10 Reasons to use a QROPS- the facts and the myths
There are lots of websites that refer to “10 Reasons to use a QROPS”, or variations on that number, targeting expats to transfer their UK pensions offshore. How many of these reasons for moving to QROPS are valid and how do they compare with using the UK counterpart- the SIPP?
Over the next few weeks, we will look at the most popular reasons cited within 10 Reasons to use a QROPS by overseas websites for moving a UK pension to a QROPS, one by one.
We will start with-
Higher Tax Free Lump Sum- QROPS allow 30%, UK pensions only allow 25%
Fact or myth? Well, it rather depends on the UK pension. UK pensions do not limit the amount of a lump sum from a UK pension at 25% for all UK pensions!
This 25% limit applies to personal pension schemes in the UK and all pension schemes from 2006 onwards- known as A Day.
So, what about those other pensions that were not personal pensions before 2006? Thousands of people have occupational pension schemes that built up years before 2006 and they were covered under occupational pension rules.
Last month we used A-Day protection to allow a client to obtain a 35% tax free lump sum from his UK pension. Not something those pushing QROPS want to hear
What did that mean for lump sums?
Well, the lump sum was based on a function of salary and length of service and, as a result, sometimes permitted more than 25% or 30% to be taken as a lump sum. This advantageous situation was protected for pensions accruing before 2006- something that would be lost on a transfer to a QROPS.
In fact, in some cases, the whole fund could have been taken as a non-taxable lump sum.
Overseas jurisdiction consideration
If you move your pension from the UK to some overseas jurisdictions then you may not be allowed to take the 30% at all anyway or, if you can, suffer restrictions on income that you would not happen to a SIPP. Even worse, some countries will tax the previously tax-free lump sum as a result. It really is not as easy as some overseas adviser websites suggest!
Myth Busting – 10 Reasons to use a QROPS
Outcome – Partial Myth – Most people, and non-UK advisers are unaware that many UK pensions are not limited to 25% (many pre 2006 pensions have much higher PCLS or protected PCLS in place) and a move to a QROPS to get 30% is unnecessary. So, if you are in a position where a higher figure is available if not transferred, it may result in more tax being paid than otherwise by transferring and certainly higher charges and costs.
Also, not every overseas jurisdiction allows the taking of 30% PCLS without restriction or without tax implications in the countries your pension and you reside.
Finally, the higher charges on a QROPS over the years will provide a smaller fund than a UK pension (which may or may not be a SIPP, as there are other low cost options available) – assuming similar investments -and isn’t 25% of a big fund better than 30% of a smaller fund?
(Any adviser with AF3 or G60 will know all about the protected regimes before 2006 , make sure your adviser has these qualifications)
We offer a forensic review of the 10 reasons to use a QROPS for those that would like to revisit the QROPS and investments they hold. Increased investment performance and lower charges may make a significant difference at retirement.
Some offshore salesmen promoting QROPS as an investment solution live in a parallel universe where they claim to make world stock markets behave differently in QROPS than they do if the same funds are used from and within UK pension funds. Think and behave logically, if promises of bigger returns can only be achieved by moving to a QROPS then why hasn’t the entire investment industry moved offshore? It hasn’t!
This is the first part of 10 Reasons to use a QROPS- the facts and the myths and we will be publishing more soon
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published in 4th October 2016
- 10 Reasons to use a QROPS – the facts and the myths – 45 % UK pension tax (2)
- 10 Reasons to use a QROPS – Facts and the Myths- Consolidate Your UK Pensions (6)
- 10 Reasons to use a QROPS. Facts and Myths, QROPS Increased Flexibility (7)
- 10 Reasons to use a QROPS – All the Facts and Myths
- 10 Reasons to use a QROPS- QROPS do not force you to buy an annuity (9)
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