Over the last 17 years of transferring pensions we see some consistent pension transfer myths. More often than not once we have explained the situation to people their situation becomes much clearer. Here are three of the biggest myths
myth 1: You need to convert to NZD
Lots of people hold off on even looking at a UK pension transfer because the exchange rate freaks them out. Depending on when you started tracking the New Zealand dollar to British pound you might have seen highs of three dollars fifty to the pound and lows of one dollar seventy, and this can play a part in the decision making process. But what most people don’t know is that when you transfer a UK pension to New Zealand you don’t have to convert it into New Zealand dollars.
In fact by holding off transferring their pensions because of the exchange rate they are losing control. If you want complete exchange rate control transfer to a New Zealand superannuation schemes where you can invest in sterling denominated funds and dollar denominated funds. This ability to hold the funds in sterling also means that you can convert your pension from sterling to New Zealand dollars at a rate on any given day – as the transaction can be done on a day in New Zealand. If you leave your funds in the UK and wait for the rate to get to a value you like by the time you complete the pension transfer process (which generally takes three months) the rate can be completely different.
Furthermore, the current exchange rate may actually be working in many peoples favour when it comes to calculating the tax on a pension transfer to New Zealand (particularly if you can remember when it was three dollars to the pound). For an understanding of why this might be the case we recommend that you read the following…read more
myth 2: Never touch a final salary scheme
The never touch a final salary scheme mantra is loudly banged drum in the UK, indeed it is even institutionalised in the regulator. And the beat of the drum may be good and fine when you live in the UK and all the variables like interest rates and tax are constant. But what if your former employer simply can’t afford to pay the pension anymore, or they’re offering a kings ransom for you to leave the scheme or you could save so much tax that your pension would be worth a third more. All good reasons to look at your final salary scheme right.
Well for most final salary schemes they are offering a kinds ransom. The Cash Equivalent Transfer Value (CETV) of a final salary scheme (which is essentially the amount that a scheme will send to another scheme) does not, in the short term, move in direct relationship with the amount of yearly pension they will pay you.
The CETV is determined by calculations (and not the amount of funds in a pot) of which a big variable is interest rates in the UK, the CETV can move wildly. But the general rule of thumb is the lower the interest rates the higher the value of the pension pot. How much is this effect – well a clients CETV moved by over 10% in a three month period when long term interest rates dropped 0.2% in the UK. The important point to understand is that interest rates are at historic lows in the UK driving very high CETV’s. Find out more here.
myth 3: All QROPS are equal
It’s definitely not a case of one size fits all, some have more investment options, others are more tax efficient, some hide fees away (like charging 1.5% on converting your funds from one currency to another or form one fund to another). What that means is you should not settle for the first QROPS you come across. It also means watch out for advisers that only deal with one scheme, they are not independent and you might not be getting the best option in the market for you.
So speak to us today to ensure that you get the right scheme for you.