Private pensions
Oct 14th 2010, 5:28 pm
#16
Lost in BE Cyberspace
Joined: Aug 2005
Location: South of Calgary
Posts: 13,374
Re: Private pensions
^^^
Has to be the best advice. The only caveat is that a professional financial advisor has a financial interest in your pension. It is always good to understand how they are going to earn from the advice they give. In the UK I much prefer to pay a fee for service rather than be commission based. That option does not seem to be generally available in the UK.
Keeping pension funds in both countries can act as a hedge against one economy outperforming the other. If you have a long time to retirement that is probably not a bad idea. However, as you get nearer to collecting your pension the flexibility offered by the RRSP/RIFF rules seems very attractive compared to the options available in Canada.
I have a modest amount in a private money purchase scheme in the UK. On retirement (which is getting close enough to start thinking about seriously) I will have to buy an annuity with the capital value. Annuity rates suck. I can shop around but even the very best rates suck. There is a little flexibility in that, in addition to a flat rate annuity based on my life, I could chose one that rises with inflation, or one that continues to pay to my OH after my death. If the rates for a straight annuity suck the rates for these options will make you weep.
In contrast you do not have to withdraw funds from an RRSP until you chose to do so, therefore there are plenty of opportunities to do some tax planning. At 71 years old you have to collapse the RRSP but you can transfer to a RIFF which protects the funds tax exempt status. Although you must bring the value of the RIFF into your taxable income in stages over 15 years you have deferred some of the tax into your 90s when you are unlikely have much other income.
The other big advantage of an RRSP/RIFF is that if you die the funds roll over to your spouse tax free. With a straight annuity if you walk under a bus at aged 60 + one day then you retirement saving are lost forever.
Hopefully the exchange rate will improve a bit over the next few years and this will make it more attractive to bring the funds over. Also, there is a cost to do this. About 3% of the total funds IIRC.
Has to be the best advice. The only caveat is that a professional financial advisor has a financial interest in your pension. It is always good to understand how they are going to earn from the advice they give. In the UK I much prefer to pay a fee for service rather than be commission based. That option does not seem to be generally available in the UK.
Keeping pension funds in both countries can act as a hedge against one economy outperforming the other. If you have a long time to retirement that is probably not a bad idea. However, as you get nearer to collecting your pension the flexibility offered by the RRSP/RIFF rules seems very attractive compared to the options available in Canada.
I have a modest amount in a private money purchase scheme in the UK. On retirement (which is getting close enough to start thinking about seriously) I will have to buy an annuity with the capital value. Annuity rates suck. I can shop around but even the very best rates suck. There is a little flexibility in that, in addition to a flat rate annuity based on my life, I could chose one that rises with inflation, or one that continues to pay to my OH after my death. If the rates for a straight annuity suck the rates for these options will make you weep.
In contrast you do not have to withdraw funds from an RRSP until you chose to do so, therefore there are plenty of opportunities to do some tax planning. At 71 years old you have to collapse the RRSP but you can transfer to a RIFF which protects the funds tax exempt status. Although you must bring the value of the RIFF into your taxable income in stages over 15 years you have deferred some of the tax into your 90s when you are unlikely have much other income.
The other big advantage of an RRSP/RIFF is that if you die the funds roll over to your spouse tax free. With a straight annuity if you walk under a bus at aged 60 + one day then you retirement saving are lost forever.
Hopefully the exchange rate will improve a bit over the next few years and this will make it more attractive to bring the funds over. Also, there is a cost to do this. About 3% of the total funds IIRC.
The avoidance of having to purchase an annuity and the flexibility of RRSPs is, perhaps, the best reason to transfer an English pension. I appreciate that this may not be a viable option at the moment due to the poor exchange rate, but holding out for a better one may prove fruitless as well.
Oct 14th 2010, 5:32 pm
#17
Slightly Canadian
Joined: Jul 2005
Location: St. John's, Newfoundland
Posts: 10,129
Re: Private pensions
^^^
Has to be the best advice. The only caveat is that a professional financial advisor has a financial interest in your pension. It is always good to understand how they are going to earn from the advice they give. In the UK I much prefer to pay a fee for service rather than be commission based. That option does not seem to be generally available in the UK.
Keeping pension funds in both countries can act as a hedge against one economy outperforming the other. If you have a long time to retirement that is probably not a bad idea. However, as you get nearer to collecting your pension the flexibility offered by the RRSP/RIFF rules seems very attractive compared to the options available in Canada.
I have a modest amount in a private money purchase scheme in the UK. On retirement (which is getting close enough to start thinking about seriously) I will have to buy an annuity with the capital value. Annuity rates suck. I can shop around but even the very best rates suck. There is a little flexibility in that, in addition to a flat rate annuity based on my life, I could chose one that rises with inflation, or one that continues to pay to my OH after my death. If the rates for a straight annuity suck the rates for these options will make you weep.
In contrast you do not have to withdraw funds from an RRSP until you chose to do so, therefore there are plenty of opportunities to do some tax planning. At 71 years old you have to collapse the RRSP but you can transfer to a RIFF which protects the funds tax exempt status. Although you must bring the value of the RIFF into your taxable income in stages over 15 years you have deferred some of the tax into your 90s when you are unlikely have much other income.
The other big advantage of an RRSP/RIFF is that if you die the funds roll over to your spouse tax free. With a straight annuity if you walk under a bus at aged 60 + one day then you retirement saving are lost forever.
Hopefully the exchange rate will improve a bit over the next few years and this will make it more attractive to bring the funds over. Also, there is a cost to do this. About 3% of the total funds IIRC.
Has to be the best advice. The only caveat is that a professional financial advisor has a financial interest in your pension. It is always good to understand how they are going to earn from the advice they give. In the UK I much prefer to pay a fee for service rather than be commission based. That option does not seem to be generally available in the UK.
Keeping pension funds in both countries can act as a hedge against one economy outperforming the other. If you have a long time to retirement that is probably not a bad idea. However, as you get nearer to collecting your pension the flexibility offered by the RRSP/RIFF rules seems very attractive compared to the options available in Canada.
I have a modest amount in a private money purchase scheme in the UK. On retirement (which is getting close enough to start thinking about seriously) I will have to buy an annuity with the capital value. Annuity rates suck. I can shop around but even the very best rates suck. There is a little flexibility in that, in addition to a flat rate annuity based on my life, I could chose one that rises with inflation, or one that continues to pay to my OH after my death. If the rates for a straight annuity suck the rates for these options will make you weep.
In contrast you do not have to withdraw funds from an RRSP until you chose to do so, therefore there are plenty of opportunities to do some tax planning. At 71 years old you have to collapse the RRSP but you can transfer to a RIFF which protects the funds tax exempt status. Although you must bring the value of the RIFF into your taxable income in stages over 15 years you have deferred some of the tax into your 90s when you are unlikely have much other income.
The other big advantage of an RRSP/RIFF is that if you die the funds roll over to your spouse tax free. With a straight annuity if you walk under a bus at aged 60 + one day then you retirement saving are lost forever.
Hopefully the exchange rate will improve a bit over the next few years and this will make it more attractive to bring the funds over. Also, there is a cost to do this. About 3% of the total funds IIRC.
I think the highlighted bit is supposed to read: "the flexibility offered by the RRSP/RIFF rules seems very attractive compared to the options available in England." No?
I would agree with all you posted, although a final salary scheme supposedly gives you more guarantee over what will be paid out. That's assuming the scheme doesn't collapse though. I have a relatively high level of confidence that mine will remain funded. Probably misplaced.
Oct 14th 2010, 5:36 pm
#18
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,682
Re: Private pensions
And the first paragraph should have read "generally available in Canada". Got me Canadas and UKs mixed up.
Last edited by JonboyE; Oct 14th 2010 at 5:42 pm.
Oct 14th 2010, 6:08 pm
#19
BE Forum Addict
Joined: Feb 2007
Posts: 2,710
Re: Private pensions
My scheme was 80ths (plus small lump sum). Really good schemes were 60ths. So if you served 40 yrs in an 80th scheme you would retire on 50% final salary, in a 60th , 2/3rds of your final salary
Oct 14th 2010, 6:15 pm
#20
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,682
Re: Private pensions
I think you are right they are based on a % of final salary. The % is determined by time served.
My scheme was 80ths (plus small lump sum). Really good schemes were 60ths. So if you served 40 yrs in an 80th scheme you would retire on 50% final salary, in a 60th , 2/3rds of your final salary
My scheme was 80ths (plus small lump sum). Really good schemes were 60ths. So if you served 40 yrs in an 80th scheme you would retire on 50% final salary, in a 60th , 2/3rds of your final salary
Oct 14th 2010, 6:40 pm
#21
Slightly Canadian
Joined: Jul 2005
Location: St. John's, Newfoundland
Posts: 10,129
Re: Private pensions
I think you are right they are based on a % of final salary. The % is determined by time served.
My scheme was 80ths (plus small lump sum). Really good schemes were 60ths. So if you served 40 yrs in an 80th scheme you would retire on 50% final salary, in a 60th , 2/3rds of your final salary
My scheme was 80ths (plus small lump sum). Really good schemes were 60ths. So if you served 40 yrs in an 80th scheme you would retire on 50% final salary, in a 60th , 2/3rds of your final salary
Point worth noting!
Oct 14th 2010, 9:24 pm
#22
Forum Regular
Joined: Mar 2007
Location: Sechelt, Sunshine Coast. BC
Posts: 134
Re: Private pensions
The original question related to a 'Final Salary' Scheme. The arguments for and against transferring these are completely different to money Purchase arrangements.
The only real reason to transfer a Final Salary Pension into a QROPS is if there are doubts as to the companies ability to honour the agreement. FS Schemes are essentially based on years service and average salary at the point of leaving the scheme. a 60th Scheme will usually pay 1/60th for every years service, some of which can be commuted for a lump sum. An 80th Scheme will pay 1/80th for every years service Plus a lump sum. They are usually very similar when you do the maths.
The pension you get is usually increased annually to account for inflation and not dependent on stock markets or investment performance.
Often there are additional guarantees for spouses on death which are also index linked.
Once you transfer the cash equivalent to a QROPS, you rely on investment performance. In most cases you would need to be very aggressive in your investment approach (Which means more risk) to match what you would have had in your final salary scheme. Not usually recommended for pension planning, certainly in the years up to retirement.
A Guaranteed pension of $10,000 increasing by say 3% per year, means that guarantee of $13,439 in 10 years time and $18,060 in 20 years time. Inflation is a factor which is often not appreciated.
Don't be fooled by what might appear to be a large cash transfer value. Its in the interests of the schemes for you to leave as it reduces their long term liabilities.
The only real reason to transfer a Final Salary Pension into a QROPS is if there are doubts as to the companies ability to honour the agreement. FS Schemes are essentially based on years service and average salary at the point of leaving the scheme. a 60th Scheme will usually pay 1/60th for every years service, some of which can be commuted for a lump sum. An 80th Scheme will pay 1/80th for every years service Plus a lump sum. They are usually very similar when you do the maths.
The pension you get is usually increased annually to account for inflation and not dependent on stock markets or investment performance.
Often there are additional guarantees for spouses on death which are also index linked.
Once you transfer the cash equivalent to a QROPS, you rely on investment performance. In most cases you would need to be very aggressive in your investment approach (Which means more risk) to match what you would have had in your final salary scheme. Not usually recommended for pension planning, certainly in the years up to retirement.
A Guaranteed pension of $10,000 increasing by say 3% per year, means that guarantee of $13,439 in 10 years time and $18,060 in 20 years time. Inflation is a factor which is often not appreciated.
Don't be fooled by what might appear to be a large cash transfer value. Its in the interests of the schemes for you to leave as it reduces their long term liabilities.
Oct 14th 2010, 9:55 pm
#23
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,682
Oct 14th 2010, 10:25 pm
#24
Slightly Canadian
Joined: Jul 2005
Location: St. John's, Newfoundland
Posts: 10,129
Re: Private pensions
The original question related to a 'Final Salary' Scheme.
<snip>
Once you transfer the cash equivalent to a QROPS, you rely on investment performance. In most cases you would need to be very aggressive in your investment approach (Which means more risk) to match what you would have had in your final salary scheme. Not usually recommended for pension planning, certainly in the years up to retirement.
A Guaranteed pension of $10,000 increasing by say 3% per year, means that guarantee of $13,439 in 10 years time and $18,060 in 20 years time. Inflation is a factor which is often not appreciated.
Don't be fooled by what might appear to be a large cash transfer value. Its in the interests of the schemes for you to leave as it reduces their long term liabilities.
<snip>
Once you transfer the cash equivalent to a QROPS, you rely on investment performance. In most cases you would need to be very aggressive in your investment approach (Which means more risk) to match what you would have had in your final salary scheme. Not usually recommended for pension planning, certainly in the years up to retirement.
A Guaranteed pension of $10,000 increasing by say 3% per year, means that guarantee of $13,439 in 10 years time and $18,060 in 20 years time. Inflation is a factor which is often not appreciated.
Don't be fooled by what might appear to be a large cash transfer value. Its in the interests of the schemes for you to leave as it reduces their long term liabilities.
Oct 14th 2010, 11:01 pm
#25
Forum Regular
Thread Starter
Joined: May 2007
Location: West Midlands
Posts: 56
Re: Private pensions
Wow, plenty to take into consideration. Some good advice too thanks for your responses
Annette
Annette
Oct 14th 2010, 11:40 pm
#26
BE Forum Addict
Joined: Dec 2007
Location: Calgary
Posts: 2,092
Re: Private pensions
Pensions can be transferred into non-locked in plans. It depends on the actual QROPS.
There are QROPS investment companies with funds will guarantee the higher of a 5% return or the market return (based on investments chosen) if the client stays invested in the programme. These programmes also guarantee an income of 5% for life (or a higher market return based on investment return) or 7% for 14 years on retirement at age 65.
There are QROPS investment companies with funds will guarantee the higher of a 5% return or the market return (based on investments chosen) if the client stays invested in the programme. These programmes also guarantee an income of 5% for life (or a higher market return based on investment return) or 7% for 14 years on retirement at age 65.
Oct 15th 2010, 2:54 am
#27
Forum Regular
Joined: Mar 2007
Location: Sechelt, Sunshine Coast. BC
Posts: 134
Re: Private pensions
Caveat Emptor on these. If it looks to good to be true, it usually is. These kinds of guarantees are available within various investments. Not just QROPS. Invariably you pay for these guarantees one way or the other. Usually as a charge on the fund. This effects the ability to sustain increased income in line with inflation or reduces the fund. I have rarely seen any 'Guaranteed' Investments which offer value for money. This kind of investment is only suitable for risk averse investors, which if thats the case should not be transferring from a Final Salary Scheme in the first place.
Pensions can be transferred into non-locked in plans. It depends on the actual QROPS.
There are QROPS investment companies with funds will guarantee the higher of a 5% return or the market return (based on investments chosen) if the client stays invested in the programme. These programmes also guarantee an income of 5% for life (or a higher market return based on investment return) or 7% for 14 years on retirement at age 65.
There are QROPS investment companies with funds will guarantee the higher of a 5% return or the market return (based on investments chosen) if the client stays invested in the programme. These programmes also guarantee an income of 5% for life (or a higher market return based on investment return) or 7% for 14 years on retirement at age 65.
Oct 15th 2010, 3:40 am
#28
Forum Regular
Joined: Mar 2007
Location: Sechelt, Sunshine Coast. BC
Posts: 134
Re: Private pensions
[QUOTE=Atlantic Xpat;8918628]I think the highlighted bit is supposed to read: "the flexibility offered by the RRSP/RIFF rules seems very attractive compared to the options available in England." No?
The options for transferring a UK pension still restricts how the UK pension can be paid. A QROPS can offer up to 30% Tax Free Cash and Withdrawal levels up to 120% of a UK Single Life Annuity. A RRIF or LLIF have to pay a minimum income. The Locked in version also has a maximum. Anyhow, it should be a registered QROPS scheme before the UK will release it. Bear in mind also that there is no such thing as a tax free lump sum in Canada. All income from any pension is taxed.
In the UK you have an Income Drawdown option which has no minimum, but does have a maximum to prevent the fund being depleted too quickly. This maximum is based on GAD rules, but you also get to keep the fund on death. The only current clear downside in the UK is that you have to convert to annuity at age 75.
The options for transferring a UK pension still restricts how the UK pension can be paid. A QROPS can offer up to 30% Tax Free Cash and Withdrawal levels up to 120% of a UK Single Life Annuity. A RRIF or LLIF have to pay a minimum income. The Locked in version also has a maximum. Anyhow, it should be a registered QROPS scheme before the UK will release it. Bear in mind also that there is no such thing as a tax free lump sum in Canada. All income from any pension is taxed.
In the UK you have an Income Drawdown option which has no minimum, but does have a maximum to prevent the fund being depleted too quickly. This maximum is based on GAD rules, but you also get to keep the fund on death. The only current clear downside in the UK is that you have to convert to annuity at age 75.
Oct 15th 2010, 4:13 am
#29
BE Forum Addict
Joined: Dec 2007
Location: Calgary
Posts: 2,092
Re: Private pensions
Caveat Emptor on these. If it looks to good to be true, it usually is. These kinds of guarantees are available within various investments. Not just QROPS. Invariably you pay for these guarantees one way or the other. Usually as a charge on the fund. This effects the ability to sustain increased income in line with inflation or reduces the fund. I have rarely seen any 'Guaranteed' Investments which offer value for money. This kind of investment is only suitable for risk averse investors, which if thats the case should not be transferring from a Final Salary Scheme in the first place.
Of course you pay a little bit: but if you want a minimum return of 5% you can get it.
Of course this kind of investment is for risk averse investors - that's why they exist.
However: there are lots of different kinds of risks. For instance: Currency. Tax handling. Control. Collapse of a pension plan.
That's why no one answer is always correct.
The answer depends on what risks the individual wants to avoid, and what risks that individual is willing to take on board.
However, there are lots of products out there that mitigate all different kinds of risks.
Last edited by triumphguy; Oct 15th 2010 at 4:18 am.
Oct 15th 2010, 7:25 am
#30
Just Joined
Joined: Oct 2010
Posts: 3
Re: Private pensions
I have been living in Spain now for 5 years, around 1 year ago I transfered my pension from the UK into QROPS scheme.
It all went very smoothley, 25% cash tax free if you require and the rest in a capital secured investment... all done at very low fees.
Why did I do it, as soon as you release the pension ionto a Trust, I become the beneficiary of all of the funds... So if I get run over by a big red bus my family benefit from it, this is not the case if it is left in the pension fund in the UK... My investment even though capital protected has also beaten my old providers performance...
Overall I am very happy and would be pleased to recommend the company that helped me...
It all went very smoothley, 25% cash tax free if you require and the rest in a capital secured investment... all done at very low fees.
Why did I do it, as soon as you release the pension ionto a Trust, I become the beneficiary of all of the funds... So if I get run over by a big red bus my family benefit from it, this is not the case if it is left in the pension fund in the UK... My investment even though capital protected has also beaten my old providers performance...
Overall I am very happy and would be pleased to recommend the company that helped me...
