By Lou Cunningham, Partner, Blevins Franks
WE are now in the new age of UK pensions, where you have complete freedom to do whatever you wish with your funds… depending on what type of pension you have.
While the new pension regime is generally welcome, it is more complex than many realise, with various myths about what you can and cannot do. There is a concern that people will make the wrong decision, because they have not weighed up all their options or were encouraged to transfer into an unsuitable scheme.
You also need to understand the tax implications in Cyprus. The Cyprus tax regime can actually present some opportunities for residents.
The new pension freedom only applies to defined contribution schemes. This is the industry term for money purchase schemes, such as personal or stakeholder pensions, Self-Invested Personal Pensions (SIPPs), Executive Pension Plans etc.
It does not apply to defined benefit schemes – i.e. final salary – though you could potentially transfer to a defined contribution scheme.
The UK Financial Conduct Authority (FCA) confirmed that all transfers from defined benefit schemes can only take place if the member has received advice from a pension transfer specialist who is regulated by the FCA. This is regardless of when the transferred benefits are being accessed. The exception is for funds of under £30,000, or where the benefits are used to buy an annuity.
The FCA explains that the new regime makes advising on pension transfers significantly more complex. Defined benefit schemes pose particular issues and those considering moving to other arrangements must be aware of the potential benefits they are giving up.
The rule also applies to non-UK residents. So if you live in Cyprus, you still need to take advice from a UK regulated pension transfer specialist. Most advisers here are not regulated by the FCA.
Overseas advisers who are not FCA regulated and transfer pensions into Qualifying Recognised Overseas Pension Schemes (QROPS) will need to pass cases onto UK firms to provide the advice. The UK adviser becomes responsible for the advice even though they may never meet or speak to the client.
Since advice is important for all pensions, the government has introduced a free service called “Pension Wise”, which offers impartial guidance to people with defined contribution schemes on the new pension freedom.
Indeed, the best advice is to carry the FCA’s rule on taking regulated advice forward to all your pension decisions. This is a highly complex area; getting it wrong could have serious consequences.
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