The new UK government is trying to do everything in its power to revive the economy and a major portion of that effort is aimed at the pension system. We covered quite a few of the new planned reforms including the ones mentioned in the “King’s speech” in a previous article and in this post we’re going to talk about CDC’s and why they aren’t all that they’re cut out to be. A defined contribution pension is one in which employer, employee, or both contribute monthly to an account, the total of which is given to the pensioner, plus any interest earned on investments. This is typically a guaranteed amount paid as an income till the end of one’s life and might even include a lump sum amount. This is referred to as the DC system and is the most common pension system in the UK.
The CDC system, however, is a new pension system in the UK and stands for Collective Defined Contribution Schemes where instead of treating each pension as a separate pension pot, it’s all collected into a single pot and used as needed. While both DC and CDC schemes pay members an income after retirement, CDC schemes do not guarantee the amount that’s going to be paid, and hence do not come with a risk premium incurred from insuring pension payments. Additionally, unlike DC schemes where some people might die before they spend their pension and others might run out of money, CDC schemes pay pensions based on average life expectancy across all members of the scheme. What this means is that if someone dies early, the extra money left behind will be used to pay someone else who would have otherwise outlived his pension and run out of money.
With CDC schemes, your pension either goes up or down depending on whether the pension scheme is over or under funded respectively, that’s why the pension amount is not guaranteed.
The new switch to CDC pension schemes comes after Chancellor Rachel Reeves’ visit to Canada where she was apparently impressed with the Canada Pension Plan Investment Board which has delivered yearly returns over around 9.2% over the past decade. When you compare this with fixed-income instruments offered to pensioners in India with interest rates of up to 10.5% and guaranteed returns, at QROPSdirect.in we don’t really see what all the fuss is about. The biggest disadvantage with CDCs is that payments are not guaranteed which means there may be a possibility that pension payments will fail. That should pretty much be a deal breaker for anyone who has worked their whole life while paying taxes, national insurance contributions, VAT, and more.
QROPS FAQs
What is the QROPS transfer process?
While most websites will tell you this can take up to 6 months, contact us to get your pension transferred to India through QROPS in 30 days or less.
The following are some standard steps we take to get your pension transferred as soon as possible.
- Register yourself with an Indian Pension Provider through us.
- Apply for cash equivalent transfer value form (CETV) from the UK Fund House
- Submit Fund House Docs, KYC, HMRC Forms & Customer Declaration to Indian Pension Fund House.
- Obtain QROPS Transfer application from Indian Pension Fund House
- Transfer of funds from UK Fund House to Indian Pension Fund House
What documents are required for QROPS transfer?
The forms that are required are Cash Equivalent Transfer Value (CETV) forms which include:
- Transfer Quotation
- Transfer out discharge forms
- Lifetime allowance form
- APSS 263
- Any other form as per fund manager requirement