IFA in Spain

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Is it a good idea to transfer?

With transfer values at record highs from UK final salary schemes, we have seen a huge increase in the amount of enquiries from expatriates living in Spain who are interested in transferring out of what were once branded ´gold plated´ pensions.

But it´s not only the high transfer values that are dictating sentiment. After all, a guarantee of benefits is only of value if that promise can be upheld - and around 75% of the 600 final salary (or defined benefit) schemes in the UK are in deficit. The Pension Protection Fund (PPF) set up by the UK government is supposed to guarantee the members of any scheme in difficulty up to 90%, capped at £30,000 per annum. The issue here though is that the PPF is not funded by the UK government but by the schemes themselves. Furthermore the PPF has a mandate to lower that guarantee should it become unsustainable and there are many schemes who are relying on the PPF now.

Having said that, the main driver is high transfer values. These values are directly affected by the interest paid on government issued bonds (the yield on gilt-edged securities). The lower these yields, the higher the transfer values tend to be - and in a modern world of low interest rates, bond yields have really suffered.

Blacktower wealth in Spain

Real Case Scenario

Pension benefits if member remains in the scheme
Guaranteed Minimum Pension (GMP) built up after 5 April 1988 £459.68 a year. Plus scheme pension (over the GMP) built up before 6 April 1997 £3,331.98 a year. Plus scheme pension built up after 5 April 1997 a year £6,861.11 a year. Resulting in a total pension from retirement date of £10,652.77 a year The total Scheme pension is increased by a fixed 5% a year. Spouses pension on death of member 50%. 

Guaranteed transfer value if member leaves the scheme
Scheme pension built up before 6 April 1997.
Transfer value of GMP £21,554.
Plus non contracted-out benefits £168,091.00.
Scheme pension built up after 5 April 1997.
Plus non contracted-out benefits £332,262.00. Overall guaranteed transfer value = £521,897.00


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