against other major international currencies.

Please click here to view table

UK Occupational Scheme Trustees should be looking to act in the best interest of their members, and as such, the question being asked is, should they be actively informing deferred members, who are no longer UK resident, of the options to transfer out:The enlightened currency traders amongst you will no doubt go back beyond two years and look at periods where Sterling was strong and the benefit was the other way. What we see however, is that over the last two years, deferred members of UK pension schemes, with current and future financial liabilities not in GPB but in other currencies, have seen the purchasing power of their UK pension funds drop by on average 20% through currency depreciation alone.

  • either to a UK personal arrangement with a specialist provider, who can invest and manage the pension assets in line with the member’s domestic currency exposure, or
  • to an Overseas Pension Scheme (OPS) that that is ‘recognised’ by HMRC thereby avoiding an “un-authorised payment charge” and the new Overseas Transfer Charge (OTC).

The alternative, surely is for Trustees to manage the currency exposure for individual members within Occupational Schemes, something that it would appear is not happening, and may prove overly onerous.