Expats and international workers who have spent two years contributing to a UK occupational pension scheme need to check their funds are not at risk if they no longer work for the employer running the scheme.
The rules are that if you leave after two years you are entitled to your contributions back – or if you have more than three months with the scheme, you can transfer them to another pension fund.
But – most schemes will close your account with the fund if the transfer is not made within six months of leaving the company.
So what if your contributions have been by salary sacrifice?
In this case, you have not made any contributions at all because salary sacrifice is paid in to your pension by your employer not you.
The net result of salary sacrifice is often that you accept a reduced income in favour of a payment in to your pension, which saves you and your employer national insurance contributions – but if you leave and request a return or transfer of the contributions, you will find that the cash belongs to the employer and not you and the repayment goes to them.
This is a salary sacrifice pitfall that most pension scheme members do not realise is awaiting them if they change jobs quickly.
What sounds like an excellent tax break at the outset actually adds up to a lesser salary for the time you are with the employer and no pension savings.
Expats and international workers should take independent tax and pension advice on salary sacrifice schemes. This pension pitfall can rob many well-intentioned pension savers of significant cash.
The six-month transfer rule is beneficial to employers, who can act to get their cash back, but employees unaware of the rules are in a much poorer position.
An alternative is to discuss a QROPS scheme with your pension advisor before agreeing a salary sacrifice if you are intending to become an expat or are an international worker leaving the UK.
Running the figures may show alternatives like taking the rather than accepting the lesser salary in lieu of pension contributions or other benefits is the better option.