Most people considering transferring their UK pension to South Africa (SA) do so due to their intentions of retiring there. In these cases the transfer will involve using a Qualifying Recognised Overseas Pension Scheme (QROPS) since it is the only offshore option that is not liable for an unauthorised payments charge of up to 55%. The question this posses is whether there are any better options available?
Based on current British law there is nothing to prevent anyone from moving to a better pension plan if they believe it is in their interests. One caveat is that certain pension providers do not facilitate this including unfunded state final salary schemes. As such, those looking to retire in South Africa have 3 options: keep their current pension, transfer to a UK based pension such as a Self Invested Personal Pension (SIPP) , or choose a non-UK based SIPP known as Qualifying Recognised Overseas Pension Schemes (QROPS).
You may therefore wish to compare UK based SIPPs against QROPS to determine the best option for you. Further to this, you have the option of locating your QROPS in South Africa or a third party jurisdiction if it is preferable.
QROPS South Africa key facts
- Currently there are 11 providers on HMRC’s QROPS list
- Regulation is provider by the Financial Services Board (FSB) who have regulated the pension industry for in excess of 20 years
- Over 70 Double Taxation Agreements (DTAs)
- Follows a combination of South African and Her Majesty’s Revenue & Customs (HMRC) Rules
South African Pension Rules
There is one rule which favours a third party QROPS jurisdiction for South African residents which is;
This exempts any foreign pension that has been accrued whilst a person has been outside of South Africa from paying income tax on any withdrawals. Although this also applies to UK based pension schemes the DTA between the two countries ensures that UK tax is due on any withdrawal. The tax treatment of pensions is therefore;
- UK based pension schemes are subject to British tax
- South African pension schemes including SA QROPS are subject to tax in South Africa
- QROPS from any other jurisdiction are subject to tax at the jurisdictional rate
At present income tax rates are up to 45% in the UK, up to 41% in South Africa and a wide variety for other jurisdictions though it is possible to have a low flat rate (under 5%) in certain locations.