Brexit: Should you consider moving your pension abroad?

Chris Torney / 09 January 2017 ( 04 July 2018 )

Brexit has caused many people with final-salary pensions to look into moving their money into foreign schemes – but is it safe?

The prospect of the UK government starting the official process of leaving the European Union has led many pension holders to consider transferring their funds overseas.

Theresa May triggered Article 50 on 29 March 2017 and from this point, Britain has two years to negotiate its exit from the EU.

Investing in the wake of Brexit

But according to investment firms, the prospect of Brexit has caused many people with final-salary pensions to look into moving their money into foreign schemes. According to advisor the deVere Group, which has recently recorded a sharp rise in enquiries about overseas transfers, there are a number of reasons why this is happening:

• Yields on government bonds – known as gilts – have fallen over the past few months, which means that the amount of money people will get for transferring out of final-salary pensions has increased. Many people want to “strike while the iron is hot”, before transfer values fall back again.

• Deficits on final-salary pensions – the difference between the amount of money held by companies within the schemes and the amount they will have to pay out to pensioners in future – have widened. This has increased fears that schemes are more likely to be closed or downgraded.

• Uncertainty over the Brexit process means that there are general concerns over a future economic downturn, which could also put pressure on final-salary schemes or reduce further the value of sterling.

Moving your pension abroad

Members of final-salary pensions are allowed to effectively cash in their pensions, which means taking a lump sum while giving up any right to future guaranteed pension payments. When moving overseas, however, a fund must be transferred into a pension scheme that is recognised by UK tax authorities: such schemes are known as Qualifying Recognised Overseas Pension Schemes (QROPS).

Your holiday home dream post Brexit

This course of action has often been used by people who have UK pensions but who either currently live abroad or plan to do so in the future. One advantage is that the pension is held in the currency that the individual will be using in future.

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Potential pitfalls of moving your pension abroad

However, transferring out of a final-salary pension – whether into an overseas scheme or to keep the money in another UK pension – should not be done lightly.

While transfer values have increased recently, leaving means losing a guaranteed level of pension in the future. Outside of a final-salary scheme, the amount of income in retirement will depend on how much money you have and how your investments perform, as well as on factors such as annuity rates and how long you live for.

If you are considering a transfer, seek expert financial advice and be particularly wary of cold-callers who get in touch with you and suggest you leave your final-salary scheme.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.