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Proposed UK Pension Changes

By Spectrum IFA - Topics: France, Pensions, QROPS, Spectrum-IFA Group, Uncategorised
This article is published on: 30th March 2014

30.03.14

The UK Budget for 2014 took the financial services industry by surprise. As details of the proposals were unveiled, it became obvious that we were hearing some of the best kept secrets (for a long time) of a government’s plans. Banking secrecy may be dead, but the UK government had managed to build a wall of secrecy around itself before the budget was made public.

So after “A-Day Pensions Simplification” in 2006, now we have another major reform proposed for “Freedom and Choice in Pensions”. I have seen a few reforms during my working life and as I get closer to pension age myself, I am thinking that this might be the last time that I have to get to grips with yet another. But who am I fooling except myself. Pensions is a political football that the politicians will kick around and of course, keep moving the goalposts.

To understand the reform, you need to understand the two main different types of pensions. The first is the defined benefit pension (DBP), where your employer basically promises to pay you a certain amount of pension, which is calculated by reference to your service and your earnings. DBPs are a rare breed now, as employers have found this type of arrangement too costly to maintain. This is because the liability for financing the scheme falls upon the employer (after anything that the individual is required to contribute) and if there is any shortfall in assets to meet the liabilities – perhaps because of poor investment returns –  the employer must put more money into the scheme.

The second type of pension is what is known as a money purchase plan (MPP). You put money into an MPP, perhaps your employer does/did also, as well as the government in the form of tax rebates and in the past, national insurance contribution rebates. Maybe your ‘MPP’ was not through an employer at all and you just set up something directly yourself with an insurance company. They are several different types of MPP arrangements, but they all result in the same basic outcome, i.e. the amount of the pension that you get depends on the value of your ‘pension pot’ at retirement and so the investment risk rests with you. There is no promise from anyone and therefore, no certainty of what you might receive.

The proposed reform is all about the MPP, although there is nothing to stop a person from transferring their private DBP to a MPP (at least for the time being), if they have left the service of the former employer. But why would someone do this and take over the investment risk of their pension from the former employer? Well there are some very limited situations, but I will not go into them here. The more normal position is that people would not voluntarily transfer their DBP to a MPP unless perhaps, there was a case of serious underfunding of the DBP.

Without getting into too much of the technical detail, the bottom line of the reform is that people will have more choice about how and when they can take their benefits from a MPP. For example, from April 2015, people over the age 55 will be able to take all of the MPP pension pot as a cash sum. Actually, this possibility has already been available for some time in certain situations and the reform basically relaxes some of the requirements that have to be met to do this. The minimum age will progressively change from age 55 to 57 by 2028 and then be linked to future State Pension Age increases.

For UK resident taxpayers, 25% of this pension pot would be paid tax-free and the balance would be subject to income tax at their marginal rate (the highest tax rate being 45%). As an illustration, assuming that the person had no other taxable income in the year and they took the 25% tax-free lump sum, on a fund of £50,000 the tax on the total fund would work out to be 11%, for a fund of £100,000 it would be 19.63%, for £150,000 it would be 24.75%, for £250,000 it would be 28.2% and for £500,000 it would be 30.98%.

The government suggests that by making available the option to take the full pension pot as a cash sum, this has taken away the need for someone to purchase annuity. This, of course, is referring to a ‘lifetime annuity’, whereby someone gives the insurance company a pot of money in return for a guarantee that the insurance company will pay an annuity to them for the rest of their life. In fact, the requirement to purchase a lifetime annuity had already been abolished in 2011 for Self-Invested Pension Plans (SIPPs), which is one of the types of MPP.

Over the last few years, life-time annuities have not been very popular because the low interest rate environment has had a negative effect on the amount of annuity that someone is able to buy with their pension pot. Therefore, the SIPP has proved to be a popular alternative choice, since the pension pot remains invested and the pension investor can draw an income from the fund. The amount that can be drawn from a SIPP is linked to UK long-term gilt yields, as are insurance company annuities, which implies that there is little difference between the two options.

In fact, the SIPP is more flexible and the amount that can be drawdown can be varied between minimum and maximum amount. In addition, on the person’s death, the remaining fund does not die with the person, unlike a lifetime annuity. So what would make someone chose a lifetime annuity over a SIPP?

Principally, it comes down to attitude to investment risk. If someone is very ‘cautious’ and cannot stand the idea of any volatility in their pension fund and also wants the certainty of a defined amount of income for life, then that person would chose a lifetime annuity, despite the new freedom and choice that they are being offered.

On the other hand, if someone is comfortable with some investment risk and is attracted by the idea of their pension pot passing down to their children, then they are more likely to go down the SIPP route. If they have left the UK, then they may consider transferring the MPP benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS). In effect, a QROPS operates just like a SIPP, but there is some extra flexibility and more potential to mitigate currency risk – very useful if you need your income in a currency other than Sterling – and the fund can pass to your dependants on your death without the UK 55% tax charge.

Generally, the UK pension reform is a welcome improvement, which will provide flexibility that will allow people to make their own choices regarding ‘when to take’ and ‘how to use’ their pension funds, according to their own individual circumstances. For those wishing to make the transition from full employment to full retirement over a number of years – which has become more important due to the increase in the State Pension Age – the reforms will be of enormous benefit. Indirectly, the reforms also have the potential to reduce youth unemployment in the UK, as younger people replace those who are able to retire earlier because it may now be financial viable for them to do so.

However, as in every case of financial planning, everyone’s situation is unique. Therefore, caution will be needed to ensure that people make the right choices, since the decision that they make at retirement will affect them for the rest of their lives. It would be disastrous if the reforms created a scenario that people might unwisely take “too much”, “too early”, out of their pension pots and every effort should be made by those involved in the advice process to avoid that risk.

It follows that it will be essential that people take professional advice, which not only considers the pension assets but also takes into account the person’s total wealth and objectives. Sadly, the government’s proposal that individuals should receive “free”, “face to face”, “impartial advice” as “pensions guidance” is unlikely to be sufficient for this purpose and creates the risk of misleading the person to believe that they do not need any other advice.

 What does it mean for UK non-residents?

The terms of any Double Taxation Treaty (DTT) between the UK and the person’s country of residence will define which country has the right to tax the pension payments of the type that we are discussing here. Usually, it will be the person’s country of residence and not the UK, when the payments are made. Therefore, providing that person has been granted relief from UK income tax – after making application under the terms of the DTT – in theory, they should be able to receive their MPP pension pot without the deduction of UK tax.

However, the practical difficulty will be how the administrator of the MPP will be able to pay the benefit without deducting tax. No doubt HMRC will put in place a prescribed set of rules for calculating and deducting the UK income tax from these ‘cash payments’, for application by pension scheme administrators, as is the case that already exists for these types of payments. If the administrator cannot make the payment gross, this means that you would need to claim the UK tax back from HMRC and HMRC might want evidence that you have declared the amount in your country of residence.

On a final point, there are already tax rules in place in the UK regarding non-residents and ‘flexible drawdown’. The proposed reform is, in effect, ‘flexible drawdown without the Minimum Income Requirement’ (at least from 2015) and so it is reasonable to assume that at least the same tax rules will apply. If so, this could have implications – either when taking the payment or when returning to the UK – if you have not had a sufficient period of UK non-residence. Again, it would be wise to seek advice before making an expensive mistake.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.

 

UK Pensions – Budget Announcement April 2014

By Chris Burke - Topics: Pensions, QROPS, Spectrum-IFA Group, Uncategorised
This article is published on: 29th March 2014

29.03.14

The UK Budget this week delivered unexpected and immediate changes to UK pensions as well as the publication of a consultation document.

Whist we will need to wait for details of the actual legislation, we would like to give you a brief summary of the main changes announced.

1. Flexible Drawdown

 With effect from April 2015, anyone will be able to take advantage of flexible drawdown, without the need to have (as is currently the case) a minimum guaranteed pension of £20,000 per annum. From 27th March the minimum pension required for flexible drawdown is reduced to £12,000

Currently there is a tax charge of 55%. This will be reduced to the individual’s marginal rate of tax. While this could be as low as 20%, with a 40% tax rate at just under £32,000 and 50% at £150,000, there will still be a high tax charge to pay. It should also be borne in mind that if the pension fund is taken, and not spent, any amount left over on death will fall into the client’s estate for IHT purposes and potentially taxed at a further 40% (or the prevailing IHT rate at the time).

2. Charge on death.

 This is currently 55%, and is viewed as potentially too high. HMRC intend to consult with stakeholders on this, but with income tax at the marginal rate and IHT at 40%, it would seem unlikely that this rate will fall substantially.

3. GAD rates will be increased from 120% to 150% from 27th March.

 The Gad rate is the amount the government decide you can take from your UK pension. Previously you could take 120% of what percentage they agreed, that has now risen to 150%.

4. Triviality

 That is, where the whole amount that can be taken as a lump sum i.e. small pensions. This amount has been increased to £10,000 per pension pot, and the total can include up to three pensions of £10,000 giving a combined maximum triviality payment of £30,000.

5. Transfers from public sector schemes

 Due to the above changes, the UK Government’s view is that this will have an effect on the number of people looking to move from final salary schemes to defined contribution schemes. As public sector schemes are underfunded, their view, taken from the briefing note, is as follows:

“ However, the government recognises that greater flexibility could lead to more people seeking to transfer from defined benefit to defined contribution schemes. For public service defined benefit schemes, this could represent a significant cost to the taxpayer, as these schemes are largely unfunded.

 Consequently, “government intends to introduce legislation to remove the option to transfer for those in public sector schemes, except in very limited circumstances. “

 This means that they will be seeking to disallow transfers from UK public sector schemes.

6. Government are also consulting with industry on whether to introduce restrictions on transfers from other final salary schemes.

 A copy of this consultation document can be found here www.gov.uk/government/uploads/system/uploads/attachment_data/file/293079/freedom_and_choice_in_pensions_web.pdf

 While the main focus of reporting seems to be around the ability to take the pension fund as cash, in reality this has always been the case via flexible drawdown, so the only change being considered in this consultation is the removal of the requirement to have a guaranteed income.

 With income tax being paid at marginal rate, this would potentially increase the tax actually paid on the pension fund eg. A fund of £200,000 for a 60 year old could provide an income of around £12,000 at current GAD rates. This would (using UK tax rates) have a tax bill of £400 (20% on £2,000) and a net income of £11,600. Taking the amount as a lump sum would mean a tax bill of £73,623 and a net payment of £126,377, or just under 11 years’ worth of net income that could have been taken from the pension. Plus, if the amount was invested, tax would also be due on any income or gains produced. As well as the amount being within the client’s estate for IHT if UK domicile – whereas in a pension (QROPS or UK scheme) the fund will grow free of tax and will be outside the estate for IHT.

 No doubt there will be more focus on the above over the next few days, but if you would like to discuss any of the above in more detail, please don’t hesitate to contact me.

 (Source Momentum Pensions April 2014)

Lifetime Allowance changes and ‘Fixed Protection 2014

By Chris Burke - Topics: Pensions, QROPS, Spain, Uncategorised
This article is published on: 18th March 2014

18.03.14

This year the Her Majesty’s Revenue and Customs (HMRC) are lowering the UK Pensions Lifetime Allowance amount. This is the maximum allowance the HMRC grant to each individual to hold as a UK pension without incurring any extra tax charges. Previously, UK residents receive tax relief on the contributions made into a pension up to £1.8 million in 2010/2011 before it was reduced to £1.5 million in 2012. The HMRC has changed this twice over the last 8 years bringing the allowance down each time, from £1.8 million in 2010/2011 to £1.5 million 2012. The government agency is enforcing a further reduction to £1.25 million this coming year.

Any amount above the lifetime allowance is liable to 55% taxation when withdrawn as a lump sum, or 25% taxation when withdrawn as a pension.

It is important that those affected by this change apply for ‘Fixed Protection’ before 6th April 2014. A successful application allows the pensioner to maintain their lifetime allowance of £1.5 million as opposed to a reduced £1.25 million commencing from 6th April 2014.

A successful application for Fixed Protection in essence allows a pensioner to withdraw savings worth up to £1.5 million without paying the lifetime allowance charge which will soon affect all pensioners with more than £1.25 million across their schemes.

Firstly note – you cannot apply for ‘fixed protection’ 2014 if you already have ‘primary’, ‘enhanced’ or ‘fixed’ protection.

Secondly, you will lose fixed protection 2014 if:

a) You join a new pension scheme – unless you’re transferring pension savings from one of your existing schemes into the new scheme.
b) You build up new benefits in a defined benefits or cash balance pension pot above a set amount – enquire for further details.
c) You start saving in a new pension pot either under an existing pension scheme or a new pension scheme.
d) You have a contribution paid to any of your money purchase pension pots.

Links:
Apply for Fixed Protection 2014 at: www.hmrc.gov.uk/pensionschemes/fp14online.htm
Calculate if Lifetime Allowance affects you at: www.hmrc.gov.uk/tools/lifetimeallowance/index.htm

QROPS and EURBS – Common questions asked

By Chris Burke - Topics: Pensions, QROPS, Spain, Uncategorised
This article is published on: 23rd January 2014

23.01.14

As a specialist in UK and Irish pensions, here is a list questions I’m often presented with on QROPS and EURBS. If any of these apply to you, do not hesitate to get in touch for a consultation, free of charge. chris.burke@spectrum-ifa.com

UK Pension Transfer or ‘QROPS’ – what does it mean?
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a pension scheme transferred or opened outside the UK that meets requirements set by HMRC in the United Kingdom

If I eventually plan to return to the UK, what would this mean for my Transferred Pension?
If you intend to return to the UK permanently or to work, your Transferred Pension will become subject to the same regulations and tax treatments as a UK domiciled pension. It may then make sense to move it back to the UK as a ‘Self-Invested Pension Plan’ (SIPP) for efficiency.

However, if it is your intention to move back to the UK in the future then it is usually inappropriate to transfer your UK pension to a QROPS.

I might want to change location, will this affect my Transferred Pension?
If you live or work in another country, for example you move from Spain to Switzerland, your overseas pension will stay in the jurisdiction it was set up in. You can continue to make contributions regardless of what country you are living (remember though that if you move back to the UK, your pension will be bound by UK pension regulations). You can receive income and contribute to your Transferred Pension in any currency; so even if you move to several different locations, you can still use your Transferred Pension (QROPS).

If you are taking income and then move to another country, the amount of income tax you pay would vary from country to county.

What currencies can I have my UK Pension in once it is transferred?
Your plan can be denominated in Sterling, Euros, US Dollars, and many other currencies on request. Should it be beneficial to you, the currency can be changed at any stage cost effectively.

I have a UK state pension scheme, is it possible to transfer this also?
It is not possible to transfer a UK state pension overseas – UK transfer applies to your corporate and private pension schemes only.

If I have already taken an annuity, can I still transfer my UK pension overseas?
No, it is no longer possible to transfer your UK pension if you have already taken an annuity.

Do I still need to purchase an annuity once my UK pension has been transferred overseas?
No, you do not need to purchase an annuity once you have transferred your pension overseas.

How much does it cost to transfer my UK pension and set up a Qualified Recognised Overseas Pension?
QROPS costs differ depending on the scheme, location and the service level that you require. The main costs you will be looking at are the initial set-up fee and an annual management fee. They are generally slightly more expensive than a UK pension for the first 5 years and then on a par.

Can I manage the assets within my Transferred Pension myself?
It depends on the provider you decide on – some allow you to manage your own assets, while others insist on managing them for you. We suggest you use a financial adviser for guidance, even if you wish to manage your pension assets yourself. Contact us for more information.

What assets can be transferred to a QROPS?
Most UK pension schemes, and the underlying assets, other than the UK State pension can be transferred overseas (as a QROPS). We recommend an independent evaluation of your schemes to find out which are eligible. Contact us for more information.

Can I keep the same pension funds in my UK pension?
Potentially yes, it is possible to transfer your funds ‘In Specie’ meaning you keep the existing funds and investments from your UK pension.

Can I transfer more than one UK pension overseas into a QROPS?
There is no limit on how many pension transfers a QROPS may receive provided that each scheme relates to the same member. Overseas pensions are a good way of consolidating and managing several schemes in to one.

Is there a minimum transfer value to transfer my UK pensions?
We generally suggest that the combined value of pensions transferred into an overseas pension (QROPS) should exceed £50,000 as an absolute minimum for the scheme to be beneficial to the member. However in the majority of cases it is more appropriate for the final transfer value to exceed £75,000.

When can I access my UK pension?
The retirement date for a transferred pension can usually be any time between the member’s 55th and 75th birthday. Different QROPS jurisdictions may have slightly different age limits, ie Malta’s top age limit is age 70.

Can I still contribute to my transferred pension?
You can receive income and contribute to your Transferred Pension in any currency; so even if you move to several different locations, you can still use your Transferred Pension (QROPS).

How much of the fund can I take as a lump sum?
At the member’s nominated retirement date it is usually possible to take up to 30% of the value of the fund as a lump sum. The lump sum must precede the pension and is a one off payment. For members who have been non-UK resident for less than five full, consecutive tax years the maximum will be 25% of the fund transferred from the UK.

How is my pension calculated?
The basis for the pension withdrawal is calculated using the limits defined by the UK Government Actuaries Department (GAD) tables. . The GAD rates are dependent on your age and the 15 year Gilt rates. Then the maximum income allowable is 120% of this GAD rate. This is in line with the UK drawdown rules. In all cases, the maximum pension level will be reviewed at least every three years and after the maximum age of 70 or 75, depending on juridiction, it will usually be reviewed yearly.

How will my pension be taxed once outside the UK?
As long as there is a Double Taxation Agreement the income is paid Gross and then you are taxed in the country that you are resident in via your tax declaration, again each QROPS jurisdictions rules will vary slightly. In essence you should be no worse off than if you were receiving the pension in the UK or maybe even better off.

What if I die?
Depending on where your next of kin resides then the QROPS can either be paid out in its entirety or be structured so it rolls into a trust for the benefit of your next of kin.

Who will receive my pension when I die?
Your designate as beneficiaries, or, according to your Last Will and Testament.

Can I transfer my UK pension into a QROPS myself?
No. Only appointed intermediaries are allowed to do a QROPS Pension Transfer. This is because you need to have expert advice on this as well as the paperwork being intensive.

I don’t have all the details regarding my UK pensions, what can I do?
With some basic information we can trace most pensions.

How do I know if my UK Pension Transfer scheme is HMRC approved?
The current list of eligible QROPS Pension Transfer schemes can be found here: www.hmrc.gov.uk/PENSIONSCHEMES/qrops.pdf

How does a QROPS work?
In effect it is similar to a UK pension except it’s held in a trust, which reports to the HMRC each year to confirm your pension is safe and adhering to the rules.

What UK pensions can be considered for a Pension Transfer?

  • Personal Pensions
  • Final Salary Pensions
  • Money Purchase Section 32 and Section 226
  • FURB/URB
  • Civil Service & Armed Forces
  • Protected Rights/GMP

When should I not transfer my ‘frozen’ pension?
Each instance varies and you will require the advice of a pension professional. Contact us.

What is the minimum age I can draw benefit and how much?
From age 55 year you can take up to 30% lump sum of your fund. 70% minimum, remaining funds need to provide ‘income for life’.

Diversification could pay dividends

By John Hayward - Topics: Investments, QROPS, Spain, Uncategorised
This article is published on: 14th December 2013

14.12.13

For most people the aim of diversifying their savings and investments is to reduce risk. This is a creditable approach but the proof of its creditability can generally be seen over the long term.

The danger of focusing on the FTSE100
“The FTSE100 has gone up 50% over the last year. Why haven´t my savings gone up by the same amount?” Focusing on the FTSE100 can be misleading as it represents a small percentage of global economic performance and, for the cautious investor, is not a realistic indicator. If the savings had increased by 50% in a year, undoubtedly they would have gone down by a similar amount in times gone by. When putting together a cautious portfolio for the retired expatriate, who tends to focus on capital protection, firing 100% of the cash at equities would seem risky if not careless.

Investment cycles
The fact is that ALL investments tend to work in cycles. With a diversified range of investments, whether this is based on asset type or geographical area, history has shown us that when one might be going down there is another going up. If everything moved by the same amount, albeit at different times, there is the risk that, over time, nothing would be accomplished as the ups would merely counter the downs.

Timing the markets
There is an expression that it is time in the markets not timing the markets. The perfect situation would be to time exactly when to get into, and then out of, investments. There are not many, if any, that get timing correct.

The benefits of dividends
In volatile equity markets, dividend paying shares and funds can create cashflow. Whilst the underlying capital might be reducing in value due to a major global catastrophe in or mismanagement of finances by those in global authority, many companies could be making significant profits and translating these into dividends. There are funds which have been pay 5% or more a year in dividends. In time, whilst the dividend flow has been merrily producing the necessary income stream, the underlying investments should rise. One thing is clear. After a perceived Armageddon there has often been an opposite and greater Valhalla.

The long term view
The problem is that, as much as people say they understand the long term nature of investments, when there is a downturn in markets there tends to be panic. They sell when markets have fallen and potentially guarantee a loss.

The need to improve on bank deposit returns
The simple truth is that interest rates are low and are likely to stay that way for some time to come. Traditional savings are not paying what they use to. Low interest rates are great for mortgage holders but not for those who rely on interest to pay their bills. Therefore there is the need to find other sources for the desired income.

With a well-diversified portfolio ranging from deposits for today´s expenses through to equities for longer term needs, reviewed on a regular basis, the chances of having an affordable retirement are greatly improved. Wrapped in a Spanish compliant life bond, you can also benefit from very low taxes in Spain.

Whether it is QROPS, financial planning, or life assurance advice in Javea, Denia, Moraira, Valencia, Madrid, Barcelona or Malaga, we can help with your financial planning needs.

A short guide to QROPS

By Spectrum IFA - Topics: Investments, Pensions, QROPS, Uncategorised
This article is published on: 30th September 2013

30.09.13

Below you can find our short guide on QROPS. Please keep in mind that QROPS require careful analysis and that we always recommend to talk to one of our advisers before you proceed. Also we encourage you ta have a look at our client charter to see how we manage your investments.

Come and meet the Spectrum IFA Group on Le Tour de Finance this Autumn

By Spectrum IFA - Topics: France, Italy, Le Tour de Finance, QROPS, Spain, Uncategorised
This article is published on: 2nd September 2013

02.09.13

The Spectrum IFA Group are delighted to be taking part in 13 events in Italy, France and Spain during September and October.

These events are designed to bring financial and tax information to the English speaking expatriate communities around Europe. The idea is to give expatriates first hand access to financial experts varied areas of the financial world.

We will normally be talking about financial planning in each Country, Pension Transfers (QROPS) and changes in the local tax rules and how these impact expatriates.

Each seminar will include a speaker from a large, well know investment management house, this Autumn one of  BlackRock, JP Morgan or Jupiter Asset Management will be attending. They will give their firm’s view of global markets and currencies.

Life Assurance companies SEB Life International, The Prudential along with Standard Bank International will participate at some of the events along with Foreign Currency Transfer specialists, Currencies Direct.

To find out which event is nearest to you and register, visit our seminar page.

If none are in your area use our contact page to get the information.

QROPS – Take Control of Your UK Pension

By Spectrum IFA - Topics: QROPS, Uncategorised
This article is published on: 25th June 2013

25.06.13

Many expatriates remain unaware that British pensions can be transferred out of the UK. Should you be looking at using QROPS legislation to take control of your UK pension?

Since April 2006, individuals who have left the UK, who have left behind private or company pension benefits, can now effect a QROPS transfer. HMRC introduced QROPS ‘Qualifying Recognised Overseas Pension Schemes’ which allow a non-UK resident to transfer their frozen pension outside of the UK.

qrops
This has led to many expats contacting their advisers for further information on how to improve their retirement options. And it’s not just the British; there are many foreign nationals who have built up a pension pot while working in the UK. Pension transfers under QROPS are a tax efficient way for expats to greatly enhance their pension flexibility. Pensions in the UK are subject to very restrictive tax rules when it comes to succession planning and this can be much improved by moving the pension to another jurisdiction. In some circumstances it may not be appropriate to transfer your pension, It is essential that a proper analysis is carried by a licensed and fully qualified adviser. This is a highly specialist type of financial planning and should not be entered into lightly.

Should I Consider Using QROPS?
If you fit the profile below, then you should consider contacting us for a free analysis of your situation.

  • You are no longer resident in the UK.
  • You do not intend to return to the UK.
  • You have a UK pension (or a number of pensions) with a total minimum value of GBP 50,000.

So what are the key benefits?

Succession
Upon death most people would like to think that as much of their assets would be passed on to their heirs as possible. However in the UK there can be a tax charge of 55% of the remaining pension when it is in drawdown and paid out as a death lump sum. Further, with many conventional final salary schemes the widow’s/widower’s pension is only half the main pension, sometimes less if the spouse is quite a bit younger. A QROPS gives you the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum, free of tax.

Investment Choice
By moving an arrangement out of the UK, there can be a much wider choice of international investments available. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments. Most QROPS transfers can provide access to a wide range of sophisticated funds, to suit your risk profile and lifestyle stage.

Currency Risk
The underlying investments and income payments from a QROPS scheme can be denominated in a choice of currencies to reduce the risk of currency fluctuations. Many British retirees have suffered as the British pound depreciated in recent years against the currency zone they are living in. a QROPS can help you manage this risk.

Flexibility in Retirement
Your circumstances can change during your retirement years, for example you may still do some work or you may move countries again. You will therefore need a number of options when it comes to taking your pension benefits. You have to consider the PCLS (Pension Commencement Lump Sum – up to 30% with a QROPS scheme) and the level of regular income you need. A good solution under QROPS will allow you to vary your income in the future, rather than fixing it at one rate.

Professional Advice
Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to transfer under the QROPS provisions. The pension should still be treated as a pension, i.e. it is not intended to be a way to ‘cash-out’ early. HMRC will come down hard on individuals, schemes and jurisdictions which abuse the rules.

A suitably approved scheme provider is also essential. At Spectrum we offer a free analysis of your pensions by our highly qualified advisory team, as well as our ongoing advice on portfolio management and the various retirement options.

Take control of your UK pension: QROPS

By Craig Welsh - Topics: Pensions, QROPS, Uncategorised
This article is published on: 24th May 2013

24.05.13

Many expatriates remain unaware that British pensions can be transferred out of the UK. Should you be looking at QROPS to take control of your UK pension?

Since April 2006, individuals who have left the UK – and left behind private or company pension benefits – are entitled to a QROPS pension transfer. HMRC introduced the ‘Qualifying Recognised Overseas Pension Schemes’ (QROPS) to allow non-UK residents to transfer their frozen pensions outside of the UK.

This has led to many expats contacting their advisers for further information on how to improve their retirement options. And it’s not limited to the British; there are many foreign nationals who have built up a pension pot while working in the UK that can benefit from a QROPS pension transfer.

Pension transfers under QROPS are a tax efficient way for expats to greatly enhance their pension flexibility. Pensions in the UK are subject to very restrictive tax rules when it comes to succession planning and this can be much improved by moving the pension to another jurisdiction.

In some circumstances it may not be appropriate to transfer your pension, therefore, It is essential that a proper analysis is carried by a licensed and fully qualified adviser. This is a highly specialist type of financial planning and should not be entered into lightly. Should I consider using QROPS?

If you fit the profile below, then you should consider contacting us for a free analysis of your situation:

  • You are no longer resident in the UK.
  • You do not intend to return to the UK.
  • You have a UK pension (or a number of pensions) with a total minimum value of GBP 50,000.

So what are the key benefits?

Succession Upon death most people would like to think that as much of their assets as possible would be passed onto their heirs. However, in the UK there can be a tax charge of 55 percent on your remaining pension if it is in drawdown and paid out as a death lump sum.

Furthermore, with many conventional final salary schemes, the widow’s/widower’s pension is only half the main pension, sometimes less if the spouse is quite a bit younger. A QROPS gives you the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum, free of tax.

Investment choice By moving an arrangement out of the UK, there is a much wider choice of international investments available. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments. Most QROPS transfers can provide access to a wide range of sophisticated funds to suit your risk profile and lifestyle stage.

Currency Risk The underlying investments and income payments from a QROPS scheme can be denominated in a choice of currencies to reduce the risk of currency fluctuations. Many British retirees have suffered as the British pound depreciated in recent years against the currency zone they are living in. A QROPS can help you manage this risk.

Flexibility in retirement Your circumstances can change during your retirement years, for example, you may still do some work or you may move countries again. You will therefore need a number of options when it comes to taking your pension benefits.

In such situations, pensioners need to consider the PCLS (Pension Commencement Lump Sum – up to 30 percent with a QROPS scheme) and the level of regular income you need. A good solution under QROPS will allow you to vary your income in the future, rather than fixing it at one rate. Professional Advice Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to transfer under the QROPS provisions. The pension should still be treated as a pension, i.e. it is not intended to be a way to ‘cash-out’ early. HMRC will come down hard on individuals, schemes and jurisdictions which abuse the rules.

A suitably approved scheme provider is also essential. At Spectrum we offer a free analysis of your pensions by our highly qualified advisory team, as well as our ongoing advice on portfolio management and the various retirement options.

How to plan your retirement

By Craig Welsh - Topics: Investments, Pensions, QROPS, Uncategorised
This article is published on: 28th March 2012

28.03.12

Most expats today know they can’t rely on the state or even their company pension schemes to keep them in a comfortable retirement. Here we look at an international savings plan, designed for expats who are often on the move.

We all work hard and when the time comes to enjoy retirement, we’d like to be financially comfortable enough to enjoy it!

David moved to the Netherlands from England one year ago. The 30-year-old works in IT and earns approximately EUR 4000 per month. He is planning to work in the Netherlands for another five or six years and then he thinks he may move on to another country before probably ending up back in the UK.

He feels that he would like to have the option to retire before the company pension age of 65. He has built up some cash savings as his “emergency fund”, and this can be used in the event that he loses his job or something else unforeseen happens. He thinks it is sensible to set aside an extra EUR 500 per month for the longer-term, but wants to know how he can do this best.

Retirement planning for internationals

It is becoming abundantly clear that, as individuals, we have to take more responsibility for our own retirement planning. It will not be enough to rely on employer pension schemes (where many people are only making minimum contributions and most final salary schemes are closed to new entrants) or, indeed, government support.

As we have seen, most Western nations are now running huge deficits and are considering raising state pension ages. Furthermore, most developed countries have an ageing population, meaning that fewer people will be working to fund those who are retired.

Of course, if you are a contractor or self-employed, you will not be accruing any company pension benefits at all. Taking responsibility for your own finances is therefore even more crucial!

Often, expats are in good jobs and like to think that they will have options in later life in terms of retiring early or pursuing other projects. They can also be in a position to set some of their income aside for the longer-term, but where best to put it? When you are living and working abroad, it is often difficult to know how to use your money sensibly.

You should, of course, look into which tax-efficient savings schemes are available in your country of residence. While these differ from country to country, there are usually limits on how much you can contribute to these schemes and sometimes there are restrictions on when you can access the money.

Solution for David: International Savings Plan

David should consider an International Savings arrangement. By putting his EUR 500 per month into an International Savings Plan, David can continue paying into it even if he moves to another country. He is also not tied to a particular retirement age. Moreover, he retains control of the money at the end, as he is not required to give up the capital for an annuity (i.e. give up most of the money in the pension for an income).

Key features of an International Savings Plan:

Portability
If you move back home, or work in a different country, you can take the plan with you and you can continue to contribute to it. This is a major advantage of using an International Savings Plan, as you cannot do this with most other pension schemes. Instead, expats are often left with a number of small pension schemes scattered across different countries.

Flexibility
Most International Savings Plans will take into account the uncertainties of working internationally and allow you to control how and when you make contributions, as well as how much you contribute and in what currency. Plans can be started from around EUR 150 per month.

Control
It is a private plan, which you can control. For example it doesn’t need to tie you to a specific retirement age and doesn’t require you to take an annuity (exchanging capital for a lifetime income). You can choose when and how you use the money you have saved, and retain control of the capital.

Investment choice
Most International Savings Plans give you cost-efficient access to an excellent range of funds, to suit most risk profiles. You can switch these funds at any time. This is important, of course, as you get closer to the point when you actually need to use the money; for example, it is not advisable to be fully invested in shares with only a year or two left until you take the money. Regular reviews are important!

Tax-efficiency
Savings are usually based in a tax-efficient environment, where they can grow tax-free. Contributions are generally not tax-deductable.

Other points to note
Financial strength and regulation are important factors and each individual will have different requirements. This can depend on your current country of residence and your expected destination (i.e. where are you most likely to be in retirement?). These factors should all be taken into account as this can impact which type of savings arrangement will suit you best.

For example if you intend to retire in France, you should be aware that some plan structures (with assurance vie status) are particularly tax-efficient in France, while others won’t be.

Retirement plans should be regularly reviewed, as part of your overall financial planning. One of the reasons why people do not get the most from their finances is the lack of regular attention paid to their arrangements. Consider using a regulated and qualified independent adviser who should offer regular reviews as part of their ongoing service.

The sooner the better!

The sooner you start to set aside something for the long-term, the better! Your money then has more time to grow and allow you to build a comfortable retirement pot. Consider the “Cost of Delay”; the lost contributions and compounded interest that would have been earned. “Putting it off for now” can cost you a considerable amount and only means you have to save more in later years.

The advice is therefore to set aside whatever you can from your monthly income and start planning today.