Returning pension T
he range of pension schemes in the UK is extensive. Individuals who have been in the UK for some time may have accumulated one or more different pensions. If you are heading back to the States, here is some information about QROPS, Qualified Recognized Offshore Pension Schemes, that you might want to consider, writes Sandy King of Alconbury Trust LLC. A UK pension can be acquired via employment or set up privately by an individual. There are three types of schemes in existence.
Defined benefit scheme
A defined benefit (DB) pension (sometimes known as a Final Salary scheme) is acquired through employment in the UK. It normally requires both employer and employee to contribute and will provide a defined sum based on earnings and length of service at a specified retirement age usually between 60 and 65 with the benefits adjusted for inflation annually.
18 August 2015
Defined contribution scheme
Most employers have switched to defined contribution (DC) schemes (also known as money purchase schemes) for their staff, (due to the rising cost of providing final salary benefits). In a Defined Contribution scheme, the employer makes a contribution to the employeeâ€™s pension (based on a percentage of the employeeâ€™s salary) which may or may not be matched by the employee. The employee can normally make additional contributions if they wish.
Personal Pension schemes
Individuals can set up their own arrangements privately and choose their own contributions. These frequently take the form of low cost stakeholder pensions, personal pensions or self invested personal pensions (SIPPs). Some employers may also set up Group Personal Pension schemes for their employees and these funds are then owned by the employee. Individuals who have been in the UK for a long time may have other types of money purchase pension, some of which may
contain important guarantees. With Final Salary schemes, the retirement benefits are known. However, the benefits of defined contribution and personal pension schemes are entirely dependent on contributions, charges and investment performance. Should you return to the US or leave the UK, these pensions remain in the UK and are subject to changing legislation in the UK. You cannot currently roll your UK pension into a 401K or IRA in the US. You may want to consider your options at this stage and QROPS could be worth considering:
What is a QROPS?
A QROPS is a Qualified Recognized Offshore Pension Scheme. The use of a QROPS to allow for the transfer, and subsequent management, of UK pensions to personal pension structures is becoming increasingly popular by those who have built up UK pensions and are now living away from the UK. It will allow you to consolidate all of your current pensions into a