Pain In Spain is Bad News For British Pension Pots
25 July 2012 (PLANSPONSOREurope.com) - As Spanish government borrowing costs spiral, plan members need to be aware of the dangers of transferring their pension pots out of the UK, according to Nigel Green, the chief executive of the deVere Group.
Roughly £29bn was wiped off the value of shares on London’s FTSE 100, after Spanish government borrowing costs soared to a new euro-era high of 7.5 per cent, fuelling speculation the country will need a full sovereign bailout.
The deVere Group claims the ongoing eurozone saga is prompting an increasing number of pension holders to consider transferring their pension pots out of the UK.
Green told PLANSPONSOR Europe: “All defined benefit schemes are run independently of one another. However, the general consensus is that by crystallising a transfer value and transferring that to a defined contribution scheme it brings to an end the liability of the sponsoring company on providing a defined benefit for the member during their lifetime. It is therefore seen to improve the strain on sponsoring employers who are at the mercy of rising costs of the scheme, longevity increases and decreasing market returns. Most UK schemes have now closed their defined benefit arrangements and some have even forced members to transfer into a defined contribution arrangement. A QROPS is an overseas defined contribution arrangement that has significant tax advantages for non-UK resident individuals.
“What members must be aware of is that they are crystallising a transfer value form their defined benefit scheme to a defined contribution scheme and therefore their retirement income is based upon the value of their plan at the time they elect to receive benefits from the plan in retirement. That said, the current state of the majority of UK defined benefit plans mean that members of defined benefit schemes are unlikely to receive the retirement income they are expecting and the annual increase of said income is also likely to be less than expected. Some schemes are offering no pension increases whatsoever
“Due to the complex nature of retirement planning, and because all UK schemes are different, we do advise that each member receives their own independent financial advice and this is something that some UK schemes are now actively encouraging. “