Thursday 27 October 2016

What should I do with my UK pension - now that I've no plans to return there?

Michael Bradley

Published 26/07/2015 | 02:30

There are strict rules and penalties that apply to UK pension transfers within five full tax years of a member ceasing to be tax resident
There are strict rules and penalties that apply to UK pension transfers within five full tax years of a member ceasing to be tax resident

I was paying into a UK pension for 20 years - but I have been living and working in Ireland for the last 8 years with no plans to go back to the UK. What should I do with my UK pension? I have a final salary pension here in Ireland currently. Garry, Whitehall, Dublin

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You need to consider the Sterling/Euro exchange rate risk - both now and when benefits are drawn - and factors such as the impact of a Brexit from EU also needs to be considered.

You don't say whether the scheme in the UK is a defined benefit (DB) scheme or a defined contribution (DC) scheme - this should also influence your decision. If you have been offered a 'transfer value', you need to assess how it compares to the deferred benefits in the scheme.

If the scheme in the UK is DB, you must check if it's fully funded or in deficit and consider what is the employer's commitment to continue funding the scheme. Is there a possibility that the scheme may be wound-up?

Whether you are married, single or divorced and with or without children and financial dependants will also play a part in your decision-making. For example, are any of the UK benefits subject to a 'pension adjustment order' - that is, would a non-member spouse agree to a transfer out of the scheme?

Also, if the scheme is DB then it may not even be possible to transfer it to Ireland, as the UK introduced new rules from April 6, 2015, restricting transfers from British DB Schemes. The new rules mean that transfers now require independent advice from a FCA-approved adviser in the UK.

You haven't said when you ceased to be a UK tax resident when you moved back here, but there are strict rules and penalties that apply to UK pension transfers within five full tax years of a member ceasing to be tax resident.

And there is a reporting requirement for Irish schemes to the UK Revenue for up to 10 years from the transfer date.

Also without knowing your age or planned retirement date, it is difficult to advise but whether or not you need to make a full withdrawal of your pension is an important consideration as this option is now available in the UK.

As you can see from the above, there are a myriad of factors to take into consideration before making your decision so you really should seek independent expert advise before deciding one way or the other.

I have about €45,000 in savings - I'm 55 now. My family has grown up and are no longer dependant on me and my wife financially. Rather than keep it on deposit I think I might like to invest it.

I've never invested in anything before so I'd be considered pretty risk averse. I was wondering what your thoughts on capital guaranteed bonds might be?

Declan, Kells, Co Meath

With your risk profile in mind as low there are a number of capital secure investments that can provide potential gains as well as capital security.

The basic idea of a capital guaranteed bond investment is that 85pc of the investment is invested in a five- or six-year deposit rate with a bank. This 85pc grows back to 100pc at the end of the term to provide the capital guarantee.

Around 10pc of the original investment is used to buy an option tracking an index or strategy. This could be a basket of equities or an investment index.

The balance of 5pc of the initial investment is used for fees and broker remuneration.

When reviewing these investments it's important to analyse what the strategy is tracking and what the participation of the upside might be if it succeeds.

For instance, you could have a 50pc participation in the overall gain. This would mean that if the bond strategy achieved 7pc per annum you would only receive 50pc of this.

Of course, the more obscure or limited the investment strategy, the less chance of success. You can increase your participation in the upside of a gain by risking a percentage of your capital. Some bonds offer a 90pc capital guarantee but 150pc participation in the upside.

Unfortunately, with falling deposit rates these types of investment options are getting harder for the providers to price so that they can return the capital guarantee at the end of the term. The more costly the deposit rate, the less money is available to purchase the option.

If the option has cost less than 5pc of the investment, it could be seen as a long shot in providing any return. Statistically, 70pc of these types of investment don't achieve any positive gain above the capital guarantee at the end of the term.

If the strategy works, you can make a gain. if it doesn't, you get your money back. This is less than ideal, though, as you will have lost out in inflation over the investment term.

Like any investment the key is to do your research, read the marketing material in detail, diversify your investments and speak to your financial adviser.

Like many individual investors I lost a good deal of money in the property crash. Thankfully, not all my investments were such a disaster and I still have an appetite to reinvest some of the monies I've earned from other investments.

Obviously, I'm not too keen on going back to property and I'm a little dubious of stocks because of how tumultuous the market can be. Can you give me any advice?

Pauline, Claregalway, Galway

With the volatility of the stock markets, many people are turning to alternative renewable energy assets classes, such as solar power. Investing in companies that own and manage their own assets is a way to diversify and to have assets uncorrelated to the stock market.

Companies such as Solar 21 own and manage operational solar farms in Europe and sell their energy for a guaranteed price for a fixed term. The minimum annual return they seek of 12.5pc per annum is steady and not at the mercy of stock market fluctuations.

Alternatively, if you want to diversify out of the euro you could invest in the lease-back type of assets such as Park First in the UK. This company is one of the main players in lease-back car spaces at international airports in the UK. You own the space and they rent them back from you for a five year-plus term.

This can achieve healthy fixed returns over 8pc per annum. This has been a popular investment amongst investors as the cost of entry is relatively low and no bank lending is used in the product.

Michael Bradley is managing director of Clear Financial

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