Pensions: Act Now, Benefit Later

Jess:
Hello, and welcome to the third episode of the Essential Finance content series in partnership with bdhSterling focused on providing financial tools for the Australian business and expatriate community in the UK.

I’m Jessica Sullivan, the member engagement and project manager at the Australia – UK Chamber of Commerce. In the third edition of our six-part video series, we will focus on Pensions: Act Now Benefit Later, and how this compliments our series today on how to best equip the repatriate and expatriate community with the tools and advice to manage their wealth.

Our valued sponsor for this series is bdhSterling, and they are a key partner for our chamber member network, given their considerable experience in financial planning and wealth management.

Today, Paul Davies co-founder of bdhSterling and Head of International Pension Advice joins me for our episode on pensions. Or, as it was commonly known in Australia, superannuation. I’m delighted to speak with you today Paul, welcome and thank you. I trust your well for a Tuesday in April, particularly with parts of the UK opening out a little more yesterday.

Paul:
I’m very well, thank you, Jess. Thank you very much for inviting us to speak today.

Jess:
Sensational, let’s dive right in. Why should we be prioritising how we think about pensions? When should we start thinking about a pension and how to set it up for the long term?

Paul:
Well, it all depends, for an individual on what they want to be doing in the future. What they pitch their lifestyle to be in the future? Several questions kind of within that, particularly very topical with what we’re talking about today, where does someone want to be living in the future? Where do they want to retire? Do they see themselves in the current role, the current job throughout their working life? Do they see their working life, easing off towards retirement? So, it’s very much  part of the consideration moving forward really. As to planning now, prioritising maybe now those sort of things for the future really.

Jess:
Thanks so much, Paul. It’s definitely something we need to have on our radar as a priority. With that in mind, what’s the best way to structure your pension fund between the UK and Australia for an optimal return? Are there any contribution incentives we should be aware of in each country?

Paul:
Well, yes. So, if you’re working here in the UK, and you’re contributing and your employer is contributing to a pension here in the UK, there are big tax incentives at the savings end of your employment, and your contributions towards pension.

For example, if you and your employer are contributing towards a UK pension there are tax incentives on the way in. So, the government will provide for both you and the employer tax relief, on contributions on the way in. As well as that in the UK, whilst you’re growing your UK pension funds, all the growth within the UK pension is tax-free. Your incentive there in the UK, it’s very much at the front end.

Now, when you come to take your benefits and if you’re retiring in the UK, 25% of that fund can be returned to you tax-free at retirement, which is currently aged 55. Everything else over and above that would be assessable for tax in the UK.

Now, in Australia, if you say it’s like under the bathwater, it’s the other way around. So, if you go and contribute and your employer contributes to ‘Super’, there is little to no tax breaks at the front end. Then as the fund is in the accumulation stage, the funds are assessable for tax in Australia.

When it comes to taking the benefits, preservation age retirement age 60, the entire funds can come out, tax-free so there are two kinds of ways of incentivising really. In the UK it’s very much the front end, in the buildup stage. In Australia it’s very much at the end, when it comes to retirement and you’re taking your benefits.

Jess;
Thank you for that. Well, that’s really particularly helpful when you weighing up the comparison between the two countries there. Finding and bringing pension funds together is a real challenge. Do you have any advice for those considering consolidating their pension funds, and is it actually possible?

Paul:
Yeah, I mean throughout people’s working life they will go from job to job, career to career. They’ll be picking up pensions on the way, with each employer as they go along. For those people it’s very plausible, particularly if you’re building up pension funds, in Australia, and in the UK to maybe kind of lose track of what you’ve built up, particularly if you do have several employers during the course of your career.

What I would say, is yes you can consolidate your funds. You should really take advice before doing so. You would want to consider whether you would be consolidating your funds in the UK or in Australia, or maybe consolidating the UK before moving to Australia.

It all depends really on what your retirement plans are, you would think to take advice first, not just to look at the planning for the future, but also looking at the various types of pension contracts they you’ve got. The funds available? The charges. Are there any exit penalties? Is your employer contributing for one scheme or another? You wouldn’t necessarily want to move out of that and consolidate in another scheme if you’re going to lose the employer contributions going in. So, there are various different points to consider before consolidating funds, so yes it possible. But I would say take advice first.

Jess:
Very reassuring to hear Paul. That’s exactly why we’ve got this partnership with bdhSterling. You mentioned this very briefly before around lifestyle, kind of lifestyle that you do want to have when you get older, but the question remains. How much do we actually need in retirement? Are there any milestones we need to reach to ensure a good pension?

Paul:
Well, that’s a very good question in terms of milestones because it’s very, very individual thing. So, how much you need in retirement, will depend on what you’re looking to do in retirement. Depends on what your plans are in retirement.

For example, are you looking to retire early? In which case, if you are looking to retire early, then you need obviously look to be building up your funds earlier. It sounds very straightforward when you think of it like that.

On top of that, you’ve got to look at some of the your assets and particularly your liabilities outside of your pension. If you are going to retire early, do you have the money aside to pay down a mortgage? Or you don’t necessarily want to go into retirement and have a mortgage hanging over you. A lot of people are having children later in life as well. Very common with, with career people. In which case, do you want to be able to still provide for your children? Are you going to then need to still be kind of working later in life?

The milestones are very, very individual. Depending on when people want to retire, where, where they want to retire. What they’re looking to do in retirement.

There wouldn’t be a fixed figure, say oh you’ll need X amount of money by the time you’re forty because it depends on what you’re looking to do. Again that’s why pensions are very much part of a cash flow, financial planning forecast where advisers like ourselves, we can sit people down and say well, this what you’re looking to do in retirement. This is what you need to do in order to get there and we can come hold people’s hands and journey along the way. There are bumps in the road, things change, in which case we can adjust the plann in order for people to be able to attain the time that they desire.

Jess:
Fabulous. Ensuring our funds are set up as advantageously as possible certainly puts us in the driver’s seat so we’re beneficiaries of this work when we do come to retirement.

Closing out today’s episode Paul, how do our network get in touch with you and your colleagues at bdhSerling so they can maximise their pension setup?

Paul:
So, you can contact us through our website www.bdhsterling.com or you can call our offices here in the UK. All the details are on our website. Also, we do have offices in Perth, Sydney and Melbourne, which you contact in Australia.

Jess:
Sensational you’ve got good coverage there Paul. It’s been a real pleasure to chat with you today and I thank you once again.

In the next video, I’ll be speaking to Paul Lawson-Tyers who will be focusing on career wealth management, taxes and salary sacrifices. Stay tuned for the next edition of the Essential Finance with our partners, bdhSterling.