There are so many products available in the financial services market. Insurances, investment vehicles, different types of accounts...it can be difficult to see what is necessary, desirable or extraneous to your needs in your new life as an expat.
You might not even have heard of a QROPS before you investigate leaving the country. But a Qualifying Recognised Overseas Pension Scheme could be so beneficial to your financial future that it is both necessary and desirable. So ask yourselves the following questions to help make up your mind.
Do you want to pay UK income tax when you are living abroad?
If you leave you pension fund in the UK and draw it abroad, you will be liable to pay at least 25% UK income tax on it. When you have stopped working, every penny counts, so why give away any more than is necessary? QROPS are available in places that the UK government has approved, on the grounds that they tax and regulate their schemes as pensions. However, the tax rates do not have to be anything like as punitive as the United Kingdom’s, so in reality you can select a jurisdiction with a tax rate that is significantly lower. And given that you do not have to live in the same jurisdiction as your QROPS, you can select one of the offshore overseas jurisdictions like the Channel Islands or the Isle of Man.
There are two very important qualifications to this freedom. Firstly, you need to select a scheme that HMRC has specifically approved. It is not simply enough to observe that you know that a QROPS has been approved in Guernsey, and assume that any old pension in scheme in Guernsey will do. HMRC publishes a list of approved QROPS, and has permitted some others that have chosen to keep their details off the list. However, it is always best to check with a QROPS adviser that your QROPS has been officially verified.
The second qualification is the length of time for which you intend to be outside of the UK. For the first five years of your time abroad, HMRC will receive reports of your scheme’s investment activities. If you return back to the United Kingdom to live on a permanent basis during this period, you might face a significant tax bill on your return. Accordingly, QROPS are really meant for those who intend to stay away for at least five years.
Do you want to worry about exchange rates in your old age?
Transferring your UK pension into a QROPS allows you to fix the exchange rate at which it will be valued. It’s best to get professional advice on this point, but you can always choose exactly when to do this, to get the best rate available.
Do you want the UK government to dictate how to spend your money?
The problem with being coerced into purchasing an annuity by the age of 75 is that you may find that there are no good deals available at the time when you have to buy one. Consequently, there is a chance that you will be forced to buy an income bearing product that is a bad deal, simply because the government thought it knew best.
The other issue is not just the timing, but the fact that you might not want to buy an annuity at all. Perhaps you have other plans for your fund, such as withdrawing it in lump sums to help your children or grandchildren onto the property ladder, or purchasing your own dream home abroad. In some countries that offer QROPS there is no requirement to purchase an annuity, and lump sums can be taken from approved schemes for any purpose you like.
Would you like to choose from a wide range of asset classes?
If you consider that you have the whole list of QROPS to choose from (which contains over one thousand schemes in numerous jurisdictions), you can shop around to find a regime that will permit you to hold a wide range of asset classes. With UK pensions, on the other hand, you are restricted to the limited flexibility afforded by SIPPs.
Would you like to do some inheritance tax planning?
To look after your loved ones as best you can, you can use the transfer of your fund into a QROPS as an opportunity to make sure that they, and not the taxman, get the benefit of your lifetime’s hard work. So make sure that your QROPS adviser chooses a QROPS jurisdiction that permits the distribution of what’s left in your pension pot to your loved ones.
