What are the options?
Your options will depend on the type of pension you have, the scheme rules and whether you have already taken income or not, but generally, your options will be:
- Keep your UK pension as it is
- Transfer to alternative UK personal pension or SIPP
- Move to a QROPS (Qualifying Recognised Overseas Pension Scheme)
Choosing to do nothing can be just as detrimental to your pension value as being misadvised, particularly in the long term. You should conduct regular reviews (at least annually) and address aspects such as your risk profile, capacity for loss, income requirements, rebalancing or switching underlying investments, and changes to your objectives and family circumstances.
Why would you consider a transfer QROPS?
QROPS is something that is pushed on expatriates by many offshore advisers as this is how fees are generated, and although the advice itself may not be ‘bad’, it might not be the ‘most appropriate’. So, if you are considering transferring to a QROPS we recommend that you get several opinions and ensure you only take advice from appropriately qualified advisers and reputable firms.
QROPS tends to be more expensive than UK based pension schemes because of the international dimension. For some individuals, a QROPS is the right thing but for others it is an unnecessary expense.
Some instances where a transfer to a QROPS could be beneficial are:
To reduce currency risk: a UK pension scheme will inevitably be denominated in Sterling, and this will involve regular currency conversions to meet spending needs in Euros. If the Sterling/Euro rate is low then your purchasing power diminishes. This leads some to look at overseas pensions which can be denominated in Euros or a mixture of most major currencies.
If you are in excess, or close to, the UK Lifetime Allowance (LTA): for 2022 the UK LTA is £1,073,100. The trend over the last couple of decades has seen the LTA continually reduce.
Once you exceed the LTA, the excess is taxed at either 25% or 55% depending on how the income is taken. You cannot avoid this tax, as even if you do not access your pension, you will be tested against the LTA at age 75. Likewise, if you do access your pension before age 75, your benefits will be tested again at age 75 effectively taxing any growth since you first accessed your pension benefits.
The UK LTA cap does not apply to overseas schemes, so a transfer out can be beneficial for those close to, or over the LTA.
Qualified professional advice
You have worked your whole life to fund your retirement savings, and many are reliant on this to provide an income into old age or to provide a legacy to loved ones. Ensure you speak to the right people to protect your wealth. Spectrum has in-house pension specialists and can offer a complimentary and impartial analysis of your pension schemes.
We are Chartered Financial Planners (CII, UK) and Tax Advisers (ATT, UK) with a wealth of experience in both the UK and Portugal providing cross-border advice. You can contact us through the form below or by phone on +351 289 355 316 or by email at email@example.com / firstname.lastname@example.org.