By: STEVE RODGERS
Steve Rodgers is International Financial Planning Adviser with Blacktower Financial Management Group.
A RECENT development in the world of pensions could be, for many expatriates, described as the best thing since sliced bread! A new type of scheme which allows you to transfer your UK pension overseas is now available and called QROPS.
For many people, the whole subject of pension schemes appears complicated and QROPS may be seen as just one more unpronounceable acronym!
However, don’t despair because the concept is simple and QROPS may be the very solution you have been looking for. So if you have a UK Pension …. read on.
It has always been possible in certain circumstances to transfer registered UK pension benefits overseas, although it was not without difficulties, restrictions and possible taxation.
Recent changes in legislation, followed by development of new products, has simplified the process and also introduced an element of “certainty”.
But best of all, QROPS offer some distinct advantages over UK pension schemes.
QROPS are Qualifying Recognised Overseas Pension Schemes.
As the name suggests, these new schemes are not some wishy-washy concept created by marketing boys but proper legal arrangements fully approved and recognised by Her Majesty’s Revenue and Customs (HMRC).
HMRC even publish a list of all the schemes which qualify. You can see this list on the HMRC website.
What is a QROPS?
A QROPS is a recognised overseas pension scheme that meets certain requirements.
The rules of the scheme must be broadly equivalent, in terms of tax treatment, to a UK registered pension scheme and the scheme manager must provide HMRC with information on certain ‘events’.
However, if the QROPS is administered in a country where pension rules are more flexible, there can be great advantages for individuals once they have been non-UK resident for at least five tax years.
Note that the individual does not necessarily have to reside in the country where the QROPS is domiciled.
QROPS structure
QROPS are structured in a similar manner to UK pension schemes; i.e. there is an investment vehicle which is owned on your behalf by a pension administrator (trustee).
This trustee must be based outside the UK and approved by HMRC as a QROPS administrator.
Through the investment vehicle you can access a wide range of cash, bond, property, hedge, equity and commodity funds – and switch between these funds as market conditions change.
Advantages
Of course, these schemes will not be right for everyone but they do provide tremendous scope for improving the flexibility and tax efficiency of a UK pension arrangement.
Once you have been non-UK resident for five complete tax years, a QROPS has huge advantages
No need to buy an annuity – Many UK personal pension schemes may allow you to draw income directly from the fund, but at age 75, you have to either buy an annuity or go into a system known as ASP (Alternatively Secured Pension), where the fund can be taxed by as much as 82 per cent on death.
With a QROPS, there is no requirement to buy an annuity at the age of 75 or go into ASP. This allows for more flexibility.
No Inheritance Tax (IHT) – Under a QROPS, the fund can pass free of IHT to your spouse or children.
Wider range of investment possibilities – QROPS generally offer a wider range of investment options, including, in some cases, direct property holdings, although most restrict residential property to that held through a corporate structure.
Loan facilities – some QROPS offer favourable loan facilities – borrow against the value of your pension fund.
More flexible benefits – dependent on the jurisdiction, QROPS can offer a far more flexible approach to the level and style of benefits payable than that offered through any
UK scheme.
This can also be in respect of the amount of lump sum cash payable.
Transfer “Protected Rights” – These are benefits that are accrued in respect to contracting out of the UK state scheme.
It is normally not possible to transfer these benefits to UK Self Invested Personal Pensions but QROPS are generally able to accept such payments.
Invest in any major currency. QROPS can generally allow the fund to be held in any major currency.
This can avoid exchange rate risks when receiving benefits.
This is by no means an exhaustive list of the potential benefits, but for many expatriates, QROPS do represent an almost unbelievable opportunity.
I know this may seem too good to be true.
However, these schemes are 100 per cent legitimate and recognised by HMRC.
As with everything in life, the advantages do come at a cost, which will vary from scheme to scheme but you can expect to pay slightly higher fees than a similar UK pension scheme.
Typically, there will be a one-off set up fee plus an annual administration fee.
Nevertheless, these costs are minimal compared to the risk of losing up to 82 per cent of the fund to the tax man!
Please note QROPS cannot be used to transfer annuities or your UK State Pension.
As with all investments you should take great care and seek professional advice.
Only consult advisers that are authorised and regulated by the Financial Services Authority (FSA) and are qualified in the field of pension transfers.
Check the credentials and financial strength of the QROPS provider and make sure that the rules applicable to the jurisdiction in which the QROPS is based permit the advantages and features you seek.
For more information, please call Steve Rodgers on 289 355 685.
