QROPS Help. Pension transfer information and advice
QROPS Guide. If you are an expat from the UK and need a pension transfer (QROPS) to unlock your pension scheme, you have come to the right place. Due to EU regulations involving freedom of labour, the Inland Revenue now allow Qualified Recognized Overseas Pension Schemes (QROPS) in order to transfer your pension offshore to mitigate tax. As QROPS specialists, we only use QROPS pension transfers which have been approved by HMRC. QROPS have been available since ‘A’ Day, April 6, 2006. Since then QROPS popularity has grown.
In the first two years from the launch of QROPS in 2006, more than £500 million were transferred according to AJ Bell. More than 7,300 pension transfers to QROPS were made in the two years following A-Day, three times the 2,320 entries to ASPs in the same period.
“The introduction of this tax penalty in April 2007 resulted in a 154% increase in the amount transferred to QROPS versus the previous year,’ said Andy Bell, chief executive at A J Bell. The Inland Revenue are losing more than a £1million per day to due to pension transfers such as QROPS moving pensions offshore to tax efficient jurisdictions such as the Isle of Man. QROPS are especially popular for UK expats living in Bermuda, Canada, Spain and Thailand.
What taxes do I pay on my pension under UK tax law?
For the higher rate tax payers, the current budget has increased income tax to 50%. Personal allowance for 2010-11 is £6,475. However, the budget clearly states that this will be phased out over the next five years, so that you will have to pay 50% tax on the whole pension. Capital gains tax has increased to 28%, the higher rates of dividends tax is 42.5% and inheritance tax is 40% above the threshold. QROPS aims to avoid most of these tax charges, depending on the jurisdiction the QROPS is held in and the country you reside.
So, how does QROPS work under UK tax law?
Only use HMRC approved QROPS. Warning – There have been QROPS set up which don’t follow the spirit of the law and QROPS in Singapore, Malta and most recently Hong Kong have faced heavy tax charges for not following the spirit of the law. QROPS in the Isle of Man and Guernsey are safe jurisidictions.
If I transfer my pension, can I have access to 100% of my pension?
The short answer is no. You cannot cash in your pension. Many schemes which were touted in Singapore and most recently Hong Kong by unscrupulous or ill-advised financial advisers have resulted in heavy tax clawbacks for both clients and advisers. Most recently clients who transferred into the Beazley QROPS in Hong Kong face a 55% tax bill after HMRC ruled that it wasn’t a genuine QROPS. Some advisers charge as much as 10% to cash in your hard-earned pension and get you access to the whole pot. Beware. HMRC are chasing down these types of pensions by the day and you will be exposed to a massive tax charge losing more than half your pension.
Real QROPS allow a 25% lump sum upon transfer only. The rest of the pension pot must be used to provide you with a pension income. The spirit of the QROPS is enforced to make sure you have an income for the rest of your life and aren’t left destitute in retirement. Remember that this is your pension and you should really only be taking a lump sum withdrawal if you really need it or you have a large pension and wish to make a house purchase. Safe QROPS jurisdictions which have been active since the QROPS launch in 2006 include the Isle of Man and Guernsey.
Do I have to live in the country where the QROPS is held?
This is the biggest misconception that clients hold. You do not have to live in the same country that a QROPS is held. It is quite common to hold a QROPS in the Isle of Man or Guernsey, but retire in Thailand, Spain or Canada. This way you can avoid most of the tax charges in the UK and the country you retire in, whilst adhering to QROPS regulations which allow of freedom of investment in a wide range of funds.
Who is eligible for a QROPS?
QROPS targets anybody who has worked in the UK and has a UK private pension scheme. It is open to all nationalities who have worked in the UK and hold a UK pension. This does not apply to a state pension. Also, if you have bought an annuity already, you cannot move into a QROPS. Generally, QROPS is reserved for applicants who have at least £70,000 in their pension pot. Lesser amounts can benefit from moving into a SIPP (Self Invested Pension Plan) which has lower charges. QROPS are for people who intend to retire abroad and not return to live in the UK. SIPPs are intended for people who may one day return to live in the UK.
Will my pension be secure?
Guernsey registered international life and pensions insurers must comply with the policyholder protection requirements. These requirements include the appointment of a Guernsey based trustee who will in turn appoint a custodian to hold the company’s assets. Assets representing at least 90% of policyholder liabilities must be held in trust. A similar policy exists in the Isle of Man.
Do I have to buy an annuity?
No. You have freedom of choice whether to buy an annuity or set up a pension income drawdown. The advantage of this means that if anything happens to you, the whole of your pension is passed on to your nearest and dearest.
What pension funds can I invest in? What returns can I achieve?
The advantage of a QROPS is you can invest in almost any financial instrument: cash, bonds, shares, funds, ETF’s and even commercial property with little or no exposure to UK taxes. You can invest in multiple currencies if you wish. There are even funds available which are not correlated to the stock market. The aim of your retirement portfolio is to hold low risk assets to provide you with capital protection and an income in retirement. However, if you wish to invest in higher risk funds, it can be arranged. The aim is to provide your pension with a capital appreciation which beats the inflation rate so that your pension can continue to grow.