New rules relating to pensions in the UK were introduced in section 169(1)(b), (under “Recognized Transfers”), of the Finance Act 2004. It was this Act that introduced ‘pension simplification’ as a concept, and it came into effect on the 6th of April 2006 bringing with it new transfer rules known as ‘the QROPS rules’ that relate specifically to transferring UK pensions to overseas pensions.
Since these rules came into effect, it’s fair to say that expats have a much better choice in terms of their pension options!
QROPS is an acronym that stands for Qualifying Recognised Overseas Pension Schemes. If you’re already living abroad with a significant pension pot sat idly by in the UK, you’re considering moving abroad within the next twelve months, you’re planning to live and work abroad and save towards retirement, or you’re certain you want to retire overseas one day or live abroad for at least five years, this article has been written with you in mind.
The new pension rules that introduced the concept of QROPS are particularly beneficial to expatriates, and they mean that ‘pensions’ as a financial concept and means for saving towards retirement are finally far less dull, restrictive and inflexible!
If you want to have personal advice about your pension situation rather than read specifically about QROPS, it’s imperative that your individual position is reviewed by a professional and independent wealth manager – to that end the QROPS Guide.com is a fantastic resource, or we can put you in touch with such an individual if you contact us detailing your basic position. Ultimately you need to know which is the right path for you to take towards the management of your retirement savings based on the options available to you today, and with consideration given to your entire financial position as well as your long-term plans relating to relocation, repatriation or retirement abroad for example. A wealth manager will help you find the right way forward on an individual and personal basis.
In terms of defining potential QROPS benefits for British applicants, they can briefly be summarised as: -
• No need to ever purchase an annuity
• You can leave unspent pension to your heirs tax efficiently
• Tax-free lump sum withdrawal possible
• Freedom of currency and investment holdings
• Receive your pension payments in your local currency
• Low-cost charging structure
• Removal of your pension from the UK
• Removal of your pension from UK’s ever-changing pension rules and economic position!
Note: the most significant benefits come in to play when the account holder has been non-resident in the UK for at least 5 tax years, because then the reporting requirements to HMRC end. QROPS are also potentially more beneficial to those who have no intention of returning to Britain in the foreseeable future. This is because once a pension scheme has been transferred into QROPS and the account holder has been non-resident for at least 5 years, then the QROPS provider is under no obligation to report any actions such as withdrawals or payments to the UK tax authorities.
In addition to this, imagine if your QROPS provider is in a country where payments from such schemes are made tax-free - then pension related income can potentially be legally enjoyed without the deduction of tax! Although do bear in mind that your liability to pay tax may be dependent on your country of residence at the time of receipt of monies.
Other benefits of these Qualifying Recognised Overseas Pensions Schemes for eligible British applicants include the fact that you are under no obligation to purchase an annuity by the age of 75 or be faced with a possible 82% tax charge if you do not!
A significant proportion of a ‘traditional’ and onshore British pension has to be taken in the form of an annuity. This restricts investment freedom and it can restrict how you pass your wealth on to your loved ones when you die. With QROPS however, you are under no obligation to use your pension to purchase an annuity. Simply put, without the obligation to purchase an annuity you can invest your hard earned pension pot into potentially better returning assets and gain the very real advantage of passing remaining funds upon death to your beneficiaries, instead of having your pension fund die with you.
QROPS allow the investor significantly more freedom when it comes to how funds are invested and how income and gains are used too. For example, with a Qualifying Recognised Overseas Pensions Scheme you gain investment freedom, you can invest in onshore or offshore funds and access the highest fixed deposit rates available whilst achieving total investment diversification. Depending on where you live, you may be able to enjoy your pension income in a highly tax efficient way. You can leave unspent monies to your chosen beneficiaries upon death, take your income in the currency of your choice, protect your assets against possible future creditors potentially, and likely achieve greater confidentiality relating to all your investment activity.
In terms of defining QROPS considerations for British expatriate applicants, they can be briefly summarised as: -
• If you are considering a transfer in, ideally your pension fund will be worth at least £60,000 to qualify for the best QROPS available
• Funds become privatised when transferred into QROPS, therefore protected rights may become non-protected
• Occupational and final salary schemes may be eligible for QROPS transfer unless they are in drawdown
• State and government pensions are usually non-transferable
• To be eligible for income withdrawal you have to be 55 or over
• To most likely be entitled to the massive potential benefits and tax savings available with QROPS you need to live outside the UK with no plan to return within the next 5 years
So, is a QROPS potentially right for you?
Potentially YES if: -
• You have private or personal UK pensions of at least £60k and now live abroad
• You are planning to move abroad in the next 12 months
• You plan to be out of the UK for at least 5 years
• You have been out of the UK for 5 years already
Potentially NO if: -
• You have purchased an annuity already
• You are already drawing down your company/occupational pension
• You only have a state pension
• You are still UK resident and have no intention of expatriating
However, before you make any final decisions or take any action, you need specific information and advice that is appropriate for your personal position. As mentioned at the beginning of this article you need to seek personal and qualified advice from a wealth management expert. You can contact us to be put in touch with such an individual if you would like to take our recommendation…alternatively, ensure the person you approach for advice is qualified, independent and a specialist at giving QROPS advice to expatriates like you.
Finally, QROPS are not the right approach for everyone, and taking a wrong turning when planning your retirement and deciding on your pension options can be disastrous.
Remember the following: -
• QROPS may not be right for you if you have purchased an annuity already
• Nor if you are already drawing down your company/occupational pension
• Nor if you only have a state pension
• Nor if you are still UK resident and have no intention of expatriating
• Consideration has to be given to your plans for retirement
• You will need to consider whether you have beneficiaries and whether you would like to leave them assets upon your death
• Your risk profile needs to be considered
• Investment options within any recommend QROPS should be examined
• The exchange rate on transfer is important to bear in mind
• The tax regime in the country in which you live and/or in which you will receive your pension needs to be taken into consideration
• Tax rules in the country that the QROPS is based are also a factor
• And finally your adviser must consider whether there are any transfer options from a chosen QROPS in case you ever want to transfer funds out
Get advice before taking any action.
