Case Studies

Partnering with a US Advisor

Defined Contribution Pension Consolidation

Bereavement

Divorce

Drawing Pension Income

Defined Benefit & Defined Contribution Pension Consolidation

The case studies presented are intended for illustrative purposes only to provide examples of Florin Pensions’ processes and methodology. The case studies are based on actual client experiences, although fictional names have been used. An individual’s experience may vary based on his or her circumstances, and there can be no assurances that we will be able to achieve similar results in comparable situations.

The retirement options available to you under your existing UK pension(s) will depend upon the type of UK pension you currently have (for example, whether it is a defined benefit or defined contribution pension) and what retirement options the scheme offers you.

In most cases, when you turn 55 (or 57 from 2028), you have several options to access your UK workplace or personal pension. However, as UK pensions’ legislation has changed over time, the retirement options available under different UK pensions can vary widely with some offering flexibilities and others being quite restrictive.

Options can include:

Doing nothing
100% lump sum payment
Partial lump sum payments
Annuity
Flexi-access drawdown
Drawing your defined benefit pension
Taking the CETV of your defined benefit pension and transferring it into a personal pension to access other retirement income options
Choosing a combination of the above to suit your specific retirement goals

How and when you start to access your UK pension(s) will depend on your retirement goals. For this reason, we feel it is important to understand your retirement options before starting to draw your UK pension.

In the UK, whilst there are various options available to factor in a person’s UK occupational or personal pension into a divorce settlement, it is not uncommon for a UK pension sharing order to be obtained. A UK pension sharing order enables a portion of a member’s pension to be deducted and allocated to the ex-spouses own registered (HMRC tax approved) pension scheme. The ex-spouses share can either stay in the existing member’s scheme (if permitted by the scheme rules) or be transferred to another registered (HMRC tax approved) pension scheme. Transferring to a separate scheme is usually the preferred choice for both ex-spouses and UK pension providers as it enables a clean break. Other factors to be considered when determining how to implement a US divorce settlement for a UK pension will be the age of the pension member and whether the UK pension is a defined contribution or defined benefit pension.

If you have a US divorce settlement which requires part of your UK occupational or personal pension to be paid to your ex-spouse, in order for a UK pension provider to implement this settlement, a UK pension sharing order will be required as a US divorce settlement has no legal authority in the UK.

Whether or not you should transfer your final salary pension to a Self-Invested Personal Pension (SIPP) will depend upon a number of factors which should be carefully considered with your financial adviser. As required by UK pensions legislation, your financial adviser should commission a pension transfer report from an appropriately regulated UK financial adviser (unless the transfer value is £30,000 or less). This report is commonly referred to as a Transfer Value Analysis (TVA). A TVA compares the benefits being given up from a defined benefit pension scheme with those that could be offered by a personal pension scheme like a SIPP. Factors that should also be considered by your financial adviser include your personal circumstances, retirement objectives, financial situation and investment risk profile.

A final salary pension promises to pay a pension for life, providing the pension has sufficient assets to meet its liabilities. Such a pension also increases to keep up with inflation (but often capped to 2.5% or 5% p.a.). A move to a personal pension, like a SIPP, offers more flexibility in terms of benefits, but you must rely on its investment performance which is unguaranteed and could mean the risk of lesser income than if you remained in your final salary pension.

However, some people do opt to transfer out their final salary pensions to meet their specific retirement objectives. Some examples include: if you are single and don’t need the benefits offered to a spouse/dependent; you want to take early retirement; you want to have access to your pension in amounts and at times under your control; you want to hold and draw your pension in a different currency like US dollars; you want to pass on to your spouse 100% of your death benefits; you have a long term partner, but are not married, and want that person (or any other relative for that matter) to inherit your pension on your death; you have an important and immediate cash need; or there is clear evidence that your pension scheme has a significant funding deficit and may not be able to meet its liabilities in the future.

A concern for many people is how their beneficiaries will manage financially when they die. The pension benefits your beneficiaries may receive can differ considerably depending upon the type of UK pension(s) you have and whether you have already started to take pension income.

If you have a UK defined benefit pension it is important to review the scheme rules to understand what death benefits are provided. Typically, your spouse will be entitled to a percentage of your annual pension per annum (indexed link). This is often 50% of your pension. A death benefit lump sum may also be payable. A percentage of your pension may also be payable to children under the age of 18 (or 23 if in full time education), however, this is not always the case.

For defined contribution pensions, if you haven’t drawn any pension income yet, your beneficiaries should have several options including taking a lump sum, purchasing an annuity or potentially drawing the pension flexibly under flexi-access drawdown. However, not all UK pension plans offer all options. In some cases, it can make sense for a beneficiary to transfer to another UK pension provider for more pension benefit options.

If you have already started to take pension income through flexi-access drawdown, your beneficiaries can take the remaining funds as a lump sum, purchase an annuity or continue with flexi-access drawdown. However, if you already purchased an annuity, what is payable will depend upon the type of annuity that you purchased (for example single or joint life).

At Florin Pensions we help our clients’ beneficiaries understand what pension benefits they are entitled to and determine the right options for them to access them.