The imminent triggering of Article 50 – the official start of the UK’s divorce proceedings from the EU – is helping to drive a rush to transfer UK final salary pensions into overseas schemes, a global financial adviser claims.
DeVere Group, a global independent financial adviser, says enquiries have increased by 21 per cent since the beginning of December as uncertainty over Brexit intensifies.
DeVere Group CEO Nigel Green argues that uncertainty over the UK economy as the triggering of Article 50 approaches, combined with rising transfer values and increasing deficits, is creating increased demand for QROPS transfers from UK DB arrangements.
Figures from Mercer this week show that the deficits at FTSE350 companies tripled in 2016.
Pension transfer values as measured by the Xafinity Transfer Value Index ended 2016 up 15 per cent. High profile figures such as former pension minister Baroness Altmann and FT chief economic commentator Martin Wolf have transferred out of DB schemes, although into UK DC pension wrappers, not QROPS arrangements. QROPS arrangements are typically suitable for internationally-mobile people and people expecting to be resident overseas for a considerable portion of their retirement.
Some experts argue there is as much long-term economic uncertainty overseas as in the UK, and caution against the cost of QROPS schemes, pointing out that domestic pensions are considerably more flexible post-pension freedoms.
Green says: “Since the Brexit vote last June, there has been a groundswell of interest in overseas pension transfers. This has intensified in recent weeks as we begin the final countdown to the triggering of Article 50 by the end of March, when Britain will start negotiations with the EU over its exit.
“I expect the momentum to develop further, the closer we get to ‘trigger day’. There are three key factors at play here. First, since the Brexit vote, gilt yields have reduced considerably and this has driven up transfer values. Indeed, they have reached record highs. It is perhaps unlikely that the transfer values will remain at this level post-Brexit and people seeking to transfer are looking to take advantage of these possibly once-in-a-lifetime values.
“Second, final salary pension deficits continue to come under pressure, and they are being exacerbated by the Brexit-induced falling of gilt yields.
“It has been reported that Britain’s pension funding gap almost doubled during 2016 and it could soon reach a trillion.
“The size of the gap brings into question the survival of many company pension schemes. Certainly, many will need to make significant changes to the terms of employees’ pension schemes.
“And third, no-one knows for sure what a post-Brexit Britain will look like and how the economy will fare. If there is an economic downturn, for example, it would become increasingly difficult to fund pension schemes. Plus, the value of the assets that the schemes invest in would likely depreciate.
“All in all, so-called ‘gold-plated’ final salary schemes are, in many cases, looking considerably less golden than they once did. As such, people are, quite sensibly, looking to safeguard and take control of their hard earned retirement income.”
“Of course, an overseas pension transfer is not suitable for everyone. However, for those who do qualify, with the countdown on to the triggering of Article 50, now might just be the ideal time to do so.”
Barnett Waddingham consultant Malcolm McLean says: “How do you know that the country you are transferring your assets to is safe? People need to be aware that there are risks in transferring as well as in staying put, particularly to overseas schemes.
Xafinity’s Paul Darlow said: “2016 was a dramatic year for transfer values. The impact of financial conditions has been significant, and this appears to have been a material consideration for IFAs and pension scheme members. It feels like there has been an increase in transfer activity since the Brexit vote, and I have seen some extremely large transfers being paid out recently. Increasingly “partial transfers” are being requested by members, and it seems likely that more and more schemes will need to consider whether or not this is something that they wish to offer”