Transferring a UK Defined Benefit (DB) Scheme to Ireland

We previously wrote an article around the advantages and disadvantages of transferring a UK pension scheme to Ireland, which was mainly concerned with Defined Contribution (DC) schemes.  We briefly touched on transferring a UK Defined Benefit (DB) scheme to Ireland and noted that this will incur extra fees due the requirement of a UK advisor needing to be involved as well as an Irish advisor.

 

Should you consider a transfer?

There is a lot to consider before deciding to proceed with a Defined Benefit Transfer. We deal with this topic in greater detail in another article we wrote titled; Should I take a transfer Value from a Defined Benefit Scheme?

The main issues to consider:

• Solvency of the scheme
• The Scheme Rules
• Appetite for risk
• Current market conditions
• Other incomes you are expected to receive
• Anticipated expenditure in retirement
• Health of the individual

There is also a currency risk if you maintain a UK Defined Benefit scheme as you will be reliant on the value of Sterling in retirement.

Transferring the UK benefit to Ireland should be discussed with a financial planning professional who can run through cash flow modelling to illustrate the effects of your decision.

If it is decided that a transfer of your UK pension transfer is in your best interests, the next thing you should be aware of is the fact that you will need both an Irish and a UK advisor to sign off on the transfer. This creates two sets of fees that need to be paid.

It's worth noting that some individuals may be entitled to receive pensions from both Ireland and the UK, depending on their work history. If you're in a position where you'll be claiming pensions from both countries, this should be factored into your decision-making process. The interaction between these pensions can impact your overall retirement income and potentially influence your transfer decision.

 

 

Why do I need a UK Advisor to sign off a DB transfer?

The Financial Conduct Authority (FCA) believe that in most cases, you’re likely to be worse off if you transfer out of a defined benefit scheme to a defined contribution scheme. This may or may not be true and will depend on a number of factors as noted above.

Having said this, there have been countless pensioners who have been scammed in the past where they have been pressured them into transferring them into a heavily charged or risky investment. In some cases, the investments don’t even exist in the first place. These ‘investments’ are often overseas where the pensioner doesn’t have any protection.

With this in mind, the FCA brought in legislation that requires those considering a transfer from a UK pension scheme to receive advice from a qualified UK advisor regulated by the FCA before a transfer can take place. This applies if the transfer value is more than £30,000.

 

What Costs are associated with a UK advisor?

The number of advisors in this space has been decreasing steadily over the last number of years as professional indemnity insurance cover for this kind of advice has been increasing exponentially. This is insurance against compensation for poor advice around transfers. This cost has been passed onto clients meaning that the cost for DB pension advice can be upward of £6,000 at the time of writing this article.

The professional indemnity insurance is one element of the cost, however, the UK advisor will need to go through their own due diligence to ensure they are giving the appropriate advice. This involves a lot of work so the price needs to be attractive enough that it is commercially viable. As there is so few UK advisors operating in this area, the demand for their services is naturally increasing which is also influencing the increased costs in some UK firms.

 

What costs are associated with an Irish Advisor?

The costs for advice on around the Irish pension scheme you are transferring into will depend on a number of factors. They too will need to carry out their own financial advice process and due diligence ensuring that the receiving scheme is suitable for the transfer taking into account unique personal circumstances. There will also be charges on the reinvestment of the funds and ongoing management of the funds. This will be dependent on the transfer value and the pension structure which you are transferring into. Irish advisors operate on different charging structures with some on a commission basis and others on a fee basis.

The scheme which you transfer into must be a Qualified Recognised Overseas Pension Scheme (QROPS) which is approved by Her Majesty’s Revenue and Customs (HMRC). There are punitive taxes applied should somebody transfer to a scheme which does not satisfy the HMRC rules.

 

Accessing the UK Pension once transferred

The transferred pension, although now in Ireland, can only be accessed in line with UK rules. The minimum retirement age of a UK scheme is age 55 unless under ill-health.

• For transfers received into a QROPS after 6 April 2017, benefits can be paid if you have not been a UK tax resident for at least 10 UK tax years.

• For transfers received into a QROPS before 6 April 2017, benefits can be paid if you have not been a UK tax resident for at least 5 UK tax years.

If benefits are paid outside these rules, UK tax rules will be applied, and you may be subject to UK tax on your QROPS. You must intend on remaining a tax resident in Ireland for 5 years after you have accessed your benefits.

 

Want to Find out More?

Contact us for advice on whether a transfer from a UK Defined Benefit (DB) scheme should be considered or not taking into account your personal circumstances.