QROPS. Compelling reasons to transfer your UK pension abroad

Transcription

1 QROPS Compelling reasons to transfer your UK pension abroad

2 With a growing pensions crisis in the UK and outstanding transfer values available for offshoring, there has never been a better time to consider a QROPS. It s a perfect storm.

3 QROPS: a brief introduction QROPS means Qualifying Recognised Overseas Pension Scheme. QROPS schemes originated in 2006, when the UK tax authority Her Majesty s Revenue and Customs (HMRC) introduced new pension regulations allowing UK citizens and foreign national UK workers to move their pension funds abroad. These regulations were introduced as a direct result of EU legislation covering the movement of capital. A QROPS scheme can only operate legally if it meets specific requirements, as follows: HMRC must recognise the scheme for tax purposes. Accordingly, it must be open to residents of the country where it is based and that country should have stable taxation legislation The maximum lump sum cannot be more than 30%, leaving 70% in the fund to provide a lifelong income Scheme members must be at least 55 years of age before they can draw income. 3

4 Benefits at a glance Are you a UK citizen who has left the UK permanently or are intending to retire abroad after building up a UK pension fund? Then a QROPS offers very clear benefits. Briefly, the most compelling reasons to QROP include: Lower tax liability It is possible to reduce income tax on your pension by up to 45% and you are not subject to the Life Time Allowance once funds have been transferred Larger tax-free lump sum You can withdraw up to 30% of you pension fund at 55 and it could be tax-free depending on the jurisdiction Greater flexibility You can decide where you invest your money and which currency to invest it in Maximum peace of mind Thousands of people with UK pension rights have taken the QROPS option smoothly and securely since it was launched in 2006 And finally You can leave your entire pension to your chosen beneficiaries. 4

5 Do you qualify? To transfer the pension you accrued in the UK to a QROPS scheme in another jurisdiction: You must be aged between 18 and 75 You must have a personal or corporate pension fund worth at least 40,000 to transfer You no longer reside in the UK or you have genuine intentions of leaving the UK in the near future. What happens if you return to the UK? If you currently live outside the UK but intend to return in the future, QROPS is still a good option to consider. In this case, most of the benefits applicable to a QROPS would remain in place, except when it comes to how your pension income is taxed. 5

6 Why should you seriously consider a QROPS transfer? There are numerous good reasons why transferring to a QROPS is a no-brainer. Here are just a few of the most compelling: Reason 1: Because you could lose almost half your pension to the UK tax man Let s face it, we all want to take advantage of legitimate tax breaks and limit the amount of tax we pay. By transferring your pension to a QROPS, you are effectively inoculating your pension against any UK taxation. That includes income tax, capital gains tax, death duty or dividend tax. Which means you could reduce your tax bill by up to 45% and receive your pension tax-free in your local currency. These are not the only tax benefits of a QROPS pension. At 55, you are entitled to withdraw up to 30% of your pension fund as a lump sum, which could be tax-free depending on the jurisdiction. And when you die, a QROPS allows you to leave all your pension benefits to your loved ones without exposing them to any UK tax liability whatsoever. [With QROPS], it is possible to avoid many restrictions that would typically be imposed on [your] pension fund if it remained in the UK, and simultaneously achieve considerable tax savings when the pension is drawn down. QROPS: The exportable pension, Daily Telegraph 6

7 Why should you seriously consider a QROPS transfer? Reason 2: Because you could take a 30% tax-free lump sum at 55 When you turn 55, a QROPS allows you to drawdown a percentage of your total pension fund as a Pension Commencement Lump Sum. Depending on the jurisdiction and the percentage you drawdown, your lump sum could be exempt from UK tax, which means you are free to spend it as you choose. Reason 3: Because you may end up losing your UK pension altogether A growing number of people in the UK have ended up in defined benefit pension schemes that are in deficit. In other words: technically bankrupt. If you are among them, a QROPS may be the best way to protect your pension. The UK s pension deficit crisis only applies to defined benefit pension plans rather than defined contribution plans. But what is the difference between the two? Briefly: Defined benefit pension plans involve an employer promising a specified monthly benefit on retirement based on the employee's earnings history, length of service and age. But promises are just that promises. Many people assume that the UK government is obliged to step in if an employer cannot deliver on its promise. This is not the case. Defined contribution plans involve an employer setting aside a certain amount or percentage of money for the benefit of the employee each year. The challenge is that these pension plans are subject to continuous legislation changes in the UK. 7

8 Why should you seriously consider a QROPS transfer? About 1,000 private-sector pension schemes, including 25 of the largest in the UK, are highly unlikely to pay their members pensions in full, new analysis suggests. The stark findings, in a paper published on Monday by the Pensions Institute, a research body, suggest the number of troubled pension schemes is far higher than officially acknowledged. 1,000 defined benefit pension plans unlikely to pay in full, Financial Times Reason 4: Because you can consolidate several pensions into one structure It s possible that you have saved for retirement by taking out more than one pension. The catch here is that holding multiple pensions means you are exposed to multiple, complex and costly charging structures. Among other negatives, this makes it difficult to tell if you are getting value for money. By contrast, a QROPS allows you to consolidate multiple pension funds into a single pot. Not only does this help to keep costs in check, but it also makes your life simpler. 8

9 Why should you seriously consider a QROPS transfer? Reason 5: Because nobody else should control your investment decisions The fact is that default investments offered by many pension providers do not necessarily perform. With a QROPS, you can take steps to make sure your pension fund produces the growth and returns that you need to maintain your lifestyle. In the process, you can also match your investments to your retirement destination rather than being restricted to UK-biased investments. In addition, you can choose to structure your portfolio to generate capital growth or income. A QROPS also gives you greater flexibility when it comes to choosing the currency you invest in. Another advantage [of QROPS] is flexibility of investment strategy. Under UK rules, a pension fund must be invested in a significantly smaller band of investments. A much wider range of investments, including commercial property, can be held within a QROPS in the first five years and thereafter, most restrictions are removed, so that the pension can hold nearly any form of investment. QROPS: The exportable pension, Daily Telegraph 9

10 Why should you seriously consider a QROPS transfer? Reason 6: Because no-one needs Life Time Allowance charges Over the recent years, the LTA cap has changed frequently. The trend, however, is firmly downwards and currently stands at 1 million. If you exceed the LTA, your tax liability is potentially punitive unless you choose the offshoring option to protect yourself. For example, when you transfer your UK pension to a QROPS, its value is tested against the LTA at that stage. After that, your pension fund falls outside the LTA s scope even if it continues to grow. When it comes to pension tax, LTA is a notoriously complex area. If it is likely to affect you, we strongly advise you to speak to an LTA specialist. [Without QROPS], any savings in excess of the LTA will be subject to a tax charge of up to 55% when you start to take your money, depending on how it s taken (either lump sum or income). And the charge does not just relate to monies you have paid into your pension if you invest successfully and the value of your fund rises to 1m or more over time, you will still be penalised. Your pension and how to protect it from the taxman, Financial Times 10

11 Why should you seriously consider a QROPS transfer? Reason 7: Because you deserve to enjoy maximum peace of mind QROPS is tried, tested and proven. Since its launch in 2006, thousands of people with UK pension rights have moved their pensions offshore smoothly and securely. By 2013, 10,000 QROPS transfers were happening annually and the figure will almost certainly keep rising. After all, there are already 4.5 million people from the UK living abroad and every year another 140,000 people leave the country to join them. Together, they have transferred pension funds worth 1.3 billion offshore since 2006 and the volume of transfers is increasing by an estimated 35% annually. Convinced? What happens next? Transferring your pension fund to a QROPS is straightforward provided you have the support of experts who specialise in offshore financial services. They will be able to take you through a proven and straightforward QROPS process, as follows: 11

12 HOW WE CAN EFFICIENTLY TRANSFER YOUR QROPS PENSION TRANSFERRED TO PROVIDER Investment made as per client mandate step 3 ADVISOR RECOMMENDATION Suggested Jurisdiction Respective QROPS Provider Process Application APPLICATION PACK COURIERED TO PROVIDER Await transfer step 2 UNDERSTAND REQUIREMENTS Explore product options LOA (LETTER OF AUTHORITY) Send to UK Pension Company Request Valuation, Transfer Pack and FCA advice step 1 CLIENT ANYWHERE IN THE WORLD CONSULTATION WITH ADVISOR Individual personalised consultation EXISTING UK PENSION

13 Contact Us For more information on how to unlock your QROPS, please contact us 13