The lifecycle of an international athlete: important pension considerations

Posted: 18/10/2017

This article was originally published as a blog on leading sports law website LawInSport in October 2017. It has since been updated for accuracy and comprehensiveness both here and on the LawInSport website.

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, 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 (eg 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?
• Examples: pensions for footballers and 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:

• defined benefit (or 'final salary') pension schemes which provide benefits at a guaranteed level on retirement (by reference to a proportion of final salary or some other measure); or, 
• defined contribution (or 'money purchase') pension schemes, under which the benefits are calculated by reference to the contributions made by the employer and/or employee into a pension account plus any investment increases. This type of pension provision does not provide a guaranteed value of pension at retirement.

All employers in the UK are required, under a system of compulsory pension savings  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 and then both the athlete and the employer will make contributions into the scheme. 

Sportsmen and sportswomen 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 (who do not qualify for automatic enrolment due to their age) 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 which was prescribed under tax rules (called the 'lifetime allowance' (LTA)), which stood at £1,073,100 for the tax year 2022/2023. 

For those who fell into this category, building up further pension benefits in excess of the LTA might have resulted in a charge to tax (the 'lifetime allowance charge' or 'LTA charge'). If they had claimed 'protection' from the LTA charge under UK tax rules, they might have lost that protection if further pension benefits were built up.

However, the government announced in the Spring 2023 Budget that the LTA charge was being removed from the start of the 2023/24 tax year, pending abolition of the LTA itself from the start of the 2024/25 tax year. 

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 were previously at risk of exceeding your LTA and/or if you have existing tax protection – this advice should be taken prior to enrolment into your employers workplace pension plan.   

Examples: pensions for footballers and rugby players

We have set out two 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 sign up to a registered contract with a UK football club, they will be automatically enrolled into the Professional Footballers' Pension Scheme (PFPS) once they have met any eligibility requirements. The PFPS is an occupational (i.e. trust based) 'defined contribution'  pension scheme (you can choose to opt out if you prefer). 

Footballers in the PFPS each have their own pension account. From 1 August 2023 the contribution paid on the footballer’s behalf into their PFPS pension account will increase to £6,660 per annum (subject to future changes), paid in monthly instalments. The annual contribution is invested in accordance with the scheme’s standard default investment strategy, although there are alternative funds that you may choose.

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 earliest age at which pension can be taken for athletes, including footballers and rugby players, is 55 even though retirement from your sport will usually be during your mid to late 30s (footballers who joined the PFPS prior to April 2006 may be able to retire at age 35). 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. It is important to take advice from a professional independent financial advisor (IFA) on the level of pension savings you will need to meet your needs on retirement and any action you should be taking now to protect your financial future.

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 (subject to the type of scheme) can be taken entirely as cash from age 55. However, 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 any lump sum 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. It is sensible to take this advice regularly through your sporting career, and, in particular, you should consider taking advice before joining a particular scheme, if you change career or leave the UK and when you reach age 55 or are considering taking your benefits. 

An 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. There is a service backed by the government which offers free and impartial assistance: Money Helper - Pensions Advice, though given the complexity of pension arrangements and the particular lifecycle of an athlete, it would be advisable to seek help from an IFA to get advice applicable to your specific circumstances.

If you have any difficulties finding an appropriate IFA, contact the Financial Conduct Authority which holds a list of regulated financial advisers.

This blog is for your information only.  Please always seek specialist legal and independent financial advice if you are uncertain about any of the points or steps discussed.

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