Many expatriates have already been saving into a traditional UK pension scheme before they move abroad. Once they relocate however, they may lose the right to continue contributing, or find that it is no longer as advantageous for them to contribute into such a scheme. Others also realise that an offshore pension has such significant benefits over and above a traditional scheme that they want to divert their savings activity into a suitable offshore pension vehicle.
For those who find themselves in such a position and who already have a pension pot in the UK that’s worth £50,000 or more, it’s important to be aware of recent changes to British pension laws. In April 2006 it was announced that British expatriates could move their pension benefits to a QROPS, (or Qualifying Recognised Overseas Pensions Scheme), with HM Revenue and Customs’ approval. Basically this means that many British expatriates who have a frozen UK pension pot worth over £50,000 can potentially benefit from this ruling, and move their pension into a highly flexible offshore equivalent.
Qualifying Recognised Overseas Pensions Schemes are a specific type of pension available and they are highly beneficial to expatriates and anyone contemplating living or retiring abroad. If you’re a US resident, the majority of QROPS and related benefits are likely to be unavailable to you, but residents of all other nations may apply. If you’re already an expatriate, you intend to move abroad shortly or you have plans to retire overseas, it may make significant financial sense for you to speak to a financial adviser about QROPS in relation to your personal situation. As always, if you would like a recommended adviser to contact you, please contact us.
In terms of defining QROPS, this is a pension scheme set up outside the UK that’s regulated as a pension scheme in the country in which it is established, and which must be recognised for tax purposes in the country in which it is established. It does not have to be in the country you reside in.
In terms of defining QROPS benefits, the most significant benefits come in to play when the account holder has been non-resident in the UK for at least 5 years and has no intention of returning to Great Britain for the foreseeable future. This is because once your pension schemes have been transferred into QROPS and you have been non UK resident for at least 5 years, then your QROPS provider is under no obligation to report any actions such as withdrawals or payments to any tax authorities, including the UK.
In addition to this, imagine if your QROPS provider is in a country where payments from such schemes are paid tax-free – then pension related income can be enjoyed without the deduction of tax. Although do bear in mind that your liability to pay tax may be dependent on your country of residence at the time of receipt of monies brought in.
Other benefits of these Qualifying Recognised Overseas Pensions Schemes include the fact that you are under no obligation to ever purchase an annuity. A significant proportion of a traditional British pension has to be taken in the form of an annuity. This restricts investment freedom and it can restrict how you pass your wealth on to your loved ones when you die. With QROPS however, you are under no obligation to use your pension to purchase an annuity. Simply put, without the obligation to purchase an annuity, you can invest your hard earned pension pot into potentially better returning assets. You can also gain the very real advantage of passing remaining funds, upon death, to beneficiaries of your choice instead of having your pension fund die with you.
QROPS allow the investor significantly more freedom when it comes to how funds are invested and how income and gains are used. For example, with a Qualifying Recognised Overseas Pensions Scheme you gain investment freedom, you can invest in onshore or offshore funds and access the highest fixed deposit rates available whilst achieving total investment diversification. Depending on where you live, you may be able to enjoy your pension income in a highly tax efficient way. You can take your income in the currency of your choice, protect your assets against possible future creditors, and likely achieve greater confidentiality relating to all your retirement income & capital.