QUALIFYING RECOGNISED OVERSEAS PENSION SCHEMES (QROPS)

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1 QUALIFYING RECOGNISED OVERSEAS PENSION SCHEMES (QROPS)

2 WHATEVER YOUR AGE WHEREVER YOU LIVE YOU WILL WANT TO MAXIMISE YOUR ASSETS AND OPPORTUNITIES

3 YOU ONLY HAVE TO DO A VERY FEW THINGS RIGHT IN YOUR LIFE SO LONG AS YOU DON T DO MANY THINGS WRONG Warren Buffet

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5 QUALIFYING RECOGNISED OVERSEAS PENSION SCHEMES (QROPS) There is an alternative for your UK pension funds. Imagine a fully regulated overseas pension scheme which provides you: More pension to you, in retirement Tax efficiency during your life and on your death The widest possible investment choice Flexibility to change the currency of your pension funds A scheme designed for your Pension Funds, with full recognition of relevant UK rules Taylor Brunswick aims to help you understand whether a QROPS may be correct for you. Anyone with a UK pension scheme who lives outside of the UK, or planning to leave the UK, can benefit from moving their pension. We understand that every individual has a unique set of circumstances and this solution is not for everyone. o5

6 WHAT IS A QROPS? Historically your UK Pension would have many layers of restriction and regulation, forcing you to purchase an annuity on retirement and losing the residual value on death. Typically these pensions have been trapped in the UK. In 2006 the UK HMRC announced that UK pension holders living outside of the UK, would be allowed to transfer their pension funds into a QROPS. A QROPS would have to meet certain requirements laid out by the HMRC. The scheme must be regulated as a pension scheme and recognized for tax purposes in the country where it was established. QROPS typically allow considerable flexibility, a higher level of income, excellent tax benefits, and greater freedom in terms of currency and investment than a typical UK pension.

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9 BENEFITS OF A QROPS Higher levels of Pension Commencement Lump Sum and annual income No requirement to purchase an annuity Unused pension benefits left to your beneficiaries, reducing the need to pay 55% on death. Greater investment control Currency flexibility Tax efficient income drawdown Avoid future HMRC / Inland Revenue claims on your pension funds Consolidation of smaller pensions If you are living abroad, the benefits of having investment and currency control of your pension funds are priceless. 09

10 FREQUENTLY ASKED QUESTIONS What is the minimum value of pension funds that can be transferred? We would advise that your pension funds need to be valued at 50,000 or greater. If I transfer my UK pension, will I need to buy an annuity? Ever? No, if you transfer into a QROPS, there is no requirement whatsoever to purchase an annuity at any stage of your retirement. Can I move more than one my pensions into the QROPS? Yes, a major benefit is that you can consolidate all of your UK Pension funds into one scheme. What type of pensions can I move? Occupation pensions, including final salary schemes, private pensions, and defined contribution pensions with protected rights can all be transferred into a QROPS. Unfortunately it is not possible to transfer a UK State Pension or annuities or occupational pensions where benefits have been taken. Where can I invest? Are there any restrictions? The investment choice will be very wide, however, it is not possible to hold property or physical assets within the QROPS. What happens to my pension funds on death? The remaining pension funds will be passed on to your beneficiary. There may be a tax liability but that would depend on your residence and circumstances. How long does it take to transfer my pension? No, if you transfer into a QROPS, there is no requirement whatsoever to purchase an annuity at any stage of your retirement.

11 My pension fund is substantial, what tax implications will there be? More and more UK pension plans will become subject to this extra tax charge when benefits are drawn in the future, because of the reduction in Standard Lifetime. Allowance (SLA) to 1.5m.With the SLA expected to reduce further (in real terms at least) in the coming years, this tax charge will affect many more people with UK pensions. In contrast, upon transfer to a QROPS such as Select, benefits are tested against the SLA only at time of transfer, so if the fund subsequently grows in Select in excess of the SLA, there is no subsequent lifetime allowance charge (as benefits are deemed to have already crystallised at date of transfer). What happens if I return to the UK? None of the growth earned after transfer to the QROPS is subject to the normal 55% tax charge on death and the 55% charge that does apply is levied against a much smaller amount. The pension will not be taxable in the UK whilst drawing if you live abroad. When can I draw the pension if its in a QROPS? There is considerable flexibility and usually benefits could be started from 55, in some cases it may be earlier. Why do I need to complete the Letter of Authority? The LOA enables your adviser to ask your pension provider for the current benefits and transfer value. This information will be used to analyze your overall current pension benefits and best option. The LOA does not allow us to make any changes to your pension. 11

12 Case Studies Mark lives in the UK and is retiring at age 60 with a UK Pension fund of 400k. His twin brother John lives in the Far East and will retire there with a pension fund of 400k after transferring his UK Pension fund into a QROPS seven years previously with a value of 266,000. Mark s UK pension income is capped at 100% of GAD Tables. Mark can drawdown his pension at an annual rate of 19,600 which is equivalent to an annuity income level. John has invested his pension into a portfolio of funds chosen by Taylor Brunswick. This portfolio has produced an average return of 6% per annum over the past 7 years. Assuming this 6% return continues, John can draw an income from his QROPS of up to 30,500 per annum.

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15 Case Studies Mark and John both retired at 60 with their 400k pension funds, Mark has a UK Pension fund and John has a QROPS. If they both decided to draw the same income of 19,600 per annum from the age of 60, and their funds grow through investment returns at 5% per annum after charges, their residual funds at the age of 75 are identical at 398,000 when they pass away. Mark s pension is subject to 55% tax, equivalent to a tax charge at source of 218,900 and his beneficiaries will inherit a residual fund of 179,100. John died abroad, so his pension funds are not subject to UK tax. His children will receive the full fund value of 398,000. If John had returned to the UK, prior to his death, his QROPS fund would have been subject to 55% tax. This charge would only be levied on the initial transfer value of 266,000 reduced by the total pension payments. As he has drawn for 15 years at 19,600 per annum, a total of 294,000, this would mean that there is no tax charge on the 398,000 QROPS fund which would be passed to his beneficiaries. 15

16 About Taylor Brunswick Taylor Brunswick is a collection of experienced and driven industry professionals who are bringing the standard and quality of onshore financial advice, offshore. The clientcentric approach based on a set of fundamental servicing principles coupled with award winning technology has drastically improved the quality of service clients have been receiving in the offshore market. We pride ourselves on delivering the very best service to our clients and using our expertise to offer customised advice. We take the time to build a strong relationship with our clients and to understand their needs, which allows us to provide intuitive and advantageous client-focused service. This QROPS Guide aims to help you understand Qualifying Recognised Overseas Pension Schemes and whether they may be the right choice for you. We understand that every individual has a unique set of circumstances and our free UK Pension review becomes invaluable in helping you source expert advice and further guidance, whilst also helping you determine whether a QROPS is right for you.

17 Our Expertise The Taylor Brunswick Group is a fully authorized financial services company, regulated by the Hong Kong CIB and a full corporate member of the HK IFAA. Our flagship office address is based in the centre of Hong Kong. The HKCIB is a body of insurance brokers, approved by the Office of the Commissioner of Insurance to implement selfregulation of insurance brokers in Hong Kong under the Hong Kong Insurance Companies Ordinance. 20/F, Central Tower 28 Queens Road Central, Hong Kong Tel: Fax: qrops@taylorbrunswick.com Our consultants hold a wide range of qualifications from the United Kingdom, United States and Hong Kong, including Chartered Accountants, CISI, CII, FPC, SEC and the Hong Kong CIB. This article is based on Taylor Brunswicks s interpretation of the law and HM Revenue & Customs practice as at January We believe this interpretation to be correct, but cannot guarantee it. Tax relief and the tax treatment of pensions may change. 17

18 Taylor Brunswick Group 20/F, Central Tower 28 Queens Road Central, Hong Kong Tel: Fax: