The FCA (Financial Conduct Authority) requires firms advising on pension transfers to have specific permission for advising on pension transfers and opt-outs.
If you are an expat based in Dubai or the UAE and you are considering transferring out of your defined contribution or your final salary scheme, you should take regulated advice.
If the value of your pension assets is in a defined benefit scheme (final salary) is valued at more than £30,000, the Government rules require your pension provider to ensure that you have taken regulated financial advice before allowing the transfer to proceed. This regulated advice must come from a Pensions Specialist, who has the requisite permissions to be able to give advice in this complex area.
A Pensions Specialist must follow the FCA’s training and competence rules, have the appropriate Pensions Specialist qualification and, with that, the permission to perform the function.
There are over 4,000 financial advisers in the UAE and only a very small proportion have the right qualifications to give advice in this area – so it is imperative to check.
Your suitability to transfer your pension will be based on your own set of personal circumstances and your financial objectives for retirement.
With a defined contribution pension you build up a fund that you can access after the age of 55 and use however you want, subject to what your scheme permits
Switching your benefits from one defined contribution scheme to another may be beneficial, but it depends on your individual circumstances.
Despite the attractions of a Defined benefit pension, in some ways it is not as flexible as a defined contribution pot. This is becasue you can’t vary the income you take from it, nor draw out larger lump sums. Typically your final salary scheme will then only pay 50 to 60% of your annual entitlement to your spouse. The pension payments will then cease upon second death.
There are situations where it does make financial sense to transfer your pension to a new or different scheme – here are a few possible examples:
Your existing company scheme is being wound upYou feel that flexibly accessing benefits would be more beneficial to you than a guaranteed income for life.
You are worried your scheme will fall into the PPF and you are at risk of receiving a lower annual income in retirement
You have a personal pension that has high fees You are at risk of exceeding the lifetime allowance
You have been offered an enhanced transfer valueIf considering transfefreing away from a final salary scheme you are confident your income needs can be met via other sources
Leaving residual funds to your spouse or chosen beneficary is important to you.
You are a deferred memeber of a final salary scheme and reductions are being made to future benenfits or an increase in your normal retirment date
You have a number of small pensions, perhaps from a variety of employers, periods of self employment and/or various Additional Voluntary Contributions plans and you would like to amalgamate them all – perhaps in a SIPP (Self Invested Personal Pension)
You would like to add your existing personal pension to an occupational pension scheme to benefit from lower fees/employer contributions.
When talking to your Financial Adviser here are some handy things to bear in mind:
Ask for a full explanation of the pension and cash lump sum benefits you will leave behind if you leave your final salary pension, including your options for early and late retirement. You need to fully understand the guaranteed benefits you may be giving up alongside any potential tax free cashYou should receive a full explanation of the options open to you for the new pension fund that you could move into.
Whether this is a QROP’s or a SIPP or another defined contribution plan. Note the relatively new legislation brought in on new taxes on QROPS outside of an EU member state. If you are in Dubai or the UAE this is unlikley to be a tax efficeint exersise and a self invested personal pension will likley be more suitable.Ask for a full explanation of the key risks associated with transferring into a personal pension fund, as well as the risk of remaining in your current scheme.
Your current scheme may be in deficit and could be a concern. Looking to the new scheme you need to fully understand all potential risks such as investment risk or inflation risk.If you have a larger transfer value you may need to apply for enhancement on your lifetime allowance, which currently stands at 1.03m.
Ask for an explanation as to how the Lifetime Allowance impacts your pension fund and the various froms of protection in place that you can apply for.If you are married, it is important to involve your spouse in the decision mking process from outset. This decision is likely to affect the financial future of both of you.If you do transfer away from your scheme make sure your financial advsier helps you to complete nomination beneficiary forms.Ask from the outset what costs are involved in the pension transfer process. There will usually be an advice, fee whether you decide to transfer or not.
If you are considering transferring from a final salary pension scheme, you need to make a written request to the administrators of your pension for a ‘Statement of Entitlement’.
Within three months, your pension administrators should then provide you with a transfer value for your pension. This may be less than its current value.This will be guaranteed for three months – the guarantee date will be shown on the document.
Any potential pension transfer should be given serious consideration. The process is time consuming but that is generally a good thing. It leaves plenty of time to carefully consider the benefits and risks of a transfer and the potential impact on personal circumstances. And always seek advice from a pension transfer specilaist.
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