Brit’s in the UAE: It’s Time to Review Your Pension

If you’ve contributed to a UK pension and you now live in the UAE this blog is for you. We’ve listed 5 quick reasons why now, is an important and opportune time to review your UK pension.

  1. Charges

In the last 20 years, pension products have changed significantly. One of the most visible changes during that period has been the reduction in charges in modern pensions. Our team can find out exactly what fees you are currently paying on your UK pension, and let you know if there is a more competitive alternative on the market.

The difference between a charging structure of 1.5% and 2.5% may sound small, but longer-term, the compounding effect of an extra 1% can be massive. See below.

Case Study: pension pot of £200,000

If the pension achieves 4% annualised growth over 20 years £200,000 will grow to £438,224.

If the pension achieves 5% annualised growth over 20 years £200,000 will grow to £530,659.


2. Death benefits

It’s important you know about your pension’s death benefits. There are massive differences in death benefits between schemes. If there is a chance someone will be financially dependent on your pension after you pass away, make sure you know exactly what they can expect.

When you pass away your spouse may be eligible to receive up to 50% of your pension. Depending on the age gap between you and your spouse they may also receive nothing. By transferring a defined benefit pension into a Self-Invested Personal Pension, members can take full ownership of their pension pot and pass whatever is left to their beneficiaries.

 To find out more about your pension’s death benefits – Review Your UK Pension

3. Taxes

Depending on where you are in the world, you may be stung with taxes when you drawdown from your pension. By reviewing your UK pension, you can explore the most tax-efficient options for when you eventually drawdown.

For those over 55, you may be able to draw down your entire pension tax-free whilst living in the UAE.

 4. The Underlying Investments

Members of defined benefit pension schemes receive a set income in retirement. This income is determined using a calculation which considers their final salary, their years of service and the accrual rate of the scheme. The scheme has absolute control over the investment decisions and risks required to fulfil the promise.

Members of defined contributions schemes have more investment flexibility but members are often constrained by the funds offered within their scheme.

If you have left your pension unattended, your underlying investments may not match your risk profile and could be overexposed to equity markets. Moreover, your money may not be invested in the most competitive funds in terms of fees and performance.

Let’s look at what a 4% difference in fund performance can achieve.

If the pension achieves 4% annualised growth over 20 years £200,000 will grow to £438,224.

If the pension achieves 8% annualised growth over 20 years £200,000 will grow to £932,191.

5. Cash Equivalent Transfer Values

Holders of defined benefit pensions may have the option to swap their ongoing pension benefits for a one-off lump sum. This is known as the cash-equivalent transfer value (CETV) and is calculated from years worked, final salary and the scheme’s accrual rate. The CETV offered will fluctuate depending on things such as life expectancy, RPI and CPI, interest rates and gilt yields.

Currently, we are seeing historically high CETV’s as a result of unprecedented interest rates in the UK of 0.10%.

People with a defined benefit annual income of £45,000 may well be offered a transfer value of around £1,125,000.

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