Pension jargon explained for expat retirees

Making sense of the financial jargon common to all in the financial services sector can be a challenge for even the smartest would-be expat, but it’s essential to avoid being seen as an easy target.

Britons coming up for retirement and considering emigrating could be forgiven for suspecting they’re being set up by anyone who claims to be a financial adviser. The truth is that there are far more good apples in that particular barrel than there are downright scammers, but even the good ones use financial jargon that’s tricky to understand for those not in the game.

Even the smartest of us can feel faint when confronted with technical terms and acronyms we’ve not encountered previously, and it can be excruciating to have to ask for an explanation every few minutes. Bellow are a few common financial phrases and their translations into everyday English. All concern pensions, perhaps the most important aspects of a successful and enjoyable retirement.

The term ‘annuity’ is straightforward, referring to an investment giving a guaranteed retirement income for life which is purchased with a pension pot. They come in varied forms, and aren’t as popular as they were before pension freedom kicked in. The ‘state retirement age’, due to apply to all at the age of 66 by October 2020, is self-explanatory, but those retiring before that threshold need to check their entitlements.

‘Defined benefit pensions’ are calculated on your years in your job and your earnings, with both determining your income in retirement. They’re also known as ‘defined benefit schemes. ‘Defined contribution pensions’ returns are calculated in relation to the value of the investment fund at the time of retirement. Most private pensions are these. ‘Workplace pensions’ as provided by your employer, are typically defined contribution schemes although they began as defined benefit schemes.

‘Income drawdown’ allows retirement savers to access their pension cash under ‘flexi access’ rules, leaving the remainder of the fund intact. ‘Flexi Access drawdowns’ allows the retiree freedom at the age of 55 to take cash from the pension as a lump sum, regular income payments or a combination of lump sums as and when they’re needed.

‘SIPP’ refers to a self administered personal pension offering a wide range of investments to savvy retirement savers, and is subject to UK tax laws. On the other hand, the offshore-based ‘QROPS’ is aimed at expat retirees and is exempt from UK tax laws. However, the law states that a QROPS transfer which isn’t exempt will be liable to a 25 per cent tax, suggesting that checking out HMCE’s list of registered and lawful QROPS offshore jurisdictions is a good idea.

Tags: HMCE Registered QROPS list, self administered personal pension, defined benefit pensions, workplace pensions, common financial phrases, state retirement age, defined contribution schemes, expat retirees,