The Missed Opportunity Of Your UK Pension

If you’ve ever worked and lived in the UK – whether for a few months a few years ago, or for many years until a few months ago – it’s likely that during that time you would have contributed towards a UK-based pension fund. If you did, there’s every chance that you’ve either forgotten about it or are not managing it as effectively as you could.

In either case, those funds may not be performing as you would want them to. “Tracking down the pension, establishing its value, or simply more proactively managing an existing pension that you’re fully aware of could have huge benefits to you and your wealth strategy going forward,” says Fred van Niekerk, General Manager Carrick Partners.

Those benefits include not losing your UK pension – which is a real risk in the current environment. A growing number of UK pension schemes are deep in deficit, leaving many people without the pension that they saved towards. The UK pension crisis is so severe that at the end of 2020 the accounting deficit of defined benefit (DB) pension schemes for the FTSE 250 (an index of the UK’s 350 largest listed companies) was an alarming £70-billion.  

“The pension crisis is quite literally a case of people arriving at pensionable age and realising that the retirement strategy that they’ve been investing in over these years is unfunded, and that there simply isn’t enough wealth in the pot to sufficiently supply them with the income they were expecting all their life,” says Van Niekerk.

What, then, should you do if you have pension savings in the UK and are now living elsewhere in the world?

“Your options are to firstly track down your pension and find out exactly how much is in the pot,” says Van Niekerk. “The second step would then be to look at how that pot is being managed and whether or not something more proactive can be done.”

There are several options to consider at this point, one being whether it makes sense to transfer from a defined benefit pension into a defined contribution pension such as a Self-Invested Personal Pension (“SIPP”). A SIPP gives you far greater control over your pension and holds your investments until you retire and start to draw a retirement income. Any investments kept within a SIPP are legally ringfenced from the SIPP provider, which means that even if the provider fails, the investments themselves are safe.

Another option is to transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS). There have however been a number of regulatory changes in this space and this option is now limited even though it does offer some fantastic opportunities.

There is no one size fits all answer and a detailed understanding of the existing scheme and your options available is critical. Importantly, you’ll be tracking down and taking control of your UK pension, and putting that investment to work. “In doing so,” says Van Niekerk, “you can then start proactively managing your investment strategy, making sure that it starts playing an active role in your wealth planning towards your retirement, rather than it being something dormant that you simply left behind.”