Time for a fresh look at your UK pension?
Director, Capital Partners International Ltd.
Up until recently, the options for those living overseas
with Pension funds locked up in the UK were extremely limited.
Before 2006, the millions of UK citizens and individuals
of different nationalities from around the world who had accumulated
substantial lump sums in private or company pension schemes had no facility
to move those funds when they later decided to become non resident.
There was no regulated and approved option that allowed
for the transfer of UK Pension Funds to an overseas scheme which was
recognised by Her Majesty’s Revenue and Customs (HMRC). This meant that
monies were trapped in existing schemes and bound by their rules, or
transferable only to other onshore UK plans. The result was an inflexible,
unfriendly tax environment for what are obviously an important part of most
peoples’ long term finances.
Pensions “A” Day in the UK, enacted via new legislation
in 2006, that made provision for those living overseas to move their
accumulated pension money into more flexible arrangements offshore that
reflect a “non-resident for tax purposes” status, and with the full
endorsement of HMRC. The official name for this part of the Act became known
as ‘QROPS’ or Qualifying Recognised Overseas Pension Scheme.
In most cases the benefits of doing so can be
* Leave the accumulated fund intact for dependants
* No requirement to purchase an annuity
* No liability to UK tax on income taken
* Early retirement option and 25% lump sum cash withdrawal
* Flexibility of investment choice
The QROPS option can help UK expatriates and other
nationalities who have emigrated and who now live in many different
countries and jurisdictions around the world; for example France, Spain,
Malta, Cyprus, Hong Kong, Singapore, Malaysia, Jersey, Isle of Man, Guernsey,
India, China, Canada, Ireland, Israel, Thailand, Dubai, South Africa,
Switzerland, Monaco, United Arab Emirates and others.
It cannot be overstated, however, that each and every
jurisdiction and QROPS Trustee granted approval by the UK authority to
administer these transfers must strictly follow the HMRC procedural
guidelines. There have been several incidences where this has not been the
case and the consequences have been severe, often resulting in the
imposition of large tax penalties on the entire pension amount.
It should be noted that
QROPS transfers are not right for everybody
You cannot transfer a state pension into a QROPS, nor can
you transfer your pension if you have already started taking income from an
annuity. In addition, there are some quality defined benefits and final
salary schemes offering specific long term guarantees which would make a
transfer to any other scheme ill advised. Examples of this are nurses,
police and some quality blue chip corporate ‘final salary’ arrangements, but
in the majority of cases, there are significant advantages for those who
qualify for the QROPS system.
People with international lifestyles have individual
requirements and no two expatriates’ needs are exactly the same. You may be
dividing your time between different countries, retiring abroad, temporarily
moving overseas to develop your career, or perhaps working in a foreign
country while retaining your main residence at home.
Whatever your situation, a change of location brings many
challenges as well as opportunities and a professional financial review now
can result in maximizing pension benefits and opportunities for many years
to come. All UK Pension holders of any nationality already living overseas
or planning to move, would be well advised to examine their own position and
pension transfer options.
This article was contributed by the partners of QROPS
Pension Centre and IFA International Ltd. See www. qropspensioncentre.com
and / or email [email protected] qropspensioncentre.com for more information.