What are QROPS?

Who should NOT be considering a generic QROPS?

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Anyone with a fund less than £150,000

Anyone not within the EEA or not resident in the same jurisdiction as the QROPS, and anyone planning to move from that jurisdiction or the EEA within 5 years of a transfer
Anyone returning to UK to live, especially approaching or in retirement, unless their fund is likely to exceed the UK pension lifetime allowance
Anyone whose spouse or future beneficiaries are likely to be living in the UK, or who will move to the UK after the death of the original pension holder
People living in certain countries that will not recognise the tax position of a “generic” QROPS – this includes but is not restricted to France, Canada and the USA. Whilst, it may be possible to utilise dedicated pension plans for these countries, on the 1st July 2015 many schemes were removed from the HMRC QROPS list; whilst this may be temporary please contact us for the latest position.

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Who could be considering a QROPS?

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If you do not appear in the list of who should not consider a generic QROPS, then those that could consider a QROPS are:

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Anyone, including expatriates and UK residents, approaching the british pension lifetime allowance as QROPS may have benefits
Everyone overseas who is likely to exceed £1m in pension fund by retirement
Expats that live in a country with no double tax agreement with UK, and are likely to be taxed twice, or pay unnecessary tax in the UK
UK based people on a fixed salary scheme who are going to exceed/approaching lifetime limit (e.g. University professors)
Those expats approaching 75 who feel ‘When I die I want whole amount to pay out in one lump, tax free’

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AVOID HUGE COMMISSIONS: We will conduct business at minimal cost to you:

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If you do not require advice, or if you have received advice about an Investment Bond and want to save money then we are able to conduct your business at minimal cost to yourself (third parties need not apply).

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Are you TOO YOUNG to be considering a QROPS:

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New UK rules mean that no-one has to purchase an annuity anymore. In fact, anyone up to the age of 75 can take however much of their pension as they wish, and leave a lump sum on death to their beneficiaries tax free. In fact, at any age they can also access as much of the fund as they want, with 25% of that tax free, a tax free personal allowance available in each tax year, and then pay marginal income tax on amounts drawn over their allowances.

The UK has Double tax Treaties with countries all over the world to ensure that in most cases expatriates will have no further tax to pay, or indeed they can transfer their tax to their country of residence and pay any due there. All in all, a UK pension held in the UK often as a SIPP is very attractive!

Further, QROPS are very costly compared with a UK pension and it is therefore worthwhile finding out if the advantages that a QROPS has over the age of 75, or for people with substantial funds, is actually worthwhile considering.

QROPS territories have their own Double Tax Treaties with various countries that are not always as flexible as UK pensions meaning that you could end up paying an income tax charge where you are resident, or on death, your beneficiaries may pay an income tax charge in the country they live in. This may actually be at a disadvantage over a UK pension and so should be compared before transferring. The balance has to be between additional costs of a QROPS and any tax differential between a UK pension and the QROPS. Contact us for analysis on your situation.

What is QROPS – other considerations regarding QROPS or indeed SIPPs?

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Double Tax Treaty (DTT) with the country you are planning on retiring, and;
DTT with the country your beneficiaries will live in after your death
Expats seeking greater flexibility of investing e.g. property or currency
Anyone permanently living overseas with a DB scheme should only consider a transfer if advised and signed off by a UK FCA regulated adviser with G60 or AF3 qualification which is registered as current.
If you are resident in one of the following countries a dedicated QROPS in that country could be considered (not a generic QROPS, for example, in Malta): – Switzerland, Australia, Canada, New Zealand (list not comprehensive)
Expats with UK pensions (excluding state pensions) worth at least £150,000
People retiring overseas who are not ever planning on returning to the UK
To obtain QROPS benefits you must leave the UK for more than 5 full tax years
People with a private/personal pension is already in drawdown?
If you have already purchased an annuity?
Can you consider if your occupational pension is already in drawdown?
Still a UK resident with fund unlikely to grow above £800,000 and no intention of moving overseas?
Will become a UK resident during retirement, with fund unlikely to grow above £800,000?

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Why pay tax that you do not have to?

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Depending on your status and current location, along with future living plans, we can answer your queries and provide qualified and expert advice, without any further obligation from you. We publish the main countries and how tax in impacted for all our clients.

The key here is that one size does not fit all. It should not be taken for granted that a QROPS is the best solution as it is “Tax-free”; as from April 2015 a UK pension scheme offers many of the equivalent flexible arrangements of a QROPS (Qualifying Recognised Overseas Pensions Scheme) at a lot lower cost. Even where there are small advantages the extra costs outweigh the tax impact.

Tax

Income from UK pension arrangements is taken according to the relevant Double Tax Treaty (DTT) which can allow tax to be taken in the country of residency; if there is no DTT or if the DTT specifies that tax will be imposed in the UK then there will be a band of 0% (Personal allowance) if unused, and then a withholding tax of 20%; this tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals.

The key here is ultimately a resident will pay tax in in the country they are resident in, and in many cases there is little difference in the ultimate tax paid irrespective of whether the pension fund is held in the UK or elsewhere. However, there are a few countries where transferring pension rights to an overseas pension scheme means that income tax on pension income can be legitimately avoided, even where there is no UK double tax treaty with the country. We publish the main countries and how tax in impacted for all our clients.

Transferring pension rights to an overseas pension scheme means that UK Lifetime Allowance of £1,250,000 can be legitimately avoided (Dated Jan 2015 and subject to review and legislation changes).

Investment allocation

UK pension funds in the past often had a bias towards investment in UK assets. This is no longer the case with us being able offer multi-currency and international funds. It is true that overseas pension funds provide the scope for diversifying, as well as the option for more personalised investment management but the advantages from 2009 have largely been offset by 2015, and they are lower cost in the UK.

We offer personalised investment management with all the main custodians including Old Mutual International (OMI) (formerly Royal Skandia), Royal London, Generali, Hansard at ZERO commission (reducing your charges considerably). As a preferable alternative we offer platform custodians such as Ascentric, Transact, AJ Bell, Platform 1 and others from the UK and the USA where we are regulated.

UK pension transfers by overseas advisers

Beware recommendations of an investment made into an investment bond / insurance bond via a QROPS. This is often very costly bad advice dictated by the limited licences and lack of knowledge of the advisers / advisors, especially in the USA! In fact some of the better advice, following UK regulations, is only available through quality specialist pension advisers who understand regulations in the UK, and do not base their advice on who pays the highest commission.

Currency

Overseas pension schemes allow for the payment of pensions in currencies other than Sterling, providing a valuable safeguard for expats. UK pension trustees also now allow for currencies other than sterling to be held and utilised.

Death benefits

UK money purchase schemes have no tax deducted on death in the UK if the settlor is under the age of 75. There is no 45 or 55% death tax anymore, and QROPS is actually at a disadvantage to a UK pension now because of the extra trustee costs required.

Where QROPS continues to enjoy an advantage over SIPP / UK pensions is if the settlor/pensioner is over 74. However, if you are over 74, then even with a UK pension all is not lost anymore. The fund can be handed down to beneficiaries as a pension fund without any tax penalties, although beneficiaries in the UK will have to pay tax on anything they receive at their marginal tax rate. If they are not in the UK, then they will have to pay income tax as residents in the country they are in. If they do not want a fund, and what full access then only until 5th April 2016, they must pay a 45% one-off tax charge on the fund. This is currently under review with a view to removing it from April 2016. This allows for “generational planning in the UK”, something QROPS also does as well.

In essence, if you are under 73 we see no advantage in considering a QROPS over a SIPP for death tax avoidance reasons.

Beneficiaries

Overseas pension schemes will usually ensure that residual pension funds pass to the intended beneficiaries as would be the case in the UK, although QROPS have some advantages if the settlor is over the age 74, or if the fund is in excess of the UK Lifetime Allowance (Currently £1.25 million but subject to legislation reducing to £1 million in 2016).

Why would a SIPP be better than a QNUPS or QROPS?

With the new rules introduced in April 2015 then some benefits, such as income and flexibility to take capital have improved dramatically under a SIPP. Also, the fact is that QROPS or QNUPS is far more expensive than most SIPP products, if not initially then in terms of annual charges. Also, whilst a SIPP may not have the same flexibility in terms of investments, those investments will not come in an investment bond, and therefore be a fraction of the cost, thus improving returns over QROPS, and where there are lower charges it means there is lower risk.

In most cases, but not all, for people up to the age of 74, they are better off with a SIPP for retirement.

Asset protection

Depending on the jurisdiction chosen for the Overseas Pension Scheme, there is the potential for greater protection against creditors and other claimants than is typically available in the UK. However, this has to be balanced against protection available on regulated funds and advice which is higher in the UK, Australia and the USA than anywhere else.

Please note: We have a UK qualified G60 adviser who can provide advice on whether QROPS transfers should be considered by you as they are not right for everybody. You cannot transfer to QROPS if you are already taking income from a final salary / occupational scheme. Nor can you transfer a state pension to a QROPS, or if you have purchased an annuity.