Lecturers Retiring Abroad Should Transfer Their Pensions Offshore as USS to Close
Professors who have worked in the UK and considering retiring abroad can transfer out of their USS pension scheme and into a QROPS to avoid UK taxes. Other benefits include being able to access their pensions at 50, choosing which currency their pension is held in as well as being able to decide what investment managers or mutual funds they wish.
University Final Salary Schemes (USS) to Close
The largest pension fund in the UK, the Universities Superannuation Scheme, is set to close. The deficit of the USS now amounts to an incredible £50 bn. That is up £47.1 bn from 2011. No wonder they are closing it as the liabilities spiral out of control.
The USS is the UK’s largest pension scheme with over 300,000 members.
The final salary section of the scheme was closed to new members in 2011, with a less generous system of benefits based on career average salaries introduced instead.
The USS board is now in negotiations with reps from the employer and union. There is discussion of a proposal to switch all existing members into the career average section.
The USS pension scheme has been boosted thanks to recent highs in the stock market, but the debts have risen due to increased life expectancy and falling bond yields, which make up the “discount rate” used to calculate future liabilities.
Do I Have to Pay UK Taxes on My USS Pension as an Expat?
If you are a professor or lecturer and considering retiring overseas, you will have to pay UK taxes on your pension in most cases even if you live offshore. A move to a QROPS will help avoid UK taxes on your pension income and avoid the UK death tax.
Expat Lecturers Can Transfer Out from the USS and Avoid UK Taxes
If you are an expat professor or lecturer considering moving abroad or retiring abroad, you can transfer your monies out of the USS, but this is the last year to do it before HMRC slam the door shut on transfers out.
Why transfer a pension out of a USS?
- With low interest rates, the calculations to transfer out will give a higher pot than if interest rates rise
- This is the last six months to transfer out then no more transfers are allowed
- Avoids death tax in the UK of up to 55%
- Avoids income tax in the UK of up to 45%
- Avoids any lump sums from your pension becoming part of your assets and inheritance tax upon death of 40%
- You can invest in the mutual funds of your choice and seek the top performing mutual funds
- You can choose to avoid currency fluctuations by transferring into the currency of your local country, e.g. USD or EUR if you wish.
How Do I Transfer Out of a UK University Final Salary Scheme (USS)?
You can apply for your USS benefits to be transferred to an overseas pension scheme as long as that scheme allows it.
We recommend looking into a transfer to an HMRC-approved QROPS.
You can transfer out of a USS scheme to a QROPS at any time except within 12 months of the normal pension age.
You cannot transfer out if your pension is already ‘in payment’. You can read more here about USS schemes in payment.
The transfer payment is worked out by converting the value of your USS pension rights, including any service purchased including any AVC’s, to a current cash equivalent dependent on your age and other longevity related factors.
The final pension pot calculation also takes into account fluctuations in the stock market, but includes no allowance for the value of discretionary benefits. Any AVCs you have paid into the money purchase AVC fund would also be transferred at current value at the time of transfer.
You can investigate more on whether to transfer or not in this guide to transferring out of a USS pension scheme.
QROPS Warning – Transfers Out from a USS Scheme
Please note that you would lose any guaranteed benefits when transferring out of a USS scheme, however, you would get a higher cash lump sum and avoid all UK taxation as long as you retire abroad and stay abroad.
You can take a higher cash lump sum (30% instead of 25%) and you can take your pension at 50, under certain circumstances, but you cannot cash in 100%.
If you leave your pension under a USS scheme, you will have to wait until retirement age under a USS scheme to receive benefits whereas you can take it at 50 or 55 under a QROPS.
A QROPS is for someone who is genuinely going to retire overseas and doesn’t see the sense in leaving their pension in the UK and paying UK taxes.
How Do I Get a Transfer Value for My USS Scheme?
Please email us and we will draft a letter to send to the USS in order to transfer your pension overseas.
Where Can I Transfer a USS Pension to?
Please click the links above to learn more about each scheme.
In general, if you are retiring in Europe, Australia, the USA, Canada, a USS pension transfer to Malta may be more suitable whereas a USS pension transfer to a scheme in Gibraltar may be more useful if you are retiring anywhere else in the world.
A QROPS transfer avoids all UK taxes, but there may be a tax on income in the country you intend to retire to. Please contact us at QROPS Specialists to find out more and get a free pension transfer analysis.Expat Lecturer or Taught in the UK? Transfer Out of a USS Pension and Avoid UK Taxes by Richard Malpass