Top of the QROPS

The Conservative-Liberal coalition’s first UK budget was positioned as "tough but fair" with some small surprises, as capital gains tax was immediately increased to 28% for higher-rate taxpayers (or a proportionate charge for individuals whose gain takes them into the higher rate tax bracket), trustees and personal representatives. A change was widely anticipated but pre-Budget speculation had been that this would return to 40%.

But a surprise change and an area of interest for UK and international clients with UK pension money – was the Government statement that it "will end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011 to enable individuals to make more flexible use of their pension savings".

There are some interim measures that will be introduced in the Finance Bill 2010 to increase the age from 75 to 77, so as to allow a little breathing space while more detailed plans are considered. This increase in the age by which the pension member must secure an income has effect from 22 June, 2010 and will only apply to individuals who have not yet reached age 75 before that date. This change will also apply for inheritance tax (IHT) purposes to those individuals if they die on or after that date and before age 77.



Day of reckoning?

This change has led to some commentators speculating that this is the end of qualifying recognized overseas pension schemes (QROPS) business. Interestingly, Skandia International’s own survey of overseas advisers has concluded that the main reasons for advisers recommending QROPS to a client is the removal of currency risk, greater lump sum possibilities and the IHT benefits. No compulsion to purchase an annuity was ranked sixth out of eight.

With a rise in the number of UK pension transfers to overseas pension solutions expected to continue, it is imperative international advisers keep a close eye on the UK pension changes. This ensures clients have up-to-date information before making any decisions regarding their UK pension schemes. But while the pre-Budget requirement to purchase an annuity by age 75, or use alternative secured pension with the potential penal IHT consequences this would create, have been cited as possible reasons why a client should consider a QROPS, there are many more reasons why a transfer may be appropriate for the right client.

A typical QROPS customer will usually fall into one of three categories:

UK expatriate;

someone with definite plans to leave the UK;
or

temporary UK resident.

All will have existing UK pension funds and should not expect to return to the UK, although if this does happen then a client should seek advice before returning to understand the consequences.

While the technical detail behind QROPS may seem complicated, the benefits are clear and are summarised below.

Lump sum flexibility

At present, most UK pension schemes limit the lump sum which can be taken on retirement to 25%. Under QROPS, the same rules that apply to UK-registered pension schemes will apply to the QROPS regarding the transferred fund.

For example if £100,000 was transferred and this has grown to £120,000, the lump sum that can be taken is 25% of the transferred funds (i.e. £25,000), any additional payment from the original £100,000 transferred would be regarded as an unauthorised payment. The additional £20,000 growth would be subject to the local scheme rules.

After the five-year reporting period the UK payment rules no longer apply but the QROPS provider will still need to ensure their QROPS status is maintained. So some QROPS jurisdictions will need to ensure that at least 70% of the transferred amount is used to provide an income.

This potentially leaves the remainder available as a lump sum but may be restricted by the local pension rules in the QROPS jurisdiction.

Income flexibility

Income options are similar to those that apply to some UK pensions before clients reach age 75 (77 following the Emergency Budget) in that they can draw down an income. The maximum and minimum amounts are quite wide and based upon, among other things, life expectancy.

The figures are designed with the aim of the fund being able to support an income until death, although investment performance will have a large impact upon this.

Generation planning

The QROPS fund remaining upon the member’s death, even if they have been receiving an income, is all available to be passed on to their loved ones.

Reduced IHT

QROPS are not subject to UK IHT upon the member’s death, although some jurisdictions may apply a form of tax. There may be some form of local IG to pay depending upon where the client is domiciled at the time of their death, but in all likelihood there is going to be a substantially larger fund to pass on to their beneficiaries.

More selection

We await the Government consultation document as to how it proposes to achieve its stated aim for clients with invested pension funds approaching age 75. The detail of this is yet to be disclosed. Fortunately, a QROPS has never had such annuitisation pressure and clients with a QROPS can generally remain invested as long as they wish, although in some instances they may be required to draw a small amount of income.

Reduced income tax

UK pensions are paid out net of basic-rate tax. PAYE applies to all pensions from registered pension schemes. Claiming this back can be time-consuming and a claim may not be successful, especially if there is no double taxation agreement in place with the country where they are resident. With a QROPS, clients can transfer to a country that charges little or no income tax on their pension benefits so they only pay the tax, if any, applicable in their country of residence.

Protection

Whether it is while they are saving for retirement or receiving their pension payments, nearly all UK arrangements are denominated in sterling. With a QROPS, clients can not only invest in assets denominated in most currencies but also receive benefit payments in their local currency and therefore eliminate any exchange rate risk and currency conversion charges.

Convenience

UK pensions are understandably structured around UK residents. If clients plan to be, or are already, based overseas then obtaining specialist advice on UK pensions may prove difficult. QROPS have the benefit of having been designed and built in the 21st century for a more transient population and as such are more familiar to international advisers and should be able to better meet the varying needs of clients.

If they have a number of pension arrangements then it may be beneficial to consolidate these not only because of ease of record keeping but also because they could be paying multiple fixed administration costs.

Beyond the UK

QROPS can offer access to an extremely wide choice of investments. This could be particularly useful if the customer wants to invest in assets that will more truly reflect the currency and inflation factors relating to where they plan to retire rather than UK-biased choices. Some examples could be offshore investment bonds or offshore mutual shares.

The area of pension planning has always been complex but by explaining the benefits to the customer they will at least be able to better understand if this solution meets their needs. With an adviser knowledgeable and abreast of current pension developments, this provides the international client with choice and opportunity to take some control to ensure their pension arrangements fit with their current lifestyle choices.



As an expat with a UK Pension, you need to transfer your existing pension offshore into a QROPS..

Don’t assume that your pension is "safe where it is"...

   Your Pension is "not best left alone"...

      The United Kingdom is in the grips of a "Pension Crisis"...

In 2009, according to an annual survey with over 300 of the UK’s top employers, conducted by the Association of Consulting Actuaries (ACA):

• 9/10 DEFINED BENEFIT PENSION SCHEMES ARE IN DEFICIT
• 87% OF DEFINED BENEFIT PENSION SCHEMES NOW CLOSED
• 18% OF DEFINED BENEFIT PENSION SCHEMES ARE NOW CLOSED TO FUTURE ACCRURALS FOR EXISTING MEMBERS
• 59% OF EMPLOYERS TO REVIEW CURRENT PENSION POLICIES
• 24% OF EMPLOYERS WILL REDUCE PENSION BENEFITS

All expats can transfer their pensions into an offshore QROPS!

Don’t delay…Don’t spoil your dreams of a HASSLE-FREE retirement!

Your Next Step is to Contact QROPdirect for a free pension transfer assessment or for more free advice on QROPS..