Transferring dormant UK pensions into a QROPS offers a range of advantages for expatriates over UK domiciled schemes including SIPPs. Some of the key benefits are highlighted below. Alternatively, if you are looking for specific answers please consult our most Frequently Asked Questions (FAQs).
QROPS pension transfers could allow you the following benefits
- Consolidate multiple old UK pensions into one place
- Choose how your pension is invested and grows
- Pick the best currency for your pension and income
- Withdraw up to 30% as a tax free lump sum from age 55*
- Decide when and how much income to draw from your QROPS
- Benefit from the low cost of the most competitive QROPS providers
- Avoid paying UK tax at source on your pension income
- Avoid paying up to 45% in death tax upon your passing
Further information is available on the advantages of HMRC approved QROPS pension transfers, their potential drawbacks and a comparison weighing up their pros and cons.
With so many different QROPS providers and solutions on the market today it can be hard to decide:
- whether a QROPS is suitable for you
- which QROPS solution would best suit your needs
At Liberty Wealth we take the time to understand your particular circumstances and requirements before providing you with a tailored recommendation.
QROPS are HMRC approved UK pension plans based overseas. They follow different rules compared to UK based schemes to provide an alternative pension option for international expatriates.
No. The advantages and disadvantages of QROPS pension transfers will be dependent upon your personal circumstances. Alternative options, including keeping your existing pension, may suit you better.
This is entirely dependent upon your circumstances. It is therefore very important in answering this question that you exactly understand how Self Invested Personal Pensions (SIPPs) differ to QROPS.
No. Certain restrictions may apply. Occupational pensions (including final salary schemes), as well as defined contribution pensions in drawdown and with protected rights can indeed be transferred into a QROPS. However, you cannot for example transfer a UK state pension, a pension from which you have already purchased an annuity or a final salary pension from which you are already receiving benefits.
This is dependent upon whether the scheme is funded or not. Pensions from unfunded public services pension schemes are, with a few exceptions, no longer permitted. Alternatively, should the government pension scheme be funded (i.e. money has been and/or continues to be accumulated to pay for future retirement benefits) then a pension transfer may be an option.
The main deciding factor over whether you should consider transferring a final salary pension scheme normally comes down to the payout being offered by your pension company. Some schemes are far more generous than others.
At Liberty Wealth Management we are able to run some simple actuarial calculations to determine the best course of action for you.
No. UK pension schemes can only be transferred into qualifying recognised overseas pension schemes (QROPS), as adjudged by HMRC. A list of potentially qualifying QROPS can be found here.
HMRC does not provide any guarantees to a scheme’s suitability or even whether it is qualified. To prevent becoming liable for an avoidable tax charge you may wish to seek specialist advice
A full list of potential Qualifying Recognised Overseas Pension Schemes (QROPS) are available on the HMRC website. It is important to then make sure your international pension complies with UK legislation.
It may be liable for a lifetime allowance (LTA) tax charge dependent upon the size of the pension transfer. The process of moving a UK pension into a QROPS triggers what is known as a benefit crystallisation event. This assessment would occur at a later date anyway. By being assessed earlier than normal future growth is omitted from the calculation to your benefit.
Withdrawing funds prior to 55 is only allowable under very particular circumstances and should be confirmed with HMRC beforehand.
QROPS are subject to UK tax for 5 full tax years after the pension holder is no longer classified as being resident in the United Kingdom. After this point, QROPS are subject to the tax rules of the jurisdiction where the pension is located. Certain QROPS jurisdictions have a provision for allowing up to 30% to be withdrawn tax free versus a limit of 25% in the UK.
* Lump sum withdrawals may be subject to further local taxation in the country where the pension holder is resident.
Since, understandably, not all countries follow UK rules regarding how pensions are taxed this can result in the initial pension commencement lump sum being subject to a further local tax.
From the age of 55 you will have the ability to draw an income from your QROPS pension or, alternatively, leave the pension to grow – it’s your choice.
However, depending upon the QROPS jurisdiction you may be able to have full flexibility regarding how much income you withdraw and when.
It is important to speak to an expert and discuss your exact income requirements to ensure your pension pot does not run out.
With a QROPS pension scheme you receive gross income and your money is not taxed at source, meaning none of your money is withheld. This presents one of the advantages of a QROPS pension scheme compared to a UK SIPP or UK occupational scheme which is taxed in the UK at source before net income is paid to you.
This flexible pension scheme allows your income payments to be made at a lower tax rate and in some circumstances with no tax at all, granting you a tax free pension scheme.
In order to receive country specific QROPS information on income tax treatment please contact us.
It is important to realise that if you take an income from a final salary scheme your spouse will very likely receive a much reduced income in the case of your death.
Also, once both of you pass away the pension company effectively keeps any remaining pension capital.
A significant benefit of a QROPS is that you can pass all remaining pension capital down to your children or surviving family members, potentially without any death or inheritance tax.
No. Unlike a SIPP in the UK, one of the advantages of a QROPS is that it is not taxed at up to 45% upon death (dependent upon your tax residency status upon death). Therefore, it will allow you to pass on all of your remaining pension capital to surviving relatives of your choice without any death tax being applied.
A QROPS scheme can generally allow investment into any asset class, from high interest cash accounts through to bonds, stocks, property and commodities via investment structures such as investment funds, trusts and ETF’s. The huge range of opportunities offered by such a wide variety of investment solutions can provide the potential for strong growth of your pension capital over time.
It is important to receive good advice regarding your investment choices. This will make sure that risk is managed well and returns are in line with your expectations.
A wide variety of private wealth management companies, such as Liberty Wealth Management, based in Geneva, Switzerland can help you. A wealth management consultant will take the time to sit down with you, in order to understand your investment experience and your risk profile.
Thereafter, he or she will put together an investment strategy and then provide you with ongoing management of your pension fund in the months and years to come.
As an additional benefit most wealth management companies are paid indirectly from your underlying investment holdings so you don’t need not worry about paying additional consultancy fees.
Different QROPS schemes offer different investment options. Some will allow you the ability to manage your own investments whilst others will ask that you appoint a wealth management company.
It is important to receive professional advice before choosing a QROPS scheme and make the advisor aware of your investment experience and how you wish to manage your QROPS investments.
A QROPS pension scheme adheres to all of the pension guidelines in the UK. It is, in essence, a Self Invested Personal Pension (SIPP) which simply resides in a country outside of the UK. Therefore, if you were to return to the UK your QROPS would be treated no differently than any other UK scheme with two exceptions. QROPS benefit from a lower income tax rate for those who return to the UK and they are not be reassessed against the Lifetime Allowance (LTA) rate for tax purposes.
A QROPS is designed for international people. As income is paid gross you should never find yourself paying more in income tax than you would have done if you had left the pension in the UK. However, you could well pay far less or even no tax on your pension income depending on your country of residence.
Importantly, you should choose a wealth manager with global tax knowledge and the ability to manage your investments from wherever you may be in the world. Talk to Liberty Wealth today to understand different countries tax treatment and how to optimise your QROPS.
No. There is no requirement at any point to purchase an annuity (a guaranteed income for life). Instead, you can choose how and when to take an income and you will ultimately be able to pass on all of your remaining pension capital to your family upon your death.
You can, of course, choose to buy an annuity if you so desire. As annuity rates and offers differ from company to company it is important to speak to an expert before choosing which annuity is right for you.
Much like the UK SIPPS market, hugely increased competition over the years since the introduction of QROPS in 2006 has led to dramatic price competition.
QROPS pension schemes come in many different shapes and forms and it is important to choose the scheme that is correct for your given situation.
The main potential costs to consider:
- Are there any fees to transfer out from your dormant pension schemes?
- Do you need to pay a set-up fee for your new QROPS?
- What ongoing costs do you need to pay?
- Are the annual charges fixed or percentage based?
The best advice is to speak to one of our consultants, explain your exact situation and ask them to show you the most cost effective QROPS structure that fits with your particular needs.