Expats need to protect their pension savings

Expat savers approaching retirement are in danger of losing some of their hard earned gains in UK pensions as providers switch their funds without asking.

Pension providers – especially employer plans – like to activate a ‘lifestyle’ mode to minimise risk in the decade leading to retirement.

Retirement savers over 50 just go with the flow and accept the switch without looking at how their pensions may suffer.

Despite looking like the best option, the lifestyle mode can mean money is transferred in to unsuitable funds that do not reflect the saver’s appetite for risk or financial goals, especially when financial markets are subject to such short term rises and falls.

Taking the lifestyle option can mean up to 80% of a pension fund going in to equities, which could have a detrimental effect on fund value if markets fall leaving too little time to recover before retirement.

QROPS can safeguard pension funds

Then, over 50s can expect to see their money moved again from equities to bonds and/or cash regardless of the investment climate at the time, as the time to switch is set at the start of the pension.

Equity market fluctuations can have a big impact on pension pot values.

If money in the fund is switched when the index is at a low, you lose, even if the market bounces back quickly. The triggers are generally birthdays – when the investor is 55 or 60 years old.

However, expats can avoid the default fund trap by switching their UK pensions in to a qualifying recognised overseas pension (QROPS) before the trigger dates.

Although QROPS are not necessarily the best home for pension cash for some expats, they do give most investors more control of their money and how their retirement savings are invested.

Careful monitoring

With around 2,000 QROPS in 48 countries, it’s likely a scheme is out there that will suit the specific financial needs of most expats or international workers with UK pension rights who now live permanently overseas.

The temptation for many retirement savers is to start a pension and then sit back and wait for the pay out day.

“Pensions are like other investments and need careful monitoring and review over the years tom ensure they remain on track and that the schemes are not superseded by newer, better products.” explains Chris Wright of QropsInvestor.com.

For instance, expats who left the UK before April 2006 did not have the chance of switching their funds in to a QROPS because the plans did not exist prior to then.

Although UK pensions let investors allocate assets within funds, QROPS offer a much more personal touch with tax and flexible investment options across a broader range of funds, markets and commodities.