April 2015 is D-Day for Civil Service Pensions
Many British expats in South Africa are happily contemplating their retirement and their pension from the ‘best’ employer in the UK – the government. All civil servants will tell you, over and above other aspects, one of the key reasons they chose to join the civil service was for the benefits package and in particular the pension. They are right. The pension offered by the UK government for their employees is excellent. However, the UK government, like many around the world, is encumbered by huge debt. Current figures shows that the national debt reached £1.45tn in September, representing almost 80% of GDP and more than £100bn higher than at the same point last year (1). Can one even comprehend these figures? A trillion has 12 zeros! The borrowing just in September was a record £11.8 Billion, which is almost 10% higher than September 2013. Can we see this changing?
Over the last few years, many Final Salary Schemes have had to make changes to help reduce the strain on their pension obligations which, in some cases, are crippling. Some have pushed back their retirement age from 55 to 60 or even 65. Others have cleverly, if a little subversively, changed the escalation rate from RPI (Retail Price Index) to CPI (Consumer Price Index) to reduce their responsibility to former employees. The civil service pension is calculated based on length of service, salary at time of leaving and a multiplying factor. This multiplying factor has, in some cases, already been reduced from 1/60 to 1/80 which equates to a 30% reduction. Longer lifespan and general mismanagement have left many pension schemes in crisis. These measures help the scheme remain solvent but is it just fixing a broken leg with a plaster? Can you trust your pension scheme to look after your best interests or should you take control yourself?
Since 2006, legislation has allowed many expats to transfer their UK pension to a different jurisdiction round the world by way of a QROPS (Qualifying Recognised Overseas Pension Scheme). The uncertainty surrounding many UK Final Salary Schemes has made this a very attractive route to take for thousands of people. In terms of UK public sector pensions, the QROPS has proved so popular that the option is to be taken away in April 2015. This was announced as part of the 2014 budget and has come as a blow to many people planning on retiring abroad.
However, for those already living outside of the UK there is a small window of opportunity to take control of your pension. Our questions to you are – would you want to leave your retirement planning to politicians who have a duty to look after the big picture rather than your individual pension? Or would you like the option to take control of your own pension?
For most, the benefits are huge, not more so than taking control of your own pension in a safe, secure location away from the massive UK deficit. The jurisdictions chosen to hold your pension are mostly tax-efficient safe havens and can allow up to a 30% Pension Commencement Lump Sum which could be tax exempt depending on where you are living. The list of benefits is endless, but time is running out.
It is key to speak to a qualified professional regarding your own personal pension and if you have a civil servants pension, I’d be putting this at the top of your “to do” list.