The lifecycle of an international athlete: Part 5 - Important pension considerations
Published 04 October 2017 By: Clare Coley
This is the fifth in Penningtons Manches’ series of blogs addressing the key legal issues that international athletes and their advisors should consider before coming to work in the UK.
Pensions expert Clare Coley looks at the importance of pensions savings. This is in the context of professional athletes having a relatively short career and therefore needing to manage their finances carefully in order to provide for a future after retirement from professional sport.
Athletes coming to the UK from abroad should actively consider their options for pension saving in this country, prior to moving here. With the recent changes (see below), pensions should be regarded as part of their overall wealth management and savings strategies. There is a lot to play for!
This information is directed chiefly at those who will have long-term stays in the UK (e.g. footballers staying under a five-year contract). For shorter visits, pension savings may not be particularly lucrative but may still generate some retirement benefits (and may be automatic).
Pensions are a highly complicated area and there are many important issues to consider. This article considers:
- What sort of pension arrangements are available in the UK?
- What if I already have pension savings because I have worked in the UK before?
- Is there a pension scheme for football clubs?
- Is there a pension scheme for cricket clubs?
- Is there a pension scheme for rugby players?
- When, under whatever pension scheme I join, can I take my benefits?
- Where can I go to take further advice?
What sort of pension arrangements are available in the UK?
There are two main types of pension provision in the UK:
- Occupational pension schemes, which are sponsored by employers; and
- Personal pension schemes, which may be arranged by employers.
In June 2012, a new system of compulsory pension savings was introduced by the UK government which requires employers to auto-enrol those athletes working under a UK employment contract who are aged at least 22 and have earnings at a certain level into a “qualifying” workplace pension scheme. These can be either occupational or personal pension schemes.
Sportsmen and women who do not wish to be in the workplace pension scheme have the right to opt out of auto-enrolment and if they choose to do so, they must ensure that they follow certain procedures that their employer will explain. Younger athletes may be able to opt in to their employer’s workplace pension scheme if they satisfy certain criteria, which again will be explained by their employer.
What if I already have pension savings because I have worked in the UK before?
Athletes who have worked in the UK before may have already built up pension benefits to the maximum permissible amount under tax rules (called the “lifetime allowance”, which stands at £1 million for the tax year 2017/18).
For those who fall into this category, building up further pension benefits will be subject to a charge to tax (the “lifetime allowance charge” or “LAC”). If they have claimed “protection” from the LAC under UK tax rules, they will lose that protection if further pension benefits are built up.
If an employer enrols an athlete into its workplace pension scheme there may also be implications for any existing tax protection.
The rules are complicated, and it will be important for preserving your pension savings that you retain any protection from tax that you may currently have. We advise you to take specialist independent financial advice if you fall into any of these situations.
We have set out a few examples below. Note that arrangements vary by sport, so if in doubt contact the sport’s governing body and any members’ association for advice on specific schemes that may be available.
- I am a professional footballer. Is there a pension scheme for football clubs?
Where overseas footballers come to the UK and Register to a registered contract with a UK football club, they will be automatically enrolled into the Professional Footballers’ Pension Scheme (PFPS) which is an occupational pension scheme and selected by clubs to satisfy their workplace pension responsibilities. (You can choose to opt out if you prefer).
Benefits under the PFPS are based upon the contributions paid in, known as “defined contribution” or sometimes “money purchase”. This type of pension provision does not provide a guaranteed value of pension at retirement.
Footballers in the PFPS are given their own pensions account. Although you would not be required to contribute as the “Transfer Levy” will be used to fund a contribution currently equivalent to £4,750 per annum, you would be able to choose to pay additional contributions to the scheme to increase the level of benefits you will receive. Your club will contribute and the account is then invested in a range of investments which you can choose.
- I am a professional cricketer. Is there a pension scheme for cricket clubs?
Foreign nationals who play in the UK at county level and who have a contract with FCC (First Class Cricket county teams) for more than three months are required to sign a contract of employment under which they are auto-enrolled into a workplace pension scheme with effect from the first day of employment with any particular first-class county club, and this will continue until you leave employment.
As for footballers, you may choose to opt out if you prefer, and should consider doing so if you have claimed “protection” from the LAC under UK tax rules.
- I am a professional rugby player. Is there a pension scheme for rugby players?
There is no single, centrally managed pension scheme for professional rugby players; however if you are a foreign national who will be working for a UK rugby team, your club should have details of the workplace pension scheme which it is using to satisfy its auto-enrolment obligations. If you have any difficulty obtaining this information you could try contacting the Rugby Players’ Association (if you are a rugby union player) or, for rugby league players, the governing body for The Rugby Football League (RFL).
When, under whatever pension scheme I join, can I take my benefits?
Since 2010, the age at which pension can be taken for footballers, cricketers and rugby players is 55 even though retirement from your sport will usually be during your mid to late 30s. This reinforces the need for you to consider ways to protect your assets and savings for the longer term, so as to provide for yourself and your family after your professional playing career finishes.
Since April 2015, certain pension flexibilities as to how pension benefits can be drawn have been introduced, for example pension benefits built up under a money purchase arrangement can be taken entirely as cash, but this depends on the size of the pensions pot.
It is essential for you to take appropriate financial advice when considering how and when to take your pension (it can be deferred beyond 55) as there are a number of potential tax consequences. It should form part of your general tax planning. For example, cash payments of pension benefits can trigger income tax liabilities which could result in a requirement to pay a significant portion of the pension to HM Treasury.
Where can I go to take further advice?
It is prudent to take independent financial advice prior to making decisions about your pension arrangements. Key times will be before joining a particular scheme, if you leave the UK, and when you reach age 55.
A professional independent financial adviser (IFA) would be able to examine your financial circumstances and advise on the best arrangements for you. Some IFAs work closely with professional athletes, particularly footballers and rugby players. The Pensions Advisory Service offers a free information and advice-giving service, but mainly where there is a dispute, so this may not be particularly helpful for planning your affairs although it might be able to give you some general help.
This blog is for your information only. Please always seek specialist legal advice if you are uncertain about any of the points or steps discussed.
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- Tags: Athlete Welfare | Cricket | Employment | Finance Act 2004 | Football | Pension Schemes Act 1993 | Pensions | Pensions Act 2008 | Professional Footballers’ Pension Scheme | Rugby | Rugby Football Union (RFU) | United Kingdom (UK)
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- Top 10 tips for athletes on how to protect their financial welfare
Clare, a senior associate in Penningtons Manches’ pensions team, specialises in contentious and non-contentious employment matters with an emphasis on claims prevention. She is a member of the Association of Pensions Lawyers and the Employment Lawyers Association and has been noted as ‘one to watch’ in Chambers UK.
Clare provides advice to sports professionals for their typically shorter careers and guidance for pension saving and retirement plans.