writes Darach Honan, trusted independent financial advisor with IPS Financial Advice
SOME 400,000 people living in Ireland have worked in the UK. Despite this large number, only a small percentage of these people are optimizing the pension benefits available to them. This can be for several reasons, but most commonly, people do not understand or are not aware of the options available to them. Due to worries about Brexit and some changes to legislation in the UK, it is important to get a handle on you UK pension entitlement sooner rather than later.
Most people will have contributed to an occupational pension scheme during their time in the UK. However, did you know that by working in the UK, even if it was just for one year, you have an entitlement to the UK state pension. The UK state pension is a great opportunity for people to plan for their retirement. I will re-visit this later on but first I would like to deal with the options available to people who have private pensions in the UK.
Private Pensions
If you have contributed to a pension in the UK, you will either have a defined benefit or defined contribution pension scheme. The main difference between a defined benefit scheme and a defined contribution scheme is that the former promises a specific income and the latter depends on factors such as the amount you pay into the pension and the fund’s investment performance.
To weigh up your options and make the decision that is right for you the first thing you will need to do with regards to your private pension is to request a transfer value. This will tell you exactly what your pension is currently worth. This can be arranged by a good financial planner.
The advantages of transferring your UK private pension to Ireland are:
1 You will have more autonomy over where your pension will be invested. Often, pension scheme administrators will neglect members who have left the scheme.
2 It can be more beneficial in terms of inheritance and forming your estate for your family. Some occupational pension schemes in the UK will die with the scheme member. In these cases, if you were to transfer your pension to Ireland, your pension would become an inheritable asset.
3 You would not have to file a tax return in the UK every year when you draw down your pension. This can become quite a chore as you become older.
4 There is uncertainty around how pensions will be treated post Brexit, there may be benefits to having your pension in Ireland when this happens. We already know that if a ‘no deal’ Brexit occurs, some pension companies in the UK will not be able to pay pension into remaining EU countries. This will leave some people who are living outside of the UK without the benefits of the pension they paid in to.
On the other hand, there can be advantages to leaving the pension where it is. The scheme you are a member of may have benefits that suit you. There may be guaranteed benefits to the scheme you are in that you are comfortable with. The most important thing here is that you consider both options and the benefits and disadvantages of both. Only then can you be sure that you are making the best decision for you. This should be done in conjunction with a financial planner who has experience of the UK system.
UK State Pension
The state pension system in the UK is a little different to the system that we have in Ireland. Those who qualify for the full pension will receive £8,575.78 per annum or £164.35 per week.
To receive the full value of the UK state pension you must have paid national insurance for 35 years. Each year that you have will give you benefit on a pro rata basis. For instance, if I have 13 years, I would receive 13/35ths of the full pension. However, to receive any benefit, you must build up your contributions to a minimum of 10 years.
The good news is, even if you have left the UK, you can continue to contribute to and build up your UK state pension. This is especially important if you have less then 10 years contributions as otherwise, you would lose your benefit.
Each additional year that you purchase would add £237 onto your annual pension benefit. The standard rate of purchasing one year is £741. However, for those who are very familiar with the system, it is possible to get this at a cheaper rate.
For anyone interested in knowing more, I am here to answer all your questions. If there is something I can help you with, please get in touch.
Darach@ipsfa.ie
087-1277155
Where an opinion is expressed, it is the personal opinion of the author only and not of the paper.
