Moving abroad is an exciting time which promises to open up many new friendships and opportunities. However, it’s essential to understand the full financial implications and to review insurance, pension and savings arrangements as early as possible – writes Tim Cox, Director of Star Capital Finance.
Expat teachers can often access much needed cash tax-free by transferring their frozen UK pensions to an offshore QROPS
The opportunity to work abroad is both exciting and sometimes a little worrying, as you experience a new social and work environment. Often, the decision to move abroad has to be made quickly and there is not enough time to plan everything properly.
For the fortunate, they will arrive at a school where they already have a well-grooved program that helps new arrivals settle in quickly.This can include everything from helping to open a bank account in the new country, to providing a ‘buddy’ who can help them settle in and answer any queries. Many of the better schools will even go out of their way to provide help with accommodation and understanding the new work environment.
Unfortunately however, some new teachers are left to either sink or swim on their own.
UK pension will cease
Often when teachers move abroad, very little thought is given to what they need to do about their personal financial situation. Many do not realise that their UK pension will automatically stop and they will cease to be a UK resident and therefore not need to pay tax in the UK. Instead, they will invariably end up paying tax in the new country and have very little understanding of how this works. It’s also very likely that the new country will not provide any pension for expat teachers working on short term contracts abroad. Unless teachers make their own arrangements, they may end up with a large gap in their pension planning.
Teachers, like all expats, move away for the excitement, the opportunity to experience different cultures and people and the option to potentially save more. This is, however, not often achieved, as once in the new role, teachers are often too busy to review their new financial situation and years can go by without any planning taking place. This can be disastrous, as with the UK pension frozen and with no new contributions being made, there can be a large gap in their pension planning.
In the past, where teachers have worked abroad in places like the Far East and Middle East, these postings were often only for a few years and were very well paid as they were considered ‘hardship’ postings. Nowadays this is not the case and many head to destinations in Europe and the Far East, possibly remaining there for many years. Some never return to the UK. Salaries in many locations are no better than in the UK, so it’s necessary to stay out of the UK longer to cover the moving costs and to make the posting financially viable.
‘Consider your long-term financial needs’
Clearly a move abroad needs careful financial, as well as logistical planning. Before moving to the new position you need to establish if your new job provides you with medical cover, life insurance and a pension. You also need to work out how you will be paid and whether you need to open a new bank account in your new country. Once these points have been resolved, careful thought then needs to be given to your long-term financial needs. This can only really be achieved by sitting down with an ‘Internationally Experienced Independent Financial Adviser.’
Finding such a person is never easy and it is essential that you find someone who has been recommended by friends or an organisation you can trust. Teachers are fortunate in this regard as they have organisations like the Council of British International Schools (COBIS) to help them. COBIS can vet companies and make sure that advisers have the experience and qualifications to provide valuable help and support to teachers, and advice based on the needs of the teacher concerned.
At the moment there is much concern in the UK around the whole topic of pensions and how the current government is tackling this. Already they have slashed the values of teachers’ pensions and are increasing the retirement age. It is clear that this is just the beginning, as pension schemes like the Teachers Pension (TPS) are unfunded by the government and monies are provided to teachers when they retire through taxes that are paid at the time. Governments around the world are now beginning to understand this is not sustainable and are trying to figure out ways to save money. As the populations in Europe and the US get older and with fewer workers to fund the retirement needs of the elderly, the pension problem will only get worse.
Taking out a ‘QROPS’ could be the way forward
Those moving abroad have the opportunity to do something about this. In fact, for many it could prove to be incredibly financially beneficial. Due to changes in financial legislation brought about by the EU regarding free movement of labour and pensions, an opportunity for expats was created called a ‘QROPS’.
QROPS, short for ‘Qualifying Recognised Overseas Pension Scheme’, gives those who take up residence outside the UK the ability to also transfer their pension out of the UK. Although the scheme has been slow to catch on, it has now become one of the most talked about topics in the expat world. For teachers it means they can write to the TPS, who are then legally obliged to quote them a transfer value.
Once a valuation is obtained, things become more complicated as there are so many different QROP options dependent on personal circumstances. This is where the help of a professional is needed and again, it makes sense to use someone who is recommended.
For many, this has been life changing as it has enabled them to access cash earlier than anticipated. This can be helpful in paying off any debts in the UK, helping kids with school/university fees, deposit for a property and many other possibilities. The greatest benefit is probably the ability to take the pension out of the TPS and take control. With what is happening regarding pensions in the UK now, it is clear that the situation will only get worse and that the real value of teachers’ pensions will continue to decline as the government ‘engineers’ cunning ways to reduce this liability which they know they cannot meet.
One benefit for those teachers who can take advantage of QROPS when they move abroad is that it locks in the current value of their pension NOW, before this amount is further reduced by government meddling. For those with significant pension pots, it also enables them to hand down any balance to loved ones when they die, rather than leaving it to the government, which is what happens if the pension stays in the UK.
This article was written by Star Capital Finance (SCF) who is supporting members of COBIS and work closely with them in helping to provide teachers with the kind of advice discussed above. SCF also regularly attend COBIS conferences and speak at various events to highlight key financial issues of concern to teachers. SCF offer teachers free impartial advice either before or after moving abroad. They can be contacted via email: firstname.lastname@example.org or phone: +420 731 375 850