Countdown to Article 50 sparks rush to transfer UK pensions overseas
The countdown to the triggering of Article 50, the official starting point for the UK’s exit from the EU, is leading to a surge in the overseas transfer of UK final salary pensions.
As I was quoted as saying recently in Global Banking & Finance Review, Global Investor Magazine, Financial Reporter, Pensions Age, Finance Digest and Fintech Finance, amongst other media, enquiries into overseas pension transfers have increased by as much as 21 per cent within deVere since the Brexit referendum last June.
Indeed, we’ve experienced an additional hike as the countdown begins to Article 50 in March, and I expect the momentum of this trend to continue as we approach ‘trigger day’.
Naturally, it’s clear why so many people are now looking into transferring their UK pensions into an HMRC-recognised overseas pension scheme, as they see the golden opportunity right now.
There are three key drivers in play.
First, following the Brexit vote, gilt yields have reduced significantly, which has driven up transfer values to record highs. It is, perhaps, doubtful that transfer values will remain at this level when the UK has officially exited the EU, as such, people are looking to make the most of these possible once-in-a-lifetime values.
Second, final salary pension deficits continue to feel the pressure, which is intensified by the Brexit-fuelled falling of gilt yields.
Reports suggest that Britain’s pension funding gap nearly doubled in 2016, and could soon reach a trillion.
Indeed, the size of the funding gap calls the very survival of many company pension schemes into question. As a result, considerable changes will need to be made to the terms of many employees’ pension schemes.
Finally, third, nobody knows with absolute certainty what Britain will look like post-Brexit, and how the economy will fare. As an example, should there be an economic downturn, funding pension schemes would become progressively more difficult. Furthermore, the value of the assets that the schemes invest in would likely decline.
Overall, ‘gold-plated’ final salary schemes are, in a lot of cases, looking far less golden than they previously did. Therefore, people are looking to protect and take control of their retirement income.
Indeed, QROPS, offer many other associated benefits. Funds can be passed on to heirs after death, there is greater investment flexibility, and the pension can be paid out in most currencies.
Of course, an overseas pension transfer may not be suitable for everyone. However, for those who do qualify, as the Article 50 countdown is now on, now could well be the right time to take action.