Offshore pensions boost for UK expats

UK taxpayers who are moving overseas for good might want to consider the advantages of packing up and taking their pensions along with their other belongings.

Setting up an offshore pension scheme often has a lot of benefits for expats over drawing a UK based and regulated pension from overseas.

Pension systems can be extremely complex so expert advice is recommended. Read lots of articles and reports to gain a solid understanding of QROPS before you transfer you UK pension.

Offshore pensions – or QROPS (Qualifying Recognised Overseas Pension Scheme, pronounced ‘Q-ROPS’) – rip away a lot of the strict rules of a UK pension.

No annuity needed

One of the biggest attractions for expats taking a pension overseas is the ball and chain of having to buy an annuity is ripped away.

Annuities are considered unattractive by many pension savers, especially with the low rates of return offered, the effects of inflation and that many people do not live long enough to enjoy their savings.

If the pension stayed shackled to the UK system, anyone who has not invested in an annuity by the time they are 75 could face a huge tax charge.

Flexibility in investments

QROPS come in self-managed or managed packages giving savers choice and control over how their cash is invested.

Reaping the benefits

QROPS allow savers to access their pensions with less rules and regulations than a UK pension.

Depending on a QROPS scheme rules, a saver might:

§  Start drawing on the pension when reaching 50-years-old

§  Take up to 30% as a single tax free lump sum

§  Roll over all or part of the fund in to investments that give a regular income

As the recent global recession has shown, the best-laid investment plans may hit unforeseen problems. A QROPS gives expats the freedom to make the most of their financial circumstances as and when they need to.

Passing on wealth

Flag this as a huge benefit for a QROPS over a UK based pension - leaving a pension in the UK means having to invest in the miserable returns from an annuity, and to add insult to injury, when you die, the annuity dies with you.

A QROPS allows the cash amassed in the scheme to be passed on when the policyholder dies.

The 5-year rule and tax

HM Revenue and Customs (HMRC) will require the QROPS scheme provider to pass on full details of payments made to a saver for five complete tax years after they leave the UK – after that the scheme provider is under no obligation to tell HMRC about your QROPS.

Generally, taxes are paid in the country where you are deemed resident. So any tax due on income from pensions or other investments is determined by the current rates in the country where you live. The same goes for any inheritance tax when you die.

So far, so good, but rushing in to setting up a QROPS is no good for any prospective investor.

At it’s simplest, a QROPS is no more complex than any other pension product – but each saver needs to consider the merits of moving their pension to an offshore pension by taking professional, independent advice.

The five key factors any potential QROPS investor needs to know are:

1.   The starting point for transferring any UK pension funds in to a QROPS is finding out the total transfer value

2.   How will the tax regime in the country where you are resident affect the cash you receive from your QROPS?

3.   How much will you be charged for transferring your pension in to a QROPS? 

This includes what you will lose, if anything, in transferring your pension plus advisor fees. Make sure you have all these figures to hand in advance of any decision to transfer.

4.   How much are annual management charges?

5.   What happens to your QROPS if you have to come back to the UK or move to another tax jurisdiction?

HMRC keeps a database of compliant QROPS schemes. Your pension provider will not be allowed to transfer any funds to a scheme that is not on the database.

Some countries are also unsuitable for QROPS pension schemes, for instance Singapore was blacklisted by HMRC over misselling issues with pension advisors

If you are interested in QROPS and would like expert advice, we would recommend seeking the best advice possible.