Viewing posts categorised under: Pensions
Proposed UK Pension Changes
By Spectrum IFA
This article is published on: 30th March 2014
The UK Budget for 2014 took the financial services industry by surprise. As details of the proposals were unveiled, it became obvious that we were hearing some of the best kept secrets (for a long time) of a government’s plans. Banking secrecy may be dead, but the UK government had managed to build a wall of secrecy around itself before the budget was made public.
So after “A-Day Pensions Simplification” in 2006, now we have another major reform proposed for “Freedom and Choice in Pensions”. I have seen a few reforms during my working life and as I get closer to pension age myself, I am thinking that this might be the last time that I have to get to grips with yet another. But who am I fooling except myself. Pensions is a political football that the politicians will kick around and of course, keep moving the goalposts.
To understand the reform, you need to understand the two main different types of pensions. The first is the defined benefit pension (DBP), where your employer basically promises to pay you a certain amount of pension, which is calculated by reference to your service and your earnings. DBPs are a rare breed now, as employers have found this type of arrangement too costly to maintain. This is because the liability for financing the scheme falls upon the employer (after anything that the individual is required to contribute) and if there is any shortfall in assets to meet the liabilities – perhaps because of poor investment returns – the employer must put more money into the scheme.
The second type of pension is what is known as a money purchase plan (MPP). You put money into an MPP, perhaps your employer does/did also, as well as the government in the form of tax rebates and in the past, national insurance contribution rebates. Maybe your ‘MPP’ was not through an employer at all and you just set up something directly yourself with an insurance company. They are several different types of MPP arrangements, but they all result in the same basic outcome, i.e. the amount of the pension that you get depends on the value of your ‘pension pot’ at retirement and so the investment risk rests with you. There is no promise from anyone and therefore, no certainty of what you might receive.
The proposed reform is all about the MPP, although there is nothing to stop a person from transferring their private DBP to a MPP (at least for the time being), if they have left the service of the former employer. But why would someone do this and take over the investment risk of their pension from the former employer? Well there are some very limited situations, but I will not go into them here. The more normal position is that people would not voluntarily transfer their DBP to a MPP unless perhaps, there was a case of serious underfunding of the DBP.
Without getting into too much of the technical detail, the bottom line of the reform is that people will have more choice about how and when they can take their benefits from a MPP. For example, from April 2015, people over the age 55 will be able to take all of the MPP pension pot as a cash sum. Actually, this possibility has already been available for some time in certain situations and the reform basically relaxes some of the requirements that have to be met to do this. The minimum age will progressively change from age 55 to 57 by 2028 and then be linked to future State Pension Age increases.
For UK resident taxpayers, 25% of this pension pot would be paid tax-free and the balance would be subject to income tax at their marginal rate (the highest tax rate being 45%). As an illustration, assuming that the person had no other taxable income in the year and they took the 25% tax-free lump sum, on a fund of £50,000 the tax on the total fund would work out to be 11%, for a fund of £100,000 it would be 19.63%, for £150,000 it would be 24.75%, for £250,000 it would be 28.2% and for £500,000 it would be 30.98%.
The government suggests that by making available the option to take the full pension pot as a cash sum, this has taken away the need for someone to purchase annuity. This, of course, is referring to a ‘lifetime annuity’, whereby someone gives the insurance company a pot of money in return for a guarantee that the insurance company will pay an annuity to them for the rest of their life. In fact, the requirement to purchase a lifetime annuity had already been abolished in 2011 for Self-Invested Pension Plans (SIPPs), which is one of the types of MPP.
Over the last few years, life-time annuities have not been very popular because the low interest rate environment has had a negative effect on the amount of annuity that someone is able to buy with their pension pot. Therefore, the SIPP has proved to be a popular alternative choice, since the pension pot remains invested and the pension investor can draw an income from the fund. The amount that can be drawn from a SIPP is linked to UK long-term gilt yields, as are insurance company annuities, which implies that there is little difference between the two options.
In fact, the SIPP is more flexible and the amount that can be drawdown can be varied between minimum and maximum amount. In addition, on the person’s death, the remaining fund does not die with the person, unlike a lifetime annuity. So what would make someone chose a lifetime annuity over a SIPP?
Principally, it comes down to attitude to investment risk. If someone is very ‘cautious’ and cannot stand the idea of any volatility in their pension fund and also wants the certainty of a defined amount of income for life, then that person would chose a lifetime annuity, despite the new freedom and choice that they are being offered.
On the other hand, if someone is comfortable with some investment risk and is attracted by the idea of their pension pot passing down to their children, then they are more likely to go down the SIPP route. If they have left the UK, then they may consider transferring the MPP benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS). In effect, a QROPS operates just like a SIPP, but there is some extra flexibility and more potential to mitigate currency risk – very useful if you need your income in a currency other than Sterling – and the fund can pass to your dependants on your death without the UK 55% tax charge.
Generally, the UK pension reform is a welcome improvement, which will provide flexibility that will allow people to make their own choices regarding ‘when to take’ and ‘how to use’ their pension funds, according to their own individual circumstances. For those wishing to make the transition from full employment to full retirement over a number of years – which has become more important due to the increase in the State Pension Age – the reforms will be of enormous benefit. Indirectly, the reforms also have the potential to reduce youth unemployment in the UK, as younger people replace those who are able to retire earlier because it may now be financial viable for them to do so.
However, as in every case of financial planning, everyone’s situation is unique. Therefore, caution will be needed to ensure that people make the right choices, since the decision that they make at retirement will affect them for the rest of their lives. It would be disastrous if the reforms created a scenario that people might unwisely take “too much”, “too early”, out of their pension pots and every effort should be made by those involved in the advice process to avoid that risk.
It follows that it will be essential that people take professional advice, which not only considers the pension assets but also takes into account the person’s total wealth and objectives. Sadly, the government’s proposal that individuals should receive “free”, “face to face”, “impartial advice” as “pensions guidance” is unlikely to be sufficient for this purpose and creates the risk of misleading the person to believe that they do not need any other advice.
What does it mean for UK non-residents?
The terms of any Double Taxation Treaty (DTT) between the UK and the person’s country of residence will define which country has the right to tax the pension payments of the type that we are discussing here. Usually, it will be the person’s country of residence and not the UK, when the payments are made. Therefore, providing that person has been granted relief from UK income tax – after making application under the terms of the DTT – in theory, they should be able to receive their MPP pension pot without the deduction of UK tax.
However, the practical difficulty will be how the administrator of the MPP will be able to pay the benefit without deducting tax. No doubt HMRC will put in place a prescribed set of rules for calculating and deducting the UK income tax from these ‘cash payments’, for application by pension scheme administrators, as is the case that already exists for these types of payments. If the administrator cannot make the payment gross, this means that you would need to claim the UK tax back from HMRC and HMRC might want evidence that you have declared the amount in your country of residence.
On a final point, there are already tax rules in place in the UK regarding non-residents and ‘flexible drawdown’. The proposed reform is, in effect, ‘flexible drawdown without the Minimum Income Requirement’ (at least from 2015) and so it is reasonable to assume that at least the same tax rules will apply. If so, this could have implications – either when taking the payment or when returning to the UK – if you have not had a sufficient period of UK non-residence. Again, it would be wise to seek advice before making an expensive mistake.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.
UK Pensions – Budget Announcement April 2014
By Chris Burke
This article is published on: 29th March 2014
The UK Budget this week delivered unexpected and immediate changes to UK pensions as well as the publication of a consultation document.
Whist we will need to wait for details of the actual legislation, we would like to give you a brief summary of the main changes announced.
1. Flexible Drawdown
With effect from April 2015, anyone will be able to take advantage of flexible drawdown, without the need to have (as is currently the case) a minimum guaranteed pension of £20,000 per annum. From 27th March the minimum pension required for flexible drawdown is reduced to £12,000
Currently there is a tax charge of 55%. This will be reduced to the individual’s marginal rate of tax. While this could be as low as 20%, with a 40% tax rate at just under £32,000 and 50% at £150,000, there will still be a high tax charge to pay. It should also be borne in mind that if the pension fund is taken, and not spent, any amount left over on death will fall into the client’s estate for IHT purposes and potentially taxed at a further 40% (or the prevailing IHT rate at the time).
2. Charge on death.
This is currently 55%, and is viewed as potentially too high. HMRC intend to consult with stakeholders on this, but with income tax at the marginal rate and IHT at 40%, it would seem unlikely that this rate will fall substantially.
3. GAD rates will be increased from 120% to 150% from 27th March.
The Gad rate is the amount the government decide you can take from your UK pension. Previously you could take 120% of what percentage they agreed, that has now risen to 150%.
4. Triviality
That is, where the whole amount that can be taken as a lump sum i.e. small pensions. This amount has been increased to £10,000 per pension pot, and the total can include up to three pensions of £10,000 giving a combined maximum triviality payment of £30,000.
5. Transfers from public sector schemes
Due to the above changes, the UK Government’s view is that this will have an effect on the number of people looking to move from final salary schemes to defined contribution schemes. As public sector schemes are underfunded, their view, taken from the briefing note, is as follows:
“ However, the government recognises that greater flexibility could lead to more people seeking to transfer from defined benefit to defined contribution schemes. For public service defined benefit schemes, this could represent a significant cost to the taxpayer, as these schemes are largely unfunded.
Consequently, “government intends to introduce legislation to remove the option to transfer for those in public sector schemes, except in very limited circumstances. “
This means that they will be seeking to disallow transfers from UK public sector schemes.
6. Government are also consulting with industry on whether to introduce restrictions on transfers from other final salary schemes.
A copy of this consultation document can be found here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293079/freedom_and_choice_in_pensions_web.pdf
While the main focus of reporting seems to be around the ability to take the pension fund as cash, in reality this has always been the case via flexible drawdown, so the only change being considered in this consultation is the removal of the requirement to have a guaranteed income.
With income tax being paid at marginal rate, this would potentially increase the tax actually paid on the pension fund eg. A fund of £200,000 for a 60 year old could provide an income of around £12,000 at current GAD rates. This would (using UK tax rates) have a tax bill of £400 (20% on £2,000) and a net income of £11,600. Taking the amount as a lump sum would mean a tax bill of £73,623 and a net payment of £126,377, or just under 11 years’ worth of net income that could have been taken from the pension. Plus, if the amount was invested, tax would also be due on any income or gains produced. As well as the amount being within the client’s estate for IHT if UK domicile – whereas in a pension (QROPS or UK scheme) the fund will grow free of tax and will be outside the estate for IHT.
No doubt there will be more focus on the above over the next few days, but if you would like to discuss any of the above in more detail, please don’t hesitate to contact me.
(Source Momentum Pensions April 2014)
Lifetime Allowance changes and ‘Fixed Protection 2014
By Chris Burke
This article is published on: 18th March 2014
This year the Her Majesty’s Revenue and Customs (HMRC) are lowering the UK Pensions Lifetime Allowance amount. This is the maximum allowance the HMRC grant to each individual to hold as a UK pension without incurring any extra tax charges. Previously, UK residents receive tax relief on the contributions made into a pension up to £1.8 million in 2010/2011 before it was reduced to £1.5 million in 2012. The HMRC has changed this twice over the last 8 years bringing the allowance down each time, from £1.8 million in 2010/2011 to £1.5 million 2012. The government agency is enforcing a further reduction to £1.25 million this coming year.
Any amount above the lifetime allowance is liable to 55% taxation when withdrawn as a lump sum, or 25% taxation when withdrawn as a pension.
It is important that those affected by this change apply for ‘Fixed Protection’ before 6th April 2014. A successful application allows the pensioner to maintain their lifetime allowance of £1.5 million as opposed to a reduced £1.25 million commencing from 6th April 2014.
A successful application for Fixed Protection in essence allows a pensioner to withdraw savings worth up to £1.5 million without paying the lifetime allowance charge which will soon affect all pensioners with more than £1.25 million across their schemes.
Firstly note – you cannot apply for ‘fixed protection’ 2014 if you already have ‘primary’, ‘enhanced’ or ‘fixed’ protection.
Secondly, you will lose fixed protection 2014 if:
a) You join a new pension scheme – unless you’re transferring pension savings from one of your existing schemes into the new scheme.
b) You build up new benefits in a defined benefits or cash balance pension pot above a set amount – enquire for further details.
c) You start saving in a new pension pot either under an existing pension scheme or a new pension scheme.
d) You have a contribution paid to any of your money purchase pension pots.
Links:
Apply for Fixed Protection 2014 at: http://www.hmrc.gov.uk/pensionschemes/fp14online.htm
Calculate if Lifetime Allowance affects you at: http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm
QROPS and EURBS – Common questions asked
By Chris Burke
This article is published on: 23rd January 2014
As a specialist in UK and Irish pensions, here is a list questions I’m often presented with on QROPS and EURBS. If any of these apply to you, do not hesitate to get in touch for a consultation, free of charge. chris.burke@spectrum-ifa.com
UK Pension Transfer or ‘QROPS’ – what does it mean?
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a pension scheme transferred or opened outside the UK that meets requirements set by HMRC in the United Kingdom
If I eventually plan to return to the UK, what would this mean for my Transferred Pension?
If you intend to return to the UK permanently or to work, your Transferred Pension will become subject to the same regulations and tax treatments as a UK domiciled pension. It may then make sense to move it back to the UK as a ‘Self-Invested Pension Plan’ (SIPP) for efficiency.
However, if it is your intention to move back to the UK in the future then it is usually inappropriate to transfer your UK pension to a QROPS.
I might want to change location, will this affect my Transferred Pension?
If you live or work in another country, for example you move from Spain to Switzerland, your overseas pension will stay in the jurisdiction it was set up in. You can continue to make contributions regardless of what country you are living (remember though that if you move back to the UK, your pension will be bound by UK pension regulations). You can receive income and contribute to your Transferred Pension in any currency; so even if you move to several different locations, you can still use your Transferred Pension (QROPS).
If you are taking income and then move to another country, the amount of income tax you pay would vary from country to county.
What currencies can I have my UK Pension in once it is transferred?
Your plan can be denominated in Sterling, Euros, US Dollars, and many other currencies on request. Should it be beneficial to you, the currency can be changed at any stage cost effectively.
I have a UK state pension scheme, is it possible to transfer this also?
It is not possible to transfer a UK state pension overseas – UK transfer applies to your corporate and private pension schemes only.
If I have already taken an annuity, can I still transfer my UK pension overseas?
No, it is no longer possible to transfer your UK pension if you have already taken an annuity.
Do I still need to purchase an annuity once my UK pension has been transferred overseas?
No, you do not need to purchase an annuity once you have transferred your pension overseas.
How much does it cost to transfer my UK pension and set up a Qualified Recognised Overseas Pension?
QROPS costs differ depending on the scheme, location and the service level that you require. The main costs you will be looking at are the initial set-up fee and an annual management fee. They are generally slightly more expensive than a UK pension for the first 5 years and then on a par.
Can I manage the assets within my Transferred Pension myself?
It depends on the provider you decide on – some allow you to manage your own assets, while others insist on managing them for you. We suggest you use a financial adviser for guidance, even if you wish to manage your pension assets yourself. Contact us for more information.
What assets can be transferred to a QROPS?
Most UK pension schemes, and the underlying assets, other than the UK State pension can be transferred overseas (as a QROPS). We recommend an independent evaluation of your schemes to find out which are eligible. Contact us for more information.
Can I keep the same pension funds in my UK pension?
Potentially yes, it is possible to transfer your funds ‘In Specie’ meaning you keep the existing funds and investments from your UK pension.
Can I transfer more than one UK pension overseas into a QROPS?
There is no limit on how many pension transfers a QROPS may receive provided that each scheme relates to the same member. Overseas pensions are a good way of consolidating and managing several schemes in to one.
Is there a minimum transfer value to transfer my UK pensions?
We generally suggest that the combined value of pensions transferred into an overseas pension (QROPS) should exceed £50,000 as an absolute minimum for the scheme to be beneficial to the member. However in the majority of cases it is more appropriate for the final transfer value to exceed £75,000.
When can I access my UK pension?
The retirement date for a transferred pension can usually be any time between the member’s 55th and 75th birthday. Different QROPS jurisdictions may have slightly different age limits, ie Malta’s top age limit is age 70.
Can I still contribute to my transferred pension?
You can receive income and contribute to your Transferred Pension in any currency; so even if you move to several different locations, you can still use your Transferred Pension (QROPS).
How much of the fund can I take as a lump sum?
At the member’s nominated retirement date it is usually possible to take up to 30% of the value of the fund as a lump sum. The lump sum must precede the pension and is a one off payment. For members who have been non-UK resident for less than five full, consecutive tax years the maximum will be 25% of the fund transferred from the UK.
How is my pension calculated?
The basis for the pension withdrawal is calculated using the limits defined by the UK Government Actuaries Department (GAD) tables. . The GAD rates are dependent on your age and the 15 year Gilt rates. Then the maximum income allowable is 120% of this GAD rate. This is in line with the UK drawdown rules. In all cases, the maximum pension level will be reviewed at least every three years and after the maximum age of 70 or 75, depending on juridiction, it will usually be reviewed yearly.
How will my pension be taxed once outside the UK?
As long as there is a Double Taxation Agreement the income is paid Gross and then you are taxed in the country that you are resident in via your tax declaration, again each QROPS jurisdictions rules will vary slightly. In essence you should be no worse off than if you were receiving the pension in the UK or maybe even better off.
What if I die?
Depending on where your next of kin resides then the QROPS can either be paid out in its entirety or be structured so it rolls into a trust for the benefit of your next of kin.
Who will receive my pension when I die?
Your designate as beneficiaries, or, according to your Last Will and Testament.
Can I transfer my UK pension into a QROPS myself?
No. Only appointed intermediaries are allowed to do a QROPS Pension Transfer. This is because you need to have expert advice on this as well as the paperwork being intensive.
I don’t have all the details regarding my UK pensions, what can I do?
With some basic information we can trace most pensions.
How do I know if my UK Pension Transfer scheme is HMRC approved?
The current list of eligible QROPS Pension Transfer schemes can be found here: http://www.hmrc.gov.uk/PENSIONSCHEMES/qrops.pdf
How does a QROPS work?
In effect it is similar to a UK pension except it’s held in a trust, which reports to the HMRC each year to confirm your pension is safe and adhering to the rules.
What UK pensions can be considered for a Pension Transfer?
- Personal Pensions
- Final Salary Pensions
- Money Purchase Section 32 and Section 226
- FURB/URB
- Civil Service & Armed Forces
- Protected Rights/GMP
When should I not transfer my ‘frozen’ pension?
Each instance varies and you will require the advice of a pension professional. Contact us.
What is the minimum age I can draw benefit and how much?
From age 55 year you can take up to 30% lump sum of your fund. 70% minimum, remaining funds need to provide ‘income for life’.
Irish Chamber Examines Luxembourg Pension Scheme
By Michael Doyle
This article is published on: 24th October 2013
24.10.13
The pension system in Luxembourg is currently one of the best, however, the Irish Luxembourg Chamber of Commerce (ILCC) saw the importance of clearing up misconceptions with the organisation of an information evening that took place on Wednesday 23 October at the Banque de Luxembourgin Luxembourg city.
Around 50 people attend the event which was introduced by Ailbhe Jennings of the ILCC.
The two speakers at the event were Marco Moes of La Baloise as well as Michael Doyle, a Financial Advisor with The Spectrum IFA Group, and who is also the president of the Scottish Association and the founder of The Business Lunch in Luxembourg.
Mr Doyle addressed the issue of common misconceptions within the state pension scheme. Currently, the Luxembourg Government has a reserve of €11 million which will be exhausted in the next 25-30 years under the current system.
Marco Moes explained that the pension scheme can be broken down into three key pillars; the first is the Legal Retirement State Pension, the second is the Employer’s Pension Scheme and the third is a Private Pension Scheme. Complimentary pension schemes are also an option.
To qualify to receive a state pension in Luxembourg, an individual must have been employed in Luxembourg for a minimum of a year and a minimum of 10 years overall in any EU member state, Canada or Switzerland, countries with which Luxembourg has signed agreements. Currently, employees contribute 8%, employers contribute 8% and the state contributes another 8% towards an individual’s pension. For those who are self-employed, the individual’s contribution rises to 16% and the state contributes 8%. There are also Survivors Pensions and Orphans Pensions which family members may be entitled to after the claimant’s death. It is also important to note that this income is taxable.
Due to an increase in life expectancy and an increase in exported pensions, there have been concerns over the current pension schemes’ durability. This has brought many questions to light, including: will Luxembourg follow in the UK’s footsteps of increasing the retirement age? Will there be a percentage increase in contributions? Will there be a reduction in escalation of payment? Will there be a reduction in pension income?
Currently, salaries increase at a rate of 2-3% per annum whereas pensions lag behind with 1.9% which is not consistent with inflation. To combat these differences, alternative retirement funding options include relying on individual savings capital or creating independent and flexible saving plans which should be portable and, therefore, cross-border friendly, as otherwise these savings might then be liable for high taxes.
With regards to the second pillar, Employer Pension Schemes are on a voluntary basis and are more common in large financial companies, service providers for the financial sector and some industrial companies. Eligibility for these schemes is dependent on employers as is the level of benefits contribution. The categorisation of Employer Pension Schemes falls into the following main categories; a Defined Benefit Plan which is usually 10% of the last earned salary as annuity and 150% of the last earned annual salary, and a Defined Contribution Plan which is usually 5% of each earned salary and an investment in a classic insurance product.
Retirement Planning – Is it a marathon or a sprint?
By Chris Webb
This article is published on: 1st October 2013
01.10.13
As an independent advisor I assist my clients with all aspects of their financial planning but by far the majority of enquiries I receive are from people in their 40’s and 50’s who are suddenly panicking about their retirement savings.
Quite often, this is the first time they have considered it and as yet have set aside very little for what is going to be the longest holiday of their lives.
At the same time, I have this conversation with much younger generations, people in their 20’s or 30’s, and encourage them to save diligently for retirement now and not later in life. Typically what they want to know is how much they actually need to save so that they can make the decision to retire at a time when they CHOOSE.
The people in their 40’s and 50’sobviously spent the majority of their adult life not saving for retirement. This gave them more free money in their 20’s and 30’s than people who were already saving for retirement, and possibly indulged themselves more.
The knock on effect of this is how much they NEED to save now to afford the lifestyle they desire in retirement. When you look at the numbers it is startling to see the difference between saving early or leaving it until it’s probably too late.
A select few argue that you are better off starting later in life and enjoying your younger years whilst you can, the majority will agree that they should have started earlier and planned consistently without any major impact on their lifestyle.
Detailed below are the numbers, you can decide yourself which way looks more favourable.
For this example let’s start with a young adult – twenty years old. They are looking for an annual income of €50,000 when they choose to retire at the age of 65. To ensure they have this €50,000 ongoing and not depleting all assets you will need an asset basket of around €1,000,000. This is based on having that asset basket invested and generating 5% net return per annum.
So, we already know that you are looking for €1,000,000 set aside for retirement at age 65 and let’s say you have a balanced investment portfolio that will return 7% a year.
• If you start investing at age 20, you’ll need to put aside about €265 a month to reach this goal.
• From age 25, you’ll need to set aside about €380 a month to reach this goal. (you don’t save anything from ages 20 to 25)
• From age 30, you’ll need to set aside about €555 a month to reach this goal. (you don’t save anything from ages 20 to 30)
• From age 35, you’ll need to set aside about €815 a month to reach this goal. (you don’t save anything from ages 20 to 35)
• From age 40, you’ll need to set aside about €1,230 a month to reach this goal. (you don’t save anything from ages 20 to 40)
• From age 45, you’ll need to set aside about €1,925 a month to reach this goal. (you don’t save anything from ages 20 to 45)
• From age 50, you’ll need to set aside about €3,150 a month to reach this goal. (you don’t save anything from ages 20 to 50.
As you go through these numbers you are probably thinking that the amounts to save early on were quite manageable, but when you got to age 50, you’re thinking it’s impossible.
So now you are aware of the numbers you can decide what the easiest option is, planning early or leaving it late.
The main point I want you to consider is that you can ignore the chance to plan early and forego the retirement savings until a later date but catching up later on can be incredibly punishing, even impossible.
So my advice to everyone I meet is to start saving for retirement right now, no matter how old you are. Even if you can’t save very much, start by saving something.
Further examples using the same 7% investment portfolio: • If you just save €100 per month starting at age 20 that would equate to over €380,000 at the age of 65. • If you start saving €300 per month at the age of 30 that would equate to over €540,000 at the age of 65
Something IS always better than nothing. Start with a smaller, more comfortable amount, and increase it as and when you can. Reviewing the amount in line with salary increases is the most effective way to do this.
A short guide to QROPS
By Spectrum IFA
This article is published on: 30th September 2013
Below you can find our short guide on QROPS. Please keep in mind that QROPS require careful analysis and that we always recommend to talk to one of our advisers before you proceed. Also we encourage you ta have a look at our client charter to see how we manage your investments.
UK Pensions and Living in France
By Amanda Johnson
This article is published on: 30th May 2013
When I see the Charente melons being planted in the fields near my house, I realise that the winter has finally left us and another year has flown by. To many people who now live in France, each year that passes brings us one step closer to retirement and being able further enjoy our French adventure. Working and living in France brings different factors to bear than being in the UK and without careful consideration and planning these can result in your pension being lower than anticipated.
People often ask me: “How much will my UK pension likely be & how can I maximise my pension when I come to retire in France?”
Helping people understand what their pension position is and how they get best manage retirement plans in France is a key part of my role. Here are some of the areas we discuss:
- UK state pensions
- Work & other private pensions
- French retirement options (including returning to the UK)
- Inheritance
- Peoples increasing life expectancy
- Property and other assets as a pension pot
- Paying tax on your pensions (how & where)
Having left the UK, you may not have paid sufficient National Insurance (“NI”) contributions or if self-employed, paid a different NI class to qualify for a full state pension.
You may have pension pots from working at different companies and having moved to France want an opportunity to understand how these will mature and whether they can be better put to work for your retirement plans. Inheritance issues and any property you are thinking of using to supplement pension income is also worth noting.
Finally, how and where you pay tax on your pensions can be discussed to ensure that the tax you pay is as low as possible.
If you are living and working in France and have not considered your retirement plans, perhaps you would like me to visit you and have a free financial health check or simply email me with any questions and I would be happy to help.
Take control of your UK pension: QROPS
By Craig Welsh
This article is published on: 24th May 2013
24.05.13
Many expatriates remain unaware that British pensions can be transferred out of the UK. Should you be looking at QROPS to take control of your UK pension?
Since April 2006, individuals who have left the UK – and left behind private or company pension benefits – are entitled to a QROPS pension transfer. HMRC introduced the ‘Qualifying Recognised Overseas Pension Schemes’ (QROPS) to allow non-UK residents to transfer their frozen pensions outside of the UK.
This has led to many expats contacting their advisers for further information on how to improve their retirement options. And it’s not limited to the British; there are many foreign nationals who have built up a pension pot while working in the UK that can benefit from a QROPS pension transfer.
Pension transfers under QROPS are a tax efficient way for expats to greatly enhance their pension flexibility. Pensions in the UK are subject to very restrictive tax rules when it comes to succession planning and this can be much improved by moving the pension to another jurisdiction.
In some circumstances it may not be appropriate to transfer your pension, therefore, It is essential that a proper analysis is carried by a licensed and fully qualified adviser. This is a highly specialist type of financial planning and should not be entered into lightly. Should I consider using QROPS?
If you fit the profile below, then you should consider contacting us for a free analysis of your situation:
- You are no longer resident in the UK.
- You do not intend to return to the UK.
- You have a UK pension (or a number of pensions) with a total minimum value of GBP 50,000.
So what are the key benefits?
Succession Upon death most people would like to think that as much of their assets as possible would be passed onto their heirs. However, in the UK there can be a tax charge of 55 percent on your remaining pension if it is in drawdown and paid out as a death lump sum.
Furthermore, with many conventional final salary schemes, the widow’s/widower’s pension is only half the main pension, sometimes less if the spouse is quite a bit younger. A QROPS gives you the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum, free of tax.
Investment choice By moving an arrangement out of the UK, there is a much wider choice of international investments available. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments. Most QROPS transfers can provide access to a wide range of sophisticated funds to suit your risk profile and lifestyle stage.
Currency Risk The underlying investments and income payments from a QROPS scheme can be denominated in a choice of currencies to reduce the risk of currency fluctuations. Many British retirees have suffered as the British pound depreciated in recent years against the currency zone they are living in. A QROPS can help you manage this risk.
Flexibility in retirement Your circumstances can change during your retirement years, for example, you may still do some work or you may move countries again. You will therefore need a number of options when it comes to taking your pension benefits.
In such situations, pensioners need to consider the PCLS (Pension Commencement Lump Sum – up to 30 percent with a QROPS scheme) and the level of regular income you need. A good solution under QROPS will allow you to vary your income in the future, rather than fixing it at one rate. Professional Advice Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to transfer under the QROPS provisions. The pension should still be treated as a pension, i.e. it is not intended to be a way to ‘cash-out’ early. HMRC will come down hard on individuals, schemes and jurisdictions which abuse the rules.
A suitably approved scheme provider is also essential. At Spectrum we offer a free analysis of your pensions by our highly qualified advisory team, as well as our ongoing advice on portfolio management and the various retirement options.
‘Ask Amanda’ – The Deux Sevres Magazine & the Vendee edition
By Amanda Johnson
This article is published on: 15th May 2013
Welcome to “Ask Amanda”.
I have been writing regularly for the Deux Sevres Magazine and am delighted to be invited to now contribute to the Vendee edition. I want to start by introducing myself.
I am Amanda Johnson and have lived in the Loudun area, with my family, for the past 7 years. I am a Financial Planner working with the regulated Independent Finance company “The Spectrum IFA Group”. We specialise in helping expatriates understand the benefits and obligations of living in the French system. Bilingual, with 20 years of financial experience in the UK, I am authorised through Orias in France and The Spectrum Group is also registered with the AMF.
Living in France is very rewarding but many of the rules and regulations, especially when it comes to taxation, inheritance, retirement planning, buying and renovating your home, differ from the UK. Working closely with colleagues throughout France ensures I can share experiences, best practices and keep you abreast of changes in French financial law. This is why I consider it important to have a servicing strategy of regular face to face meetings with my clients.
I am frequently asked about Inheritance tax planning and can usually make recommendations that ensure when you have lost a loved one any financial loss is kept to a minimum? I can help you optimise your savings by offering a range of investments in major currencies, protecting you from exchange fluctuations and from inheritance tax should the worst happen. I can also review existing pension arrangements giving advice on your future retirement plans.
Over the coming months I will be detailing questions I am asked and providing answers which have helped my customers & I hope will assist you. For a Free Consultation, on Inheritance tax, investments, retirement planning and tax efficient buying or renovating your home, or to review your current circumstances, please contact me.
