What with the mis-selling of pensions in the UK in the past and the dire fluctuations that the stock market has displayed in recent years, it’s probably no wonder that most Brits prefer to utilise an ISA rather than a pension these days when it comes to saving for their retirement. But then interest rates are at ridiculous lows and so ISAs are not necessarily performing well – and when you move abroad you lose the right to the tax saving advantages of an ISA anyway.
So what real pension options have expats got? Well, as is always the case when it comes to any sort of financial information or advice, we have to tell you that you are an individual, (which you probably knew already), and that any information supplied herein is generic. You will need to take personalised advice before you proceed. But the good news is, depending on your personal circumstances, there are potentially some very exciting pension-type options available to you if you live and work abroad.
The British tax authorities have recognised the fact that onshore pension schemes are not necessarily the best for Britons living overseas who are paying tax in a jurisdiction other than the UK, and as a result they have opened up the offshore pension options available to expats. If you’re wondering what to do about saving for a pension, or you have a UK based pension pot already and want to make it even more tax efficient and flexible, read on…
Traditionally British based pension schemes have been all well and good for many Brits based in the UK, but they have been less than favourable propositions for many of the estimated 5.5 million Brits who live abroad. For a start, the very tax saving benefits that people take out a pension for are usually lost when you move abroad, and so this renders a pension nothing more than a fairly dull and average savings scheme with major restrictions applied at the point of draw down. So, for once in their lives HMRC have been kind to expat savers and introduced a new scheme called QROPS – the acronym stands for Qualifying Recognised Overseas Pension Scheme.
When initially introduced these schemes had a few gaps in the tightness of the legislative wording governing them, as a result a few offshore centres and finance houses sought to immediately exploit the schemes and since then the government and HMRC have been clamping down on such jurisdictions and companies – but if you want a fully qualifying and recognised scheme that offers you the following potential benefits, they are certainly out there and available.
Potential QROPS Benefits – in a Nutshell
• There is no requirement to buy an annuity with a QROPS – unlike a traditional onshore scheme
• This potentially allows the fund to be invested more effectively
• The remaining value of the pension can be passed on to heirs – whereas with an annuity any remaining fund value is lost when the policy holder dies
• Depending on where the policy is based and on the circumstances of the account holder, inheritance tax may be reduced or offset with a QROPS
• QROPS are not as restrictive in terms of where funds can be invested
• Funds can be invested in property for example
• After five years the majority of restrictions that exist are removed
• Benefits can be enjoyed from the age of 50
• A cash lump sum on retirement is an option
How to Find the Best QROPS for You
As mentioned, HMRC frown on some of the QROPS that have been established, but they also have a list on their website that details many of the international schemes that they do in fact recognise. This list is updated regularly, so take a look at it. If the QROPS you’re considering is not listed, find out why. It may not be that it is not recognised, it may just be that the international scheme has chosen not to be listed. But make sure you research the validity of any scheme before you sign up. An offshore independent financial adviser will help you with this research, and they should be called upon to provide expert advice about whether or not you personally are best advised to transfer your UK based pension into a QROPS for example, and whether a QROPS offshore pension scheme is indeed the best choice for you and your retirement savings.
Do not proceed until you have sought expert financial advice…