Your pension pot is one of the most important aspects of financial planning. For UK residents living overseas, Qualified Recognized Overseas Pension Schemes (QROPS) can be an excellent way to maximize your pension pot from taxes, whilst providing you with more flexibility. The purpose of the scheme is to provide expats, or those planning on living overseas in the future, easy access to their pension fund. For many UK expats living overseas, QROPS is a fantastic option for their retirement planning.
Before anything else, the UK’s pension situation is concerning. Private pensions, such as final salary schemes, were made during a time when people were dying younger and having shorter retirement periods. Quite a few companies in the UK, including household names such as the Royal Bank of Scotland, have future pension liabilities which are greater than their total value on the stock market. In the current situation, more and more pension schemes are being changed. Those who transfer their pensions overseas are ring-fenced from such changes.
Moreover, new changes in UK law will make it possible for retrospective changes to pensions to be made, for example by changing allowances available to dependents. Further planned moves by the UK Chancellor George Osborne to change UK expatriates tax situation, by in affect suggesting that UK earned income such as rental income will be taxed more highly, gives a further reason why more and more people will consider cutting their financial ties with the UK.
There are also obvious tax benefits in terms of overseas transfers. Some pensioners are taxed at 40-50% and often have to pay inheritance tax, whilst transferring overseas can allow that tax rate to be cut close to zero, both when you are alive and the lump sum after death.
A further benefit of QROPS is the flexibility they offer clients, which a good adviser can take advantage of. Not only can clients take a lump sum upon retirement, it is possible to review funds every three years and take a draw down every year to provide pension income. Typically, many pensions in the UK are held in low-yielding government gilts, which therefore decreases the likelihood of strong investment performance, especially as interest rates are likely to stay low for the foreseeable future. The ability to denominate the pension in the local currency, can also reduce future risks to your pension’s purchasing power.
So who can qualify for such schemes? Rules differ depending on providers, but generally anybody who has a pension pot in access of 50,000, who has a private pension over the age of 55 and isn’t drawing it, and is a UK non-resident can apply. If you have any questions regarding QROPS, don’t hesitate to contact me via email – International AMG – firstname.lastname@example.org