OpesFidelio Featured in the Sunday Independent answering questions regarding UK transfers.
Link to full article in the Sunday Independent
Brexit and pension
I am a 54-year-old woman, who has 20 years of various pensions from working in the UK. I have been living and working in Ireland for 14 years.
The transfer value of my UK private pensions totals approximately stg£250,000. I have been discussing this with a number of financial advisors - and am now close to transferring my pensions to Ireland. Part of my pension portfolio comes from an eight-year service with a bank I have worked with previously. This part of my pension will die when I die.
I have to take advice from an adviser regulated by the FCA, and my financial advisor here in Ireland says the [UK] adviser it is using wants to charge £2,000. My Irish adviser says I must pay this charge.
Is it normal for a UK advisor to charge an Irish advisor this amount for what is more a legislation issue rather than investment advice? I always thought that charges would be borne by the advisors as they make their commission on managing the pension?
There are a number of costs which will arise as a result of the transfer of your pensions from the UK to Ireland. The first relates to the advice being given pertaining to the transfer of assets from the UK to Ireland - which your Irish advisor is giving and outlining the merits and reasons for transferring. The second arises from the requirement by the British tax authority, the HM Revenue and Customers (HMRC) for transfers from the UK to other jurisdictions to be signed off by an independent financial adviser (IFA) in the UK. This will require the UK IFA to do a full fact find and review of your circumstances and ensure that the transfer is in your best interest, rather than just a ‘tick box exercise’. Finally, there is the cost associated with the reinvestment and management of the funds in Ireland.
One cannot underestimate the importance of advice on a pension transfer such as yours – despite the associated costs. In many cases, IFA firms regulated by the British financial services regulator, the Financial Conduct Authority (FCA), have implemented triage procedures following recent rules from the FCA about transfers from defined benefit (DB) schemes to defined contribution (DC) schemes. (I assume that the pension you built up after eight years service with a UK bank is a DB scheme.) As a result, many firms will not permit the transfer of funds from DB schemes in the UK unless the individuals are over 55 and funds are greater than stg£150,000.
You are correct that some Irish financial advisors are paid a commission by insurance companies. They may also charge a fee which is borne by the client – which in your case is the stg£2,000 charge imposed by the UK financial advisor. You should check the level of commission that your Irish financial advisor is taking from the transfer of your pensions - and decide if that commission is justified for both the advice and investment recommendation given and indeed ongoing financial planning. If you don't believe this commission is justified, shop around and see if you can find a good independent Irish financial advisor who charges a fairer commission. It may also be worth exploring if you can find a financial advisor in the UK who will charge less than £2,000 for their part of the advice.
Pension transfer from UK to Ireland
I had a company pension in the UK 25 years ago and when I left, I transferred it to Friends Provident – which has now been taken over by Aviva.
I am due to retire and withdraw the whole sum of my pension of stg£50,000 this August at the age of 55.
I was wondering if I could transfer my lump sum to AVIVA Ireland and withdraw it from here at the age of 55.
The reason I'm considering this is that I understand that I could withdraw the whole amount tax-free in Ireland as the amount is lower than €200,000. Or would I be subject to any tax on the UK side?
I have taken the liberty of making a few assumptions based on the limited information that you have provided.
I am assuming that these funds are accrued from a defined contribution (DC) scheme or personal pension - given that you have transferred the funds out of the scheme to a life office within the UK.
Yes, you do have the option to transfer your pension from the UK to Ireland. The scheme you transfer your pension to must be an Irish-based Qualified Recognised Overseas Pension Scheme (QROPS) which is registered with the British tax authority, the HM Revenue and Customers (HMRC). To ensure that you are not faced with a punitive tax charge on any pension transfer or drawdown, the scheme must meet the rules imposed by the HMRC. It would appear to me (based on the information provided above) that you would meet the required criteria – as you left the UK 25 years ago. I am also assuming you have not been a UK tax resident since you left 25 years ago. You will be eligible to access a maximum of 25pc of the value of the funds as a tax-free lump sum at the age of 55. That 25pc maximum is the same for both Ireland and the UK.
The €200,000 you make reference to is the maximum allowable as a tax-free lump sum in Ireland – however, the value of your pension fund would have to be €800,000 to be able to take a tax-free lump sum of €200,000 (as 25pc of €800,000 is €200,000). It should also be noted that any pension transfers into Ireland do not form part of an individual’s Standard Fund Threshold (SFT - the maximum pension an individual is allowed at retirement for tax purposes). Therefore, if you have additional accrued pension funds in Ireland, this pension transfer from the UK would not impact the SFT of any Irish pensions you hold.
In your case, you state you have a fund value of stg£50,000. You will be eligible to 25pc of this – stg£13,750 - tax free from the age of 55. In accordance with the Tax Consolidation Act of 1997, you will not be liable to income tax in Ireland on this stg£13,750. The balance (stg£36,250) would need to be invested in line with the Revenue Commissioners rules and can be used to provide you with an income in retirement. How you invest and access the balance will depend on other guaranteed income or pension sources that you may have. Any income derived from the balance of funds will be treated as earned income, and taxed accordingly at your marginal rate of income tax.
It would appear that you will not be at a disadvantage by transferring from the UK to Ireland. Indeed, it could well be beneficial, particularly if it is your intention to retire and remain in Ireland as it may be more beneficial to have future pension payments paid in euro rather than sterling. Another factor that may influence transferring is if the beneficiaries of your will - or your dependents - are not resident in the UK. Should this be the case, it may prove complicated to deal with such a transfer in the future - and so may make more sense to transfer to Ireland now.
Either way it is important to seek financial advice prior to completing a UK pension transfer as this is a complex area.