Possibly moving abroad after short time in the UK -- what to do with pension?

itchyfeet123

I have been in the UK for about 18 months. My contract expires in June, and I'm looking for my next job, both in the UK and abroad.

I've been contributing to my employer's pension scheme, and they have a very generous matching contribution -- I pay I think 7% and they pay I think 15%.

If my next job is overseas, I believe my options are to 1) transfer to another UK fund -- only people currently employed in the industry can be in the scheme, 2) transfer it to a scheme in wherever I end up, or 3) withdraw my own contributions, as long as it's within two years of my joining date.

There seem to be significant fees involved with 1) and 2) , while 3) means foregoing my employer's contributions and paying a tax (unclear what this tax is for as my contributions came from after-tax income).

I'm leaning towards 3), but I wonder if anyone has any advice or can point me towards any calculators? Unfortunately, the pension scheme is very unresponsive to even simple requests.

Silvertabby

I have been in the UK for about 18 months. My contract expires in June, and I'm looking for my next job, both in the UK and abroad.

I've been contributing to my employer's pension scheme, and they have a very generous matching contribution -- I pay I think 7% and they pay I think 15%.

If my next job is overseas, I believe my options are to 1) transfer to another UK fund -- only people currently employed in the industry can be in the scheme, 2) transfer it to a scheme in wherever I end up, or 3) withdraw my own contributions, as long as it's within two years of my joining date.

There seem to be significant fees involved with 1) and 2) , while 3) means foregoing my employer's contributions and paying a tax (unclear what this tax is for as my contributions came from after-tax income).

I'm leaning towards 3), but I wonder if anyone has any advice or can point me towards any calculators? Unfortunately, the pension scheme is very unresponsive to even simple requests.

There's a standard 20% tax on pension contribution refunds.. It's nothing to do with income tax.

So, if you went for option 3, you'd only get back what you paid in less 20% tax. Also, if your scheme was contracted out (until contracting out ended in April 2016) then you'd also have your NI rebate deducted from your amount due.

Is there a time limit on leaving your benefits in your current scheme - would that give you enough time to look at a transfer?

xylophone

There seem to be significant fees involved with 1) and 2)

What fees do you mean?

p00hsticks

Silvertabby wrote: »

There's a standard 20% tax on pension contribution refunds.. It's nothing to do with income tax.

Not sure what you mean about it being ' nothing to do with income tax' ?

Like the OP, I'm currently sorting out my own pension after leaving a position within two years. My understanding is that employee pension contributions are usually taken from an employees gross pay before any income tax or NI is deducted (as mine were).

If they later leave the company within two years then, as the OP says, they can usually get a refund of those contributions but income tax and NI is deducted as if those contributions were never made but simply received as salary instead.

kidmugsy

The likelihood is that you'd be ill-advised to do (3) since it involves throwing money away on a heroic scale.

(1) is probably your best bet, not least because I'd expect the costs to be negligible or zero.

Don't try (2) until you've learned more about it, I'd think. If you are likely to work in a succession of different countries do you envisage repeatedly transferring your pension to the new jurisdiction each time? That might be costly, don't you think?

Silvertabby

“ There's a standard 20% tax on pension contribution refunds.. It's nothing to do with income tax.
Originally posted by Silvertabby ”
Not sure what you mean about it being ' nothing to do with income tax' ?

It's from the Finance Act XXX ( year escapes me!) It's just coincidence that the pension refund tax is currently 20%, being the same as standard rate income tax, but this is why it's now commonly assumed to be the income tax that wasn't paid when pension deductions were taken. Don't know the full history, but it was 10% back when income tax was 33%, so no link.

I'm a retired LGPS administrator, and it was a real bone of contention with people who hadn't earned enough to pay tax, yet had to pay 20% (not income!) tax from their refunds. We also had to over-ride the software when dealing with refunds for those who had left when the tax payable was still just 10%, as the rate was determined by the date of leaving not the date the refund was paid.


The quote below is from the NHS pension scheme regs. They're wrong to call it income tax (although calling it that does cut down on the queries!) but see the bit I've put into bold.

Income tax at 20% must be taken from the amount remaining after the deduction of a CEP. 50% tax is deducted from any amount refunded over £20,000. Tax is deducted regardless of any tax relief due at the time of the refund or allowable when contributions were originally paid. The member cannot reclaim this tax from HMRC

CEP is the National Insurance rebate for being contracted out/paying reduced NI.

itchyfeet123

xylophone wrote: »

What fees do you mean?

Well, I just looked at the first hit for a private pension on google, and they have a standing charge of 0.4% + a variable charge depending on investment options, in the vicinity of 1%. I guess I'm not confident that the growth in the asset would always be more than the fees paid.

kidmugsy wrote: »

The likelihood is that you'd be ill-advised to do (3) since it involves throwing money away on a heroic scale.

(1) is probably your best bet, not least because I'd expect the costs to be negligible or zero.

Don't try (2) until you've learned more about it, I'd think. If you are likely to work in a succession of different countries do you envisage repeatedly transferring your pension to the new jurisdiction each time? That might be costly, don't you think?

Yes, multiple international transfers would be expensive. But there's also a cost in having small pensions scattered around the globe.

Silvertabby wrote: »

I'm a retired LGPS administrator, and it was a real bone of contention with people who hadn't earned enough to pay tax, yet had to pay 20% (not income!) tax from their refunds.

It's a bone of contention for me too! Had I opted out of the scheme at the beginning, I would have 100% of my contributions instead of 80% of them. I do recognise that there is some policy value in discouraging people from cashing out their pensions, but my understanding is there are regulations that prevent that anyway.

The options have changed on my pension scheme's website since I last looked (last week!).
There is now an option that if I leave the scheme through, I can get a deferred annuity from that scheme through my and my employer's contributions to date.

They also say that if I got a refund of my contributions, I would be entitled to the growth that my contributions have achieved, not just the actual amount.

I guess the reason I'm leaning towards taking the refund is I'm wary of being bound by UK regulations long after I leave. Especially since the annuity I would get based on contributions so far is so small, I'd rather put these contributions into my "main" retirement strategy -- if I ever settle in one place long enough.

steampowered

1% per annum sounds like quite a high charge. You should be able to shop around for a cheaper pension plan than that.

I think you are wrong to lack confidence that investment returns will not exceed charges. The average long term return of stock market investments (and therefore pension funds) is closer to 10% (see eg this).

The only realistic circumstance I can think of in which charges might be higher than investment returns over the long term, would be where you have a very small pension pot, and high minimum fees apply.

Personally I'd leave the pension where it is for now, losing the 15% employer contribution seems crazy. If you settle somewhere else you could always consolidate your pension savings at that point.

atush

option 1 is the best option.

Choose a cheap platform, and a global tracker

JasonPr

If you decide to go with option 1, be aware that you can still pay £2,880 into the pension for 5 tax years after you become non-resident and get £720 'tax relief' for free.

dunroving

From personal experience, I would advise against Option 3 - as already said, you'd be throwing away money. It may seem like cash in hand is better at the moment (maybe useful for moving fees, other "important" life decisions like buying a house), but you might regret it further down the line. I kick myself every day that I took out 2.5 years' worth of occupational pension back in 1983 when I moved away from the UK. I don't even remember what I spent it on back then, but I know I "spent" it. Stupid stupid stupid.