UK Pensions: To Transfer or Not to Transfer?

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2 UK Pensions: To Transfer or Not to Transfer?

3 Katie Boag-Thomson Senior Adviser The Fry Group Belgium

4 Why Consider Transferring?

5 Consolidation Greater control Wider investment choice Currency flexibility Potential tax benefits

6 Which Pensions Cannot Be Transferred?

7 UK State pension entitlement Pensions in payment: Final salary pensions Annuities From 04/2015: unfunded public sector final salary schemes

8 Which Pensions Can Be Transferred?

9 Defined contribution occupational schemes (including AVCs) Personal pensions Drawdown pensions in payment Private sector final salary pension schemes (from 04/2015: expert advice required)

10 What Questions Should be Asked Before Considering a Transfer?

11 Loss of guaranteed income? Loss of higher initial tax-free lump sum? Loss of spouse s pension? Exit charges?

12 Where Can You Transfer To?

13 Self Invested Personal Pension Scheme (SIPPS) Qualifying Recognised Overseas Pension Scheme (QROPS)

14 What is a SIPPS? UK registered pension scheme Located in the UK (UK based Trustees) UK pension rules apply: Minimum retirement age Maximum initial lump sum and income (although changes from 04/2015)

15 What is a QROPS? Non-UK pension scheme Could be local or international Meets HMRC s rules for transfers in Must not treat local and overseas members differently

16 What Are the Pros and Cons of transferring to a SIPPS?

17 Potential Advantages Investment choice & currency flexibility Generally cost-effective Flexibility on taking benefits (esp from 04/2015) UK tax relief on contributions (UK net relevant earnings)

18 Potential Disadvantages UK Lifetime Allowance (LTA) limits apply at time of taking benefits UK pension death tax charge BUT rules to change from 04/2015 May not be tax-efficient if retiring outside the UK (although not always the case)

19 What Are the Pros and Cons of transferring to an International QROPS?

20 Potential Advantages Investment choice & currency flexibility Slightly higher initial lump sum and income possible (but what happens after 04/2015?) UK LTA limits apply only at the time of the transfer, not at the time of taking benefits Escapes UK death tax on the pension fund upon death

21 Potential Disadvantages Further contributions may not be possible Cost Possible future inflexibility on taking benefits compared to UK pensions

22 Are there Potential Tax Consequences of Transferring?

23 If planning to retire in the UK: A QROPS is unlikely to offer any UK tax advantages Cannot make further UK tax relieved contributions into a QROPS

24 If planning to retire outside the UK: Depends on where you plan to retire, and DTT with that country and the UK (for SIPPS) or the QROPS jurisdiction (for QROPS) In the absence of a DTT double taxation could potentially apply Also, inheritance / death tax considerations

25 Case Studies: Retiring in Belgium

26 Case Study 1 Ms Smith is 45 years old and has various pension funds worth 400,000 in total. She plans to retire in Belgium and transfers her pensions out of the UK into a QROPS in Malta. At age 65, she decides to retire. Her QROPS pension fund is worth 500,000. She takes 25% as an initial lump sum and starts to draw down an income of 25,000 per year. She has no other taxable income.

27 Current Belgium / Malta DTT, most private and occupational pensions taxable in the country of residence only (ie in this case, Belgium). Initial lump sum of 25%: no tax in Malta; Belgian tax and other deductions at age 65 assume approx 20%. Pension income: no tax in Malta; average Belgian income tax rate = approx 31%

28 If she had instead kept her pensions in the UK by transferring them into a SIPPS

29 Current Belgium / UK DTT, most UK private and occupational pensions coming into payment are taxable in the UK only. Initial lump sum of 25%: tax-free in the UK and not taxable in Belgium = 0 tax Pension income: not tax in Belgium; average UK tax rate = approx 12%

30 Case Study 2 Mr Rich is 35 years old and has a pension fund worth 1.25m. He plans to retire in Belgium and transfers his pensions into a UK SIPPS. At age 65, he decides to retire. His SIPPS pension fund is worth 2m. He wants to takes 25% as an initial lump sum and to draw down an income of 50,000 per year. He has no other taxable income.

31 Initial lump sum of 25%: tax-free amount capped at 25% of the LTA (ie 312,500). Tax-free in the UK and not taxable in Belgium = 0 tax Remaining initial lump sum (ie 187,500) subject to a UK LTA excess charge of 55% = 103,125 tax charge Pension income: average UK tax rate on the income below the LTA = approx 14%. Income above the LTA effectively taxed at 55%

32 If he had instead transferred his pensions out of the UK into a QROPS in Malta

33 Potential UK LTA excess charge applies at the time of the transfer = 0 Initial lump sum of 25%: No tax in Malta; Belgian tax and other deductions at age 65 assume approx 20% = 87,500. Pension income: no tax in Malta; average Belgian income tax rate = approx 40%

34 Case Study 3 Mr Desmet is 70 years old and a Belgian national. He spent 20 years working in the UK where he built up a substantial pension fund within a SIPP. He now lives in Belgium and is terminally ill. He took an initial 25% lump sum from his pension fund at age 65. The remainder of his pension fund is worth 750,000 and he wishes to pass this on to his son in Belgium upon death. Sadly, Mr Desmet dies

35 UK death tax charge upon the pension fund = 55% (although rules to change from 04/2015) Remainder of the pension fund subject to inheritance tax in Belgium

36 If he had instead transferred his remaining pension fund out of the UK into a QROPS in Malta

37 No Maltese death or inheritance taxes on the pension fund Pension fund subject to Belgian inheritance tax only

38 There are many things to consider...

39 If in doubt, contact an expert!

40 The information in this presentation does not constitute advice and no responsibility can be taken for any decisions made on the basis of its content. We stress that the contents cannot be a substitute for professional advice which allows consideration of all factors surrounding the individual. Thorough and professional advice should be sought before making decisions or taking any action. Past performance is no guarantee of future returns The price of units can go down as well as up This presentation is based on our understanding of current law and taxation, both of which are subject to change.

41 Questions?

42 Upcoming Fry Group Events in Belgium 15 October - Investment Solutions for US Taxpayers Investment strategies for Americans residing abroad 23 October - Retirement Planning Workshop Interactive workshop to help you calculate whether or not you have a pension shortfall 13 November - Pensions for the self-employed How to maximise the benefit of Belgian pension options. New rules explained, reducing your tax bill, pensions for property purchase, and much more