How to protect your pension from potential Brexit threats
With just over six months until the UK quits the EU, it's vital that those with British pensions know exactly where they stand, writes Louise McBride
Brexit has become a huge headache for the 120,000 Irish residents with British pensions. As some of these pensions could be among the most vulnerable to the UK's departure from the EU, many are concerned that Brexit could eat into their pension. Even those with Irish private pensions could be impacted - if those pensions are heavily exposed to British investments.
So with just over six months to go until Britain leaves, where do you stand with your pension and Brexit - and should you take steps to safeguard it?
UK private pensions
There are concerns that insurers will no longer be able to pay British pensions into Irish bank accounts after Brexit - unless a deal is done on future banking arrangements. This followed a warning by the Association of British Insurers earlier this summer that it could be illegal to pay pensions to retired British expatriates living in the EU - if those pensions were being paid into overseas bank accounts. This issue has arisen because under current insurance contracts, insurers can pay British pensions to an individual in any EU country. There is confusion therefore as to how those pensions would be paid to people living outside Britain - once Britain leaves the EU.
It is largely only those who are being - or who will be - paid a British private pension directly by an insurer who could get caught out by this anomaly, according to Jerry Moriarty, chief executive of the Irish Association of Pension Funds (IAPF). "So if you are relying on an annuity from an insurer [from a British pension] for your retirement income, or if you were self-employed in Britain and took out a personal pension there at that time, this could be an issue," said Moriarty. "However, if you are being paid your pension directly by a pension scheme, it may not be a problem as you may still get your pension paid directly by the scheme after Brexit." So for example, if you are being paid a British private pension by a scheme run by an old British employer of yours, that pension might still get paid into your bank account after Brexit because the pension is being paid by the scheme or employer - rather than by an insurer.
Don't make any assumptions either way though. Should you have a British private pension, ask your pension provider if - and how - you will get paid your pension after Brexit.
"Legally, the provider will owe you the money - so it will have to come up with some way of getting the money to you," said Moriarty.
It is unclear exactly how Brexit will play out - and if a UK bank account will be needed for payment of some British pensions after Brexit goes through. However, should you have to open a UK bank account to get paid your British pension, you should be able to do so through the UK operations of AIB, Bank of Ireland and Ulster Bank.
British State pension
The 120,000 or so Irish people who receive a British State pension should continue to get paid that pension after Brexit - due to a deal struck by the British Government last year on the State pensions of British expatriates, according to Moriarty. That deal should cover Irish residents who are entitled to a British State pension after previously working in the UK. "This issue [in relation to payment of British pensions into overseas accounts] has only arisen in the context of insurance contracts and shouldn't impact in any way on State pensions," said Moriarty.
Many Irish people have built up considerable work service - and company pensions - in the UK. These pensions are often frozen once the individual returns to Ireland - and become accessible in retirement. The big question for many of these people is whether or not they should transfer their frozen British company pension to Ireland ahead of Brexit - or leave it where it is.
"We have had quite a number of discussions with clients recently regarding the transfer of pension benefits to Ireland from the UK," said Oliver O'Connor, director of financial counselling with Grant Thornton. "I don't believe that there is one answer that suits the majority however. The first thing for many is to understand what they hold from their UK employment - and to understand their options around the benefit. Where the pension fund is performing, some opt to leave it where it is and review again in due course. Others have decided to repatriate the funds in an effort to simplify their finances and have full clarity on their ultimate [retirement] benefits."
Should you have a British company pension which you will rely heavily on in your retirement, get independent financial advice about what you should do with that pension.
Before transferring a defined benefit scheme from Britain to Ireland, understand the transfer value (the amount of cash you will get for your pension), advised Peter Feighan, director of Davy Pensioneer Trustees. "You should also understand the costs involved in the transfer," said Feighan. "Seek UK-regulated advice before accepting any transfer value. Remember, if you accept a transfer value, you're giving up a defined benefit pension in return for a capital sum. Weigh up the pros and cons of that before making any decision."
Understand the tax implications of a transfer too - and be aware that a transfer may not be as straightforward as you expect it to be.
"It has become harder to transfer British pensions to Ireland in recent years because of changes in UK tax rules," said Moriarty. "There are not as many options as there were before."
Should you wish to transfer your British pension to Ireland, you could transfer it into a Qualifying Recognised Overseas Pension Scheme (Qrops). Understand the rules and restrictions around such a transfer though - as well as the pros and cons of using a Qrops.
Should you decide against transferring your British company pension to Ireland and to leave it in Britain instead, keep up-to-date on the value of your British pension - and on any issues likely to affect that pension in the future. "Contact your British pension provider, understand clearly what your pension is invested in, when your pension benefits become payable, what you'll be paid - and how," said Feighan. "When the time comes for you to get paid your pension, get tax advice about the tax treatment of that pension."
Regardless of whether you wish to transfer your British pension to Ireland or not, resume contact with your British pension provider - if you have lost touch with it. "Make sure you have a clear communication channel with your British pension provider," said Feighan.
Those with Irish private pensions could see their pension income hit by Brexit - if their pension fund has a lot of exposure to British stock markets and assets.
Should you have an Irish private pension, find out how heavily invested it is in British assets - and if you need to take steps to protect that pension. Should your pension have a lot of exposure to sterling investments, ask your pension manager what it's doing to protect it against Brexit.
Don't allow Brexit to completely put you off sterling investments though - particularly if that investment is performing well. "If it's the right asset and it's generating a return for you and likely to deliver a sound retirement income for you, it's probably appropriate to make that investment - irrespective of whether the UK remains in the EU or not - as long as you understand, and are comfortable with, the currency risk," said Feighan.
Only time will tell exactly how Brexit will play out - and what kind of impact, if any, it will have on your pension.
Don't assume that Brexit will hit your pension hard - do your research and find out where you stand but don't make rash, and possibly wrong, decisions.
"Your [British] pension provider should be getting in touch with you if there's an issue," said Moriarty. "If your provider hasn't got in touch, ask it to suggest how you will continue to get your pension after Brexit. Don't panic unnecessarily."
How to open a UK bank account
BANK OF IRELAND:
Bank of Ireland has an operation in Northern Ireland and it is possible to open an account there without having a Northern Irish or British address. You do not have to be a customer of Bank of Ireland in the Republic of Ireland (RoI) to open an account with the Northern Irish branch. However, you must provide a copy of your bank statements for the last three months if you’re not an existing Bank of Ireland customer. As is the case when opening an account anywhere, proof of address and identification is required. You do not need to travel to Northern Ireland to open the account — as long as you can provide certified copies of photographic identification. Visitbankofirelanduk.com/personal/current-account for more details.
AIB & FIRST TRUST:
You can open a UK account through AIB’s Northern Ireland arm — First Trust Bank. You do not need a Northern Irish or British address to open a current account with First Trust Bank. You can open an account there by visiting a First Trust branch in Northern Ireland and providing the necessary documentation — or by posting your application. “For personal accounts, the First Trust Bank opening account pack and letter outlining the requirements can be posted to applicants for completion and returned by post — or via an AIB branch in RoI,” said a spokesman for AIB. “Photo ID, proof of address and any other documentation required could be verified by a member of staff in an AIB branch in RoI.” For more details, visit firsttrustbank.co.uk/our-products/current-accounts/classic-account
ULSTER BANK & RBS:
As Ulster Bank is owned by the British bank, Royal Bank of Scotland (RBS), it is possible to open a British bank account with this group without travelling to the UK. “A customer residing in the RoI can open an account with Ulster Bank in Northern Ireland, RBS and NatWest,” said a spokeswoman for Ulster Bank. “The customer can obtain the application online and send documents through the post.” For more details, visit digital.ulsterbank.co.uk/personal/current-accounts/eu-residents-hub.html
Aside from going through an Irish-based bank with a UK operation, it can be difficult to open an account with a British bank — particularly if you don’t have a British address or residence. “You often need to be physically in the UK too — to be able to open an account there,” said Jerry Moriarty, CEO of the Irish Association of Pension Funds (IAPF).
Some UK-based banks offer tailored products for non-UK residents who wish to access UK bank accounts while continuing to reside outside the country, according to UK Finance, which represents the British finance and banking industry.
“[British] financial service providers are required to meet strict regulations and Government-approved guidance when opening an account for a new customer including verifying customer ID and other details,” said a spokesman for UK Finance.
Remember, any difficulties in relation to payment of British pensions into Irish banking accounts after Brexit may be ironed out by the time Britain leaves the EU.
Sunday Indo Business