QROPS and expats living in France
By Spectrum IFA
This article is published on: 12th June 2014
As part of the March 2014 budget substantial changes to UK pension legislation have been proposed by the UK government, and here our Financial Expert Steven Grover a Partner with the Spectrum IFA Group will guide you through these proposals and what consequences they could have for expats.
So what are the changes that have been proposed and which of these changes have already been adopted ? The majority of the proposed changes are already effective as of the 27 March 2014 which include the following:
New higher income drawdown limits – Drawdown investors have a yearly limit to the income they can draw which is from zero up to the maximum, The maximum amount has increased by 25% (from 120% to 150% of a broadly equivalent annuity) So for instance, an investor aged 65 with a £100,000 pension starting drawdown before these changes could draw a maximum income of £7,080 a year. However if they start from 27 March 2014 this will rise to £8,850.
Flexible drawdown made more accessible – Flexible drawdown allows investors to make uncapped, unlimited withdrawals from their pensions. There are, however, strict qualifying criteria. The main one is that you must already have a secure pension income of at least £12,000 (prior to £20,000 before).
However the £12k income must be “relevant income” so only the following will count:
State Pension, Scheme Pension (so a final salary pension which is fixed), Lifetime annuities, Overseas Pensions (but only overseas state pension or final salary), Pension income provided by the Financial Assistance scheme.
And the following income would not be included as they can change, capital can be spent, investments sold, drawdown income can finish – Rental income, Dividends, Interest, Drawdown pension income, QROPS income, Part time salary.
More flexibility for investors with pension small pots – Now investors aged 60 or over with total pension savings under £30,000 (formally £18,000) will be allowed to draw them as a lump sum. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), and the remaining amount will then be taxed as income. This can only be done once. Investors with individual personal pension pots smaller than £10,000 (formally £2,000, twice) will be allowed to draw them as a lump sum from age 60, which will be taxed as above but can only be done three times.
The following changes have however not come into force and are still in consultation:
Pension Investors will be able to take the whole of their pension as a lump sum (Potentially effective from April 2015) – Currently most investors aged 55 or over can take up to 25% of their pension as tax-free cash (in the UK but this may not be the case for French tax residents), and a taxable income from the rest. There are, however, rules that determine the maximum income most people can draw each year. These restrictions will be removed in April 2015 so pension investors will be able to take the whole of their pension as a lump sum if they so wish, subject to consultation. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), whilst the rest will be taxed as income. Should this come to fruition, it takes away one of the most cited objections to funding a pension.
Lump Sum Death Benefits – The 55% tax charge on certain lump sum death benefits will be reviewed. The Government believes that a flat rate of 55% will be too high, and will engage with stakeholders to review the rules to ensure that taxation of pensions on death is fair under the new system.
QUESTIONS & ANSWERS
What exactly is the government consulting on?
The government is consulting on “Freedom and choice in pensions”. The consultation relates to whether the proposed changes will happen and how. The main points which affect investors with private pensions are:
- Ability to take unlimited income from pensions (from age 55, rising to 57 in 2028). The first 25% remains tax free, whilst the rest is taxed as income.
- Review of the 55% tax charge on death in drawdown/post 75.
- Review of the tax rules that prevent individuals aged 75+ from claiming pension tax relief.
- Increase in minimum pension age from 55 to 57 from 2028 and further rises after that so it remains 10 years below state pension age.
- A consumer’s right to financial guidance at retirement. • Potential use of (yet to be developed) pension products for social care.
What is the timetable of the consultation?
The consultation will close on 11 June 2014 and the government aims to confirm any changes by 22 July 2014, these changes will potentially be effective from April 2015.
Can I take my pension as a lump sum?
Potentially, yes you could. However it will depend on your individual circumstances and the decision made after the consolation period has closed.
- From 27 March 2014 some investors aged 60 or over will be able to take their pension as a lump sum if:
▸ Their total pension savings are under £30,000 (only once), or
▸ They have individual personal pension pots smaller than £10,000(maximum three times)
- From 27 March 2014 some investors aged 55 or over will be able to take unlimited withdrawals from their pension (through flexible drawdown) if they can prove they have a secure pension income of at least £12,000 a year (including state pension), instead of 20,000 a year.
- From April 2015, if the changes above are confirmed after the consultation, everyone will be able to take their pensions as a lump sum.
What happens to investors already in drawdown?
Investors who started income drawdown before 27 March 2014 will remain on their current maximum income until their next annual review date. If the three yearly GAD calculation is due at that review, their maximum income will be recalculated based on the current fund value and that month’s GAD rate. They will then be eligible to take 150% of the new GAD limit. Clients not due a GAD calculation will simply move from 120% to 150% of their existing GAD rate at their next annual review. These same existing drawdown clients may potentially have their maximum income restrictions removed completely in April 2015 if the proposed changes are agreed following consultation.
What happens to investors who have already bought an annuity?
An annuity cannot usually be cancelled once set up, so you are unlikely to have any further options. However, you typically have 30 days to cancel (cancellation period). The start date of the cancellation period will depend on the terms set out by your annuity provider. Some providers are extending their cancellation period.
So with all of the above changes potentially changing drastically changing the UK pension in Industry, will a QROPS now be less relevant to Expats living in France?
First of all what is a QROPS?
QROPS (Qualifying Recognised Overseas Pension Scheme) was brought about following changes to UK pension legislation on April 5, 2006. This scheme has been specifically designed to enable non-UK resident individuals who have accrued pension benefits in the UK, to transfer these out once they have left the UK. Provided that the UK Registered Pension Scheme and the QROPS provider both have the appropriate transfer authority, individuals who leave the UK and establish a QROPS are able to request a transfer of their UK benefits as long as they can provide evidence they are no longer a UK resident.
Due to the fact that this scheme is an international contract, future benefit payments can potentially be received without deduction of UK tax, however individuals will be responsible for declaring the income in their own country of residence. So those who have moved to France to retire or are thinking about moving to France in the future, and have private or work pension benefits that would have normally been left behind in the UK can benefit from a QROPS Transfer.
What are the key benefits of a QROPS over leaving the pension in the UK?
Pension Commencement Lump Sum – With a QROPS approved scheme the amount of PCLS available at retirement can be up to 30 percent, compared to the 25 percent allowed with a UK pension however this does depend on which one of the approved jurisdictions is used.
Inheritance tax planning – Most people would like to think that, upon their death as much of their assets as possible would be passed on to their heirs. It is a complex issue, however, by transferring to a QROPS the taxation of pension benefits on death can be much less punitive. With the current UK pension rules a UK pension scheme could be a taxed up to 55 percent of the fund value before being passed on. By bringing the pension out of the UK and using a QROPS approved scheme, this tax liability can be greatly reduced or in some cases even wiped out completely.
Age benefits can be taken – Some QROPS jurisdictions will allow you to start taking benefits from your pension at the age of 50, as apposed to 55 years old in the UK.
Currency risk – This is a very important consideration for expats who have retired in France with UK pensions that will pay their pension benefit in sterling, because this means they not only run an exchange rate risk but also will incur charges for converting their pension benefit payments into Euros. By putting your pension into a QROPS you can receive your pension benefit payments in Euro’s and therefore eliminate any exchange rate risk, currency conversion charges and have peace of mind that the amount of income you receive each month will be the same.
Investment choice – By moving an arrangement out of the UK there can be a much wider choice of investments available to the pension fund, with a more global focus which is particularly important in the current market conditions as some existing pension schemes can even be limited to just UK investments.
Is a QROPS still relevant to expat’s in France?
This will unsurprisingly depend on your individual circumstances, but some of the changes in the UK like increased drawdown limits have already been adopted by many QROPS jurisdictions. And when you take into account the other advantages mentioned above, using a QROPS still has a many advantages over leaving the pension in the UK. However as part of the proposed changes are subject to UK Government consultation period, for some individuals it might be the case that it is better to wait until these findings have been disclosed.
This information is only provided as a guide and is based on our understanding of current QROPS regulations, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different. If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)687980941, e-mail steven.grover@spectrum-ifa.com
Why expats should be wary of new pension rules
By Spectrum IFA
This article is published on: 16th April 2014
There are tax implications for Britons overseas who choose to cash in their pension money under new rules announced in the Budget.
British expatriates with UK pension pots who believe they can cash them in tax free from next April are in for a disappointment, according to pension experts.
Rob Hesketh from The Spectrum IFA Group comments in a case study within this Telegraph Newspaper article, please click here to read more
Expat tax break threatened, spelling bad news for pensioners
By Spectrum IFA
This article is published on: 11th April 2014
The UK government’s assault on the finances of British expats continues as it threatens to review their personal tax allowances.
Many of the five million Britons living and working overseas may have missed the announcement in the Budget mid March, that personal allowances for non-residents are set to be reviewed.
Daphne Foulkes comments in an article for the Daily Telegraph Expats personal finance section, read more here
Pension changes – who benefits?
By Spectrum IFA
This article is published on: 8th April 2014
Since my last article we’ve enjoyed absorbing the somewhat spectacular aftermath of the UK budget. Spectacular that is if you’re into pensions and all that stuff. I am, and I’m absolutely fascinated by what is going on at the moment in the world of pensions. Daphne is the technical expert on all of this of course , with many qualifications and huge experience in the field, and she gave us all the technical low down in her last article. I’d just like to add my thoughts on why this might be happening.
I do find it somewhat odd that George Osborne seems to have sent a clear message to HMR&C to prepare full a full blown retreat and reversal of the policies that they have pursued avidly over the past eight years. In case you are not aware, April 2006 was ‘A’ Day, when the whole pension industry was overhauled, and QROPS, already born, was really launched on the UK expatriate market. Saving for your retirement was of paramount importance, and woe betide any financial adviser who dared to try to help a client access their pension funds contrary to the terms approved by HMR&C.
I need to say here that I am completely anti pension busting. My strong view is that the UK State Pension is pitifully ill equipped to provide us with anything like a comfortable retirement. Those of you who are lucky enough, or who have been diligent enough to create a decent pension fund are to be congratulated and encouraged to continue in a similar vein. Pension busting advisers are not acting in the clients’ best interests. They are in fact acting completely in their own interest; looking to create income and commission where it is not due.
We are (mostly) living longer, and will need to fund longer periods of retirement. Accelerating the pace at which we spend our retirement savings is going to end in tears. It’s a bit like telling a child who is allowed to buy one bag of sweets a week that he or she can eat them all on day one. And now we have a new pension buster on the block, Mr George Osborne himself. The proposals outlined in the budget remind me very much of the government’s war on drugs and drug related crime. A drug ‘Tzar’ was appointed a few years ago who after a couple of years of beating his head against a brick wall decided that the best thing to do would be to legalise all class A drugs and make them freely available. I’m not sure if he suggested an suitable tax rate at the same time, but it wouldn’t have surprised me if he did. Fortunately public outcry defeated that move, but I’m not sure that the same will happen this time round. This is all about money in your pockets, and that is a powerful lobby.
What worries me most about these proposals is the reason behind them Please don’t think for one minute that kind Mr Osborne is looking to make life easier for us by removing restrictions on when and how we access our pensions. What he is actually looking to do is raise his tax yield. 55 years old? A couple of hundred grand in a pension pot? Why don’t you take it all out and splash it about a bit? Treat yourself to that holiday; that car; that boat. Help your children progress up the housing ladder, or help your grandchildren get on the ladder. Tax?, sure, you’ll have to pay high rate tax when you take it, but doesn’t nearly everyone pay high rate tax these days?
Surely there’s a problem here? Why would the government want to stoke up problems for themselves in the future? Surely they don’t want droves of hard up pensioners clamouring for state aid in their final decades because they’ve spent all their money. I’m afraid the answer might be that the government doesn’t really care. One thing we’ve missed in all of this is the other pension proposals that have been going through. A raise in the general level of state pension yes, but the complete erosion of many other benefits that have always come to the aid of pensioners who can’t cope. The message now is ‘Here is your £7,000 a year. Don’t come back asking for more, because there isn’t any.’
So if the benefits system is largely to be dismantled, surely it makes sense to the government to try to get its hands on as much of the pension savings that currently exist as they can? They wouldn’t do that, would they? I think the bottom line here is that we are seeing just how interested the government is becoming in our pension savings. QROPS allows you to move your pension fund out of UK jurisdiction; have more control, and eradicate all sorts of risks. I think we should be looking very carefully at protecting our futures.
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’.
Diversification could pay dividends
By John Hayward
This article is published on: 14th December 2013
For most people the aim of diversifying their savings and investments is to reduce risk. This is a creditable approach but the proof of its creditability can generally be seen over the long term.
The danger of focusing on the FTSE100
“The FTSE100 has gone up 50% over the last year. Why haven´t my savings gone up by the same amount?” Focusing on the FTSE100 can be misleading as it represents a small percentage of global economic performance and, for the cautious investor, is not a realistic indicator. If the savings had increased by 50% in a year, undoubtedly they would have gone down by a similar amount in times gone by. When putting together a cautious portfolio for the retired expatriate, who tends to focus on capital protection, firing 100% of the cash at equities would seem risky if not careless.
Investment cycles
The fact is that ALL investments tend to work in cycles. With a diversified range of investments, whether this is based on asset type or geographical area, history has shown us that when one might be going down there is another going up. If everything moved by the same amount, albeit at different times, there is the risk that, over time, nothing would be accomplished as the ups would merely counter the downs.
Timing the markets
There is an expression that it is time in the markets not timing the markets. The perfect situation would be to time exactly when to get into, and then out of, investments. There are not many, if any, that get timing correct.
The benefits of dividends
In volatile equity markets, dividend paying shares and funds can create cashflow. Whilst the underlying capital might be reducing in value due to a major global catastrophe in or mismanagement of finances by those in global authority, many companies could be making significant profits and translating these into dividends. There are funds which have been pay 5% or more a year in dividends. In time, whilst the dividend flow has been merrily producing the necessary income stream, the underlying investments should rise. One thing is clear. After a perceived Armageddon there has often been an opposite and greater Valhalla.
The long term view
The problem is that, as much as people say they understand the long term nature of investments, when there is a downturn in markets there tends to be panic. They sell when markets have fallen and potentially guarantee a loss.
The need to improve on bank deposit returns
The simple truth is that interest rates are low and are likely to stay that way for some time to come. Traditional savings are not paying what they use to. Low interest rates are great for mortgage holders but not for those who rely on interest to pay their bills. Therefore there is the need to find other sources for the desired income.
With a well-diversified portfolio ranging from deposits for today´s expenses through to equities for longer term needs, reviewed on a regular basis, the chances of having an affordable retirement are greatly improved. Wrapped in a Spanish compliant life bond, you can also benefit from very low taxes in Spain.
Whether it is QROPS, financial planning, or life assurance advice in Javea, Denia, Moraira, Valencia, Madrid, Barcelona or Malaga, we can help with your financial planning needs.
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.