The World of pension planning is moving very fast with changes emerging almost weekly in terms of regulation , management , investment opportunities and in particular at this time how pension benefits can be taken.
In 2014 the UK treasury announced huge changes to the way that individuals might draw or receive their pensions from 2015 onwards.
These changes are and will have huge implications on how people may view their pension savings and how they will take their benefits and adjust their financial planning in the long term.
Also , over the last few weeks the Maltese authorities – where many QROPS pension Trustees are based have announced new flexibilities and alterations to Malta based QROPS.
Never has the need for advice been more paramount.
What is clear is that for many reasons a review of pension planning is very important for individuals wherever they are based in the World.
As such we can offer advice and services to review your pension arrangements from a tax , investment , cost and planning perspective as well as looking at both international schemes or arrangements established in the UK and Ireland.
We have an associated company in the UK which will provide a full regulated pension review and planning service for UK schemes if required.
If you need or would like further information please feel free to contact us.
QROPS v SIPPS
The main historic differences and hence advantages of a QROPS over a SIPP for people who no longer reside in the UK were as follows:
- There was no compulsion to buy an annuity at any time by a QROPS unlike a SIPP where you had to be 75.
- When you did, if your money is in a QROP, 100% of the remaining funds will be passed to your beneficiaries – unlike with a SIPP where the government will take up to 55% tax as a pension exit penalty.
After the Budget in March 2014, the first one of these i.e. compulsion to buy an annuity, does not now apply.
And the second one, i.e. the 55% tax, is thought to be under review for next year.
Some other differences are as follows:
- QROPS – up to 30% pension commencement lump sum (tax free cash) may be taken from the QROPS.
- 25% may be taken from a SIPP, there is the possibility under both schemes that some tax may be due in your country of residence but not in the UK.
- Neither the QROPS of SIPP will be subject to UK inheritance tax. Under a QROPS 100% of the remainder fund is passed to your beneficiaries.
- On a SIPP up to 55% will be taken as a penalty.
Which is the better pension vehicle?
Neither vehicle should be defined as better than the other as they provide different solutions depending on the individual’s circumstances.
In basic terms a SIPP is designed specifically for a UK resident and a QROPS is specifically designed for non UK residents.
If an individual is not UK resident or, planning on living/retiring outside the UK then a QROPS may very well be the suitable solution.
QROPS – Qualifying Regulated Overseas Pension Scheme
- As its name suggests this is a pension scheme based outside the U.K. which is recognised by HMRC as being eligible to receive transfers from U.K. pension funds.
- People can transfer their deferred company and personal pensions to a QROPS. Any pension can be transferred as long as an annuity has not been purchased.
- A QROPS is administered by a firm of Trustees approved by the regulatory authorities who have obtained approval and registration from HMRC.
- There have been recent changes and improvements to QROPS regulation – see below
Who might benefit from a QROPS
Anyone considering retiring overseas and becoming resident in a foreign jurisdiction. The amount of tax you pay on income and capital received from your QROPS will be determined by the taxation of the country in which you are resident.
These laws or fiscal statutes vary from country to country but may be more favourable than those in the U.K. A QROPS is a solution which allows non-U.K tax residents who are overseas and who have preserved benefits accrued in U.K. pension schemes to transfer those pension assets out of the U.K.
You cannot transfer British Government or State Pensions to a QROPS.
- Consolidation of U.K. pension benefits into one unique scheme.
- Access to and control of the pension benefits. Funds can be invested to meet an appropriate personal investment risk profile.
- Payment of pension benefits to suit the individual’s circumstances and the situation in the individual’s country of residence.
- Tax efficiency and tax planning. Up to 30% may be withdrawn as a tax-free lump sum and the balance paid as income and taxed as appropriate in the individual’s country of residence.
- More flexibility on the level of income taken and no requirement to buy an annuity at any age.
- Unused pension assets become part of your succession planning, free from U.K. Inheritance tax.
- When you die with a U.K. pension your Estate is likely to have to pay tax before the proceeds are passed to your beneficiaries. After age 75 this may increase to 82%. Under a QROPS you can pass on your pension pot to your beneficiaries on death as you may wish.
- QROPS – 2012 Changes
- HMRC has introduced changes to that rules are tighter and no abuse can occur.
- The country where a QROPS is based must recognise the scheme for tax purposes.
- QROPS providers must report payments to investors for 10 years after funds are transferred out of a U.K. pension scheme.
- HMRC will impose a strict 30% cap on tax-free drawdowns.
- Providers must comply with tighter registration requirements before their QROPS is accepted by HMRC.
- The QROPS and the investor can live in different tax jurisdictions.
- QROPS providers will pay benefits gross on the assumption that the investor settles any tax liability in their country of residence.