Prudential – Taking your pension
Have you recently received a letter from Prudential regarding your existing scheme and taking your UK pension? The letter states the following headings:
- Fund Value
- Taking your pension
- Make an informed decision
It is meant to be a clear summary of the options available to you now that you have reached retirement age. Unfortunately, however, it reads terribly badly and is confusing at best. We are therefore going to break down the information and your options within this article and hopefully achieve some clarity by the end of it. Please note this specifically relates to those who reside OUTSIDE of the UK.
Prudential Pension Quotation – Fund Value
Here, Prudential will have stated a fund value as of a specific date and confirmed that this figure is guaranteed for 30 days. This is the gross value of your existing pension, should you wish to withdraw or transfer out of the existing scheme this is the value of monies you currently hold.
Upon turning the page Prudential breakdown the Pension Quotation.
This offers you the following:
Fund value (as of specific date) – as explained above
“Our annuity rates“ – this refers to what annuity rate you could achieve if you are to buy a Prudential annuity that would offer a guaranteed income. This raises 2 issues:
- If you live outside of the United Kingdom buying an annuity in GBP creatives substantial currency risk. For example, you received £10,000 per year and live in France, in January 2019 you would have received €924.90 euros for the month compared to €977.49 for December. If the currency were to move the other way it would create a substantial shortfall.
- Annuity rates are at an all-time low, as such, it is a terrible time to be purchasing one. It would be far better to invest in fixed income funds that provide an income for the short term and then look to purchase an annuity once the rate improves.
- As a non-UK – resident you may not even be able to purchase a UK annuity via Prudential or not.
- A reduced “annuity” upon taking tax-free lump sum – This refers to taking the 25% tax-free cash (tax-free in the UK) and then purchasing an annuity from Prudential life insurance company. The same applies here to both annuity rates and purchasing a GBP annuity as a non-resident.
Guaranteed to hold figures – this is just confirming your monies are currently held in cash and that is how they can guarantee the value of the policy for 30 days as it is not invested.
The estimated value of the pension pot as a percentage of your Lifetime Allowance limit. The current LTA is £1.055m, anything over this (without LTA protection applied for an in-place) can incur additional taxation upon drawdown or transfer. Prudential is simply confirming the value of your pension as a percentage of this. If your pension value is close to or over the LTA then you should take advice on the options available to protect you from additional tax both now and in the future.
The fund can be transferred through the open market – this relates specifically to transferring out of your existing Prudential scheme. May this be for access to your monies, greater control over the investment, negate currency risk or future inheritance tax planning.
Illustration based on standard annuity terms – this is self-explanatory regarding standard annuities offered by the Pru.
Make an informed decision – Key Factors to be considered
Are you able to access your prudential pension as a non-UK resident?
If not, what are your options? What is your desired retirement income? What are your investment options? Do you require regular income?
What is your intention for your pension? Drawdown, income generation, capital growth, and IHT planning
For the above to be answered the first step should be to speak to a regulated financial adviser for specific pension advice. Harrison Brook are cross boarder UK Pension transfer and wealth management specialists. We provide financial advice to ex-pats here in France and throughout the world, taking a holistic approach to financial planning.