Viewing posts categorised under: Pension Lump Sums

Transferring your pension to a QROP

By David Hattersley
This article is published on: 31st August 2022

31.08.22

Deja-vu, why urgent action is required to transfer your pension to a QROP

A sense of deja-vu is now apparent as the UK is experiencing a similar situation compared to the 70’s. Drawing comparisons especially for those that lived through that era would be unhelpful. However a minor point worth considering were the restrictions on the flow of capital out of the UK. For those lucky enough to travel abroad then a limit of £25.00 cash per person was the restricted limit under the Exchange Control Act 1947. My wife still has her old passport with form PP/A dated 14.02.73. One of her clients of 100 years still remembers how difficult it was to bring money into Spain to buy a plot of land.

For those that already are living in Europe or plan to in the very near future under the golden visa rules, I am not suggesting a wholesale restriction of capital movement . A difference though between the 70’s and now is the growth in personal wealth, with the primary asset being property.

The 2nd biggest asset and perhaps underrated was the growth of money purchase pensions after Mrs Thatcher came to power and for those in their 50’s & 60’s this could be quite considerable. The opportunity to “ distance work “ may have an impact on younger professionals and for those relocating here.

The current government is under extreme pressure, especially the need to raise tax revenue to balance the books, along with the alleged reports of threats to tear up all agreements with Europe.

One politically “safe option” and unlikely to cause uproar and outrage by the general public would be to curtail or even stop transfers to a QROP for those lucky to live or move to Europe.

Why would the government do this ? The payment of a pension held in the UK could be taxed at source as are the current Civil Service Pensions, thereby retaining the long-term tax revenue stream. It would mean filing tax returns both in the UK & Spain. The pension commencement lump sum could also come under review. There certainly wouldn’t be a public outcry for those “ lucky” enough to have sizeable pension pots.

The UK Budget Bill normally has to be debated and passed into law which takes about 3 months. In 2015 negative amendments were made to the QROPs rules that took effect immediately on the day after the budget and was quietly “slipped in”. A case of “ the devils always in the detail”! After all the principle of if one can get away with it once, why not try to repeat a similar process again?

There are many advantages in transferring to a QROPs and at The Spectrum IFA Group we offer and recommend a thorough assessment and report of your individual situation by our qualified specialist at no cost to you. An additional benefit is the long-term service provided as UK based advisers can no longer provide this for residents in Spain and the individual can retain control via a local adviser. A transfer to a QROP doesn’t only apply to UK nationals but any European worker that has built up a “pension pot”.I have been heavily involved in the pensions market since 1987 and have a wealth of experience in this field so if you have any concerns or interest please contact me to arrange a no-obligation initial meeting.

Temporary Annuities in Spain

By Charles Hutchinson
This article is published on: 19th May 2022

19.05.22

Over the last few years, there have been some well-known IFAs here in Spain advising their clients that they can save up to 88% on their income tax in Spain by stating that their pensions are temporary annuities. In some cases, this has caused serious problems for pensioners. There is no way the Hacienda would offer such benefits unless these annuities were such from outset. It would seem logical if this was to be set up as such from outset, the schemes would have to be domiciled here in Spain for the tax reasons I go on to explain. Similarly, the annuity status could not be applied to foreign pension schemes being exported by expatriates from their previous country of residence when they come to live here.

For example, I have come across clients who have transferred their pension abroad under QROPS rules, they then instruct their trustees to pay them a set income for, say, 5 years. In some cases, the trustees would give them a certificate confirming that this income is a temporary annuity. Ironically this not only potentially makes the trustees as culpable as the pensioner but so too the gestor or accountant drawing up that tax return.

An annuity is something you buy from a financial institution (usually a life assurance company) for a certain sum. In return, the company will pay you an income for life or a fixed period. Once purchased, that money is no longer yours and it is irreversible.

However, the money in a pension scheme (although legally owned by the trustees) is for your benefit in your lifetime and can be passed to your beneficiaries or spouse, depending on the scheme T & Cs. The income can be stopped, restarted, raised, lowered, or even taken in lump sums (again depending on the scheme particulars). The capital remains at your disposal. Therefore it cannot be regarded in any way as an annuity, let alone a temporary one.

Those who promote these “loopholes” are tapping into one’s natural desire to lower one’s taxes. They are exploiting genuine tax benefits offered to those who have already paid income tax on their savings with which they purchase an annuity for a fixed period. The special low tax rates which go with these annuities are by way of partial compensation for having your tax-paid capital repaid to you. Whereas pension income is always taxed at your marginal rate, mainly because there is tax relief on monies you put into your pension scheme, with both money purchase and occupational pensions. Furthermore, pension “pots” are invested and will attract, if properly invested, investment growth.

Those companies who advise people to do this and those who file a tax return claiming their pension is an annuity (when it clearly is not) are committing tax fraud. And there are very heavy fines for doing such a thing. A tax audit can go back up to 5 years and the tax shortfalls can involve sizeable sums especially when the fines are included. At pension age, this can be very distressing and a very nasty shock to an elderly person.

Spectrum can help you avoid this situation by reviewing any previous advice given and offering an unbiased opinion. We research our products and taxation thoroughly before advising our clients. If you have any doubts about your pension and the advice you have already received, then please contact me for an initial meeting which carries no fee. We want you to have peace of mind so that you can tell others about us. Spectrum is not in the risk business but very much here to protect your wealth.