Beleaguered companies are offering huge financial incentives to buy retirement savers out of their final salary pensions.
Expats in Australia can take the chance of doing a deal and cashing in their pensions – and here are the risks and advantages explained.
What’s the offer?
Some FTSE350 employers are dangling huge wads of cash in front of workers to tempt them to leave their gold-plated final salary schemes because they are too expensive to maintain.
Collectively, FTSE firms have a £900 billion pension black hole that is unlikely to ever be plugged.
To reduce the liabilities, firms are reportedly willing to negotiate massive pay offs of 20 or 30 times earnings.
What happens to the money?
If you are under 55 years old and live in Australia, you cannot take the cash – it has to go into another pension and one of the favourite options is a Qualifying Recognised Overseas Pension Scheme (QROPS).
If you are over 55 and have not drawn on a pension, the money can still go to a QROPS.
What is a QROPS?
QROPS are pension ‘wrappers’ similar to a UK SiPP that are tax efficient and offer the chance to grow your money without a lifetime allowance limit with flexible investments in markets, assets and currencies that are unavailable to UK retirement savers.
Are QROPS risky?
No more than any other pension. QROPS are policed by HM Revenue and Customs (HMRC) and follow rules laid down in British legislation.
How do you find a QROPS?
More than 1,200 QROPS offshore pensions are available in 42 financial centres. Australia has the most QROPS and the pensions are popular with British expats.
Why should I move to a QROPS?
Moving to a QROPS means taking control of your pension.
If the company holding your pension goes bust, you will lose income in your retirement as the scheme goes into the UK government’s Pension Protection Fund.
You will also face tax penalties if your fund grows to more than £1 million.
By transferring to the right QROPS, you could gain the same pension freedoms that are available to direct contribution schemes in the UK – such as drawing down part or all of the fund to spend as you wish if you are over 55 years old.
You will also benefit from up to a 30% tax-free lump sum and the chance to draw pension benefits in Australian dollars to avoid currency exchange hassles.