Things could get complicated here, but we will try to keep this understandable;
Quite simply there are two types of UK pension schemes.
Final Salary Schemes, or Defined Benefit Scheme (often called company pension schemes)
And Personal Pension Plans, or Defined Contribution Schemes.
Personal Pensions are very simple and can be described as a "bucket of money". This is because they are quite transparent as a monetary amount goes in. (This maybe just from yourself or there could be contributions from your employer as well). The money is then invested in funds and the value can go up and down depending on what you are invested in. They are transparent as the fund value is normally available daily and you can see what it is worth in actual pounds sterling.
A Personal Pension can be considered an "Asset" as it belongs to you and if you were to die, this will be passed on to your spouse or dependents.
Final Salary Schemes are very different.
A Final Salary Scheme is basically a "promise" to pay you a pension when, or if, you reach the schemes retirement age (normally 65). If you die before retirement age then the scheme will pay your spouse a pension, normally 50% of your preserved pension at date of death, and if there are any dependent children a small increment until they are 18 years or leave full time education.
With a final salary scheme you accumulate benefits. These accumulate for every year you work and are related to your salary.
Final Salary Schemes can not really be considered an "Asset" as it does not belong to you, and on your death, your spouse will get a reduced pension, and on his/her death, nothing is passed onto family or dependents.
Final Salary schemes are now so expensive to run that almost all schemes have now closed. Also most final salary schemes are in major distress with most of them severely underfunded.
The problem is that they were set up many years ago when life expectancy for men was around 70. However, with people living much longer the pensions are having to be paid out for much longer than anticipated. This coupled with the fact that the huge "baby-boomer" population is now retiring, the pension schemes do not have enough money to pay all these pensions plus widows pensions.
Very few final salary schemes are fully funded. Shell, and one or two of the other top Petroleum companies, are among the few that are fully funded.
A common problem many UK expatriates have, is that they have two or three, or more UK pensions scattered between various providers. These could be Personal Pensions or Final Salary schemes or a combination of both.
Keeping track of these, or just understanding what they are and what and when they will produce anything, can be difficult.
UK Pension law has always allowed individuals to transfer their pensions, if they so wished, and Self Invested Pensions (SIPPs) have long been a vehicle of choice in the UK to consolidate pensions. However, the pension/pensions still remained in the UK which may not be the ideal solution for an expatriate who does not plan to retire to the UK.
In 2004 a European Directive governing the freedom of movement of individuals and their financial affairs came into force. This meant that people must be allowed to move their pensions from one country to another by EU Law. Up until now pensions had to stay in the country in which they were accumulated.
As a result of this there was a major change in UK Pension Legislation, introduced in 2004 (as a result of the EU Directive) and effective from April 2006. This change now allows UK residents who have a demonstrable intention to move overseas, or are already expatriates to transfer the value of their UK pension rights to a non-UK pension scheme and thus avoid all the normal restrictions imposed on the pension fund if it remained in the UK.
The transfer must be made to a Qualifying Recognised Overseas Pension Scheme (QROPS) that is approved by HM Revenue & Customs (HMRC)
Dealing with UK pensions is a complicated area and should only be undertaken by people with specialist knowledge, which we at Chrtwell Associates have.
If you would like to learn more about UK Pensions, or have your own pensions analysed contact us here.
In order to determine the best solution for you, meet with one of our advisers, who will asses your current situation, or issue that you want addressed, and will construct an effective affordable solution specially tailored to fit your needs.