Having plenty of experience with clients looking to move their UK private or ex-company pensions I have learned that this course of action is not for everybody. A transfer under the QROPS provisions is not always suited to the individual’s future needs and a thorough and professional analysis should be carried out before you decide. At Spectrum we employ a Chartered Pensions Specialist to conduct this analysis and I would say that a QROPS has been inappropriate for about 50% of those people that have asked me to have a look at their position.
Legislation introduced in April 2006 introduced the ability for a UK pension to be transferred to an overseas pension, providing the overseas pension met certain qualifying rules. These qualifying rules ensure the overseas pension broadly follows the UK legislation. QROPS or Qualifying Recognised Overseas Pension schemes offer a number benefits to the individual expatriate. Some of these are highlighted below.
You no longer need to buy an Annuity with your UK pension fund or within a QROPS. An annuity means that you give your capital, the amount that you have built up in your pension less any pension commencement lump sum you are allowed to take, to an annuity provider who will guarantee you a lifetime income (your pension); no matter how long you live. There are advantages and disadvantages to buying an annuity. The advantage is that you know how much income you are going to receive and you know you will get this for life. Annuity rates vary depending on a number of circumstances, but in particular the level of interest rates. The current low levels of interest rates have meant many people have had smaller pension income than they might have hoped for. Unfortunately, when you buy an annuity your capital is gone forever. This is the trade-off for getting a lifetime income.
Many people want to transfer under the QROPS provisions now before their pension is affected by any further changes in the UK tax rules.
With many conventional final salary schemes the widows/widowers pension is only half the main pension, sometimes less. You should also be aware of tax consequences if the surviving spouse wishes to take the remaining UK pension fund as a lump sum, in the majority of cases there would be a tax charge of 55%. Make sure that the QROPS you choose has the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum.
HMRC make frequent changes to this legislation and what may be true today may not be true tomorrow so I won’t go into more detail here, get in touch to see what your options are and how a QROPS may or may not be suitable for your circumstances.
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