British pensions face an uncertain time as stock market turmoil and falling annuity rates raise concerns for the future.
Chancellor George Osborne has warned a bleak future of austerity and higher taxes faces the country.
Pensions minister Ros Altmann has also chipped in with concerns about legislation for pension reform being sidelined as government focus turns on tackling the economy.
Retirement savers thinking about cashing in their pensions to avoid losing money have been warned not to take any rash action by financial experts.
Cashing in a pension and reinvesting the money as bank savings or other investments is risky.
Rescue your pension with a QROPS
Likely higher inflation and lower interest rates coupled with the costs of switching investments will likely wipe out any gains promised elsewhere.
Annuity rates have already been cut by up to 3% by provider Retirement Advantage.
Rates have steadily tumbled since the financial crisis – in 2008, a man aged 65 with £100,000 to invest in an annuity could buy an income of £7,800 a year. Now, the return is £5,800 a year.
For expats, one safe haven could be a Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS offer a wider range of investments than UK onshore pensions, including offshore markets and funds.
Although investments are still subject to market forces, they can be placed outside of the UK.
Avoiding foreign currency exchange rate volatility is another benefit of a QROPS. Instead of juggling the best time to transfer money from sterling into a foreign currency, QROPS allow pension payments in a range of major currencies, including US dollars and euros.
QROPS benefits for expats
In most cases, income tax is paid in the country where an expat is tax resident rather than in the financial centre where the payment is sourced.
Retirements savers also gain from a larger tax-free lump sum of up to 30% of the fund value with a QROPS rather than the maximum 25% allowed in the UK.
Like British pensions, QROPS have no requirement for the retirement saver to buy an annuity.
QROPS are based in 21 of the 27 European Union states. The most popular pension host nations include Malta, which is a full EU member.
Importantly, QROPS are not governed by EU legislation, but British law supervised by HM Revenue and Customs (HMRC), so are likely to remain unaffected by the upcoming Brexit.