At present, the majority of people nearing retirement age still choose to exchange their pension savings for an annuity, which will pay out the same income for life. However, with annuity rates lower than at any time in history – and continuing to fall – those who have the luxury of doing so, namely expatriates, are more and more likely to consider transferring their pensions to an overseas jurisdiction.
Nigel Green, chief executive of the deVere Group explains:
“Annuity rates are at rock bottom and we believe that it’s highly improbable that they will rise any time soon, meaning taking out an annuity is a significant risk. As they are linked to interest rates, which are plummeting, many who have opted for an annuity in recent times have found themselves with a smaller pension than they had hoped for.
“In addition, the low interest rates are also plunging more and more defined benefits into deficit. Indeed, 80 per cent of defined benefit schemes in the UK are currently in deficit, meaning that many people could find that they simply cannot afford to retire.
“The majority of defined benefit schemes have now changed their rate of escalation from RPI to CPI and whilst this is good news for a company’s balance sheet it does mean that retired employees will receive lower benefits then they expected
“To avoid taking this risk of buying an annuity, an increasing number of those who can – those who live abroad – are moving their retirement funds into a QROPS.
“Low annuity rates are, without question, prompting retirees to take their pensions out of the UK.”
Since April 2006, when such schemes were first established, more than £1.3bn has been transferred out of the UK and into QROPS and, according to official HMRC figures, the amount moved has been increasing year on year.
Mr Green says:
“Pensioners are becoming permanently poorer due to low annuity rates and therefore, to safeguard their retirement income, a growing number are transferring their pensions out of Britain and into QROPS”.
