Advisers from UK based independent financial advisers, Global QROPS Ltd, have been advising on offshore pension transfers since before Qualifying Recognized Overseas Pension schemes (QROPS) were introduced, in April 2006, and have been providing QROPS advice since.
Upon the introduction of QROPS in the UK legislation many pension trustees, in the Channel Islands and the Isle of Mann especially, set up bespoke QROPS with the specific purpose of receiving UK expat pension funds.
As these trustees were offering a bespoke and, what was at the time, largely unique offshore pension services, the market forces allowed them to cost their QROPS accordingly.
As a result of high charges on the products, the cost of providing QROPS advice in the past was fairly high (certainly in comparison to that of advice on a UK SIPP, for example). Although the correct use of QROPS would lead, overall, to a potentially huge tax saving – because of the cost a charges involved – QROPS may have only benefitted those with exceptionally high funds.
However, over 3 years on since the introduction of QROPS, there are many more offshore pensions in the market place. Many of the more recent QROPS introduced are at a cost to that is no different to a UK SIPP. This has, in turn, meant many of the original QROPS schemes are driving their costs down.
It is important, therefore, that someone looking to transfer to an offshore pension speaks to an adviser at Global QROPS Ltd, as the best QROPS advice could lead to the recommendation of the least costly option.
Archive for November, 2009
Cost of QROPS Advice Decreasing
Monday, November 30th, 2009Will a Pension Transfer to Australia Improve my Death Benefits?
Sunday, November 29th, 2009As well as considering what investment, income and tax free cash that an Australian Superannuation provides, when making the decision to complete a UK pension transfer to Australia, a UK pension member would also have one eye on the death benefits.
With that in mind, will a pension transfer to Australia (to an Australian QROPS) increase an individual’s death benefits or would a UK pension member be better off leaving funds in the UK (if the death benefit was the primary concern)?
The first point to ascertain is what are the death benefits available from a UK scheme?
The death benefits from a UK scheme depend on several factors, for example, the type of scheme. If an individual is a member of a UK employer sponsored scheme, the death benefits may be very different from that of a member of a UK personal pension. Typically, the death benefit for someone who is a current member of an employer’s scheme is a lump sum based on multiple of their salary (sometimes written under a separate cover) whereas a member of a UK personal pension would receive a return of fund.
If a UK pension member no longer works for the employer that the employer sponsored scheme relates to, the death benefits available may be paid in the form spouses/dependents pensions as opposed to a lump sum. If an individual leaves an employer and has a personal pension, then a return of fund would still apply on death.
Where an individual has already taken benefits from a scheme, the death benefits start to get a bit more restrictive. From an employer’s pension scheme, that is a final salary scheme, it is mainly widow’s and dependent’s pensions that are paid. From a personal pension in drawdown, a lump sum can be paid on death – less 35% tax. If an annuity is purchased, with UK pension funds, death benefits depend on the terms of the annuity at outset ie were dependents pensions or a guaranteed period included?
Australian superannuation schemes usually pay out lump sums on death (based on the value of balance of the fund at the time) regardless of whether a pension is payment or not.
If a UK migrant to Australia, is concerned about death benefits and looking at Australian QROPS (Qualifying Recognized Overseas Pension Schemes) as a scheme to transfer their UK pension funds to, then the individual should take pre-migration advice from a specialist adviser that understands BOTH the UK and the Australian systems. Global QROPS Ltd has the experience to provide this advice.
QROPS and Guaranteed Annuity Rates
Saturday, November 28th, 2009There are many UK expat pension members, that have migrated abroad, who are existing members of UK pension schemes that date back years. Many UK pension schemes, from the 1980’s and before – such as Retirement Annuity Contracts (also known as section 226 contracts) – offered guaranteed annuity rates (GARs). For those UK expat pension members with GARs, that are contemplating a transfer to a QROPS (Qualifying Recognized Overseas Pension Scheme), should take advice as to whether they will lose the guarantees and the overall impact on their retirement income.
What are Guaranteed Annuity Rates?
A GAR is the minimum annuity that a pension member is offered as pension income when they retire. The annuity rate that is offered by the scheme provider is usually more generous than the standard annuity rates available today. Typically, the older plans would offer annuity rates of 10% or more – which is unheard of today.
Expat pension members that are fortunate enough to have GAR benefits in their pension, would have to think very carefully as to whether the QROPS income that they could potentially receive would be greater than the benefits that they are giving up from their existing scheme.
Factored into the equation would be the tax position that the individual would be in when receiving income. Would a QROPS, without guaranteed annuity rates, provide greater income solely because a QROPS could be more tax efficient? Would the investments, within a QROPS, have the potential to grow to a greater fund-size pre-retirement?
Global QROPS Ltd would be able to research the best options for those expats with GARs in their pensions.
Can an Australian Self Managed Super Fund (SMSF) be used as a QROPS?
Friday, November 27th, 2009When looking at a UK pension transfer to Australia and all of the Australian QROPS (Qualifying Recognised Overseas Pension Scheme) products available, many people that may have previously invested their pension funds in a UK Self Invested Personal Pension (SIPP) or a Small Self Administered Scheme (SSAS) in the UK, could be looking for a similar option in Australia.
Australia does in fact have Self Managed Super Funds (SMSF), which are schemes that share many of the same principles as UK SIPPs and SSASs. For people migrating to Australia that have existing UK SIPPs and SSASs – and therefore have a history of managing and choosing there own investments – the idea of using SMSFs appeals.
However, can a UK pension transfer to Australia into a SMSF? Is it possible for an Australian SMSF to be registered and approved as a QROPS?
The answer to this is ‘yes’. The UKs Her Majesty’s Revenue and Customs (HMRC) will register and approve SMSFs providing the scheme matches the QROPS criteria and the scheme manager – who in this case would normally be the member – follows the ongoing rules.
As with investment choice and management, a member would have the responsibility of applying for QROPS status for their SMSF and ensuring that, once the status is confirmed, the rules are followed within the QROPS reporting period. Global QROPS Ltd can provide help and guidance with this.
In summary, a UK pension transfer to Australia can be accepted by a SMSF – providing the rules are followed.
Can I Transfer my Unsecured Pension to a QROPS?
Friday, November 20th, 2009For many individuals, that have yet to draw on their UK pension funds, a transfer an overseas pension is an option – providing the scheme is registered as a Qualifying Recognized Overseas Pension Scheme (QROPS).
However, what are the QROPS options for those people migrating who are already drawing on their UK pension funds?
Global QROPS Ltd are UK based independent financial advisers that specialize in providing QROPS advice. Many migrating individuals, that we have spoken to, are unsure as to whether taking benefits from a UK pension scheme prevents a transfer to a QROPS.
The answer to the above question depends on how the benefits are taken. For the migrating pensioners that have already purchased an annuity (secured pension) with their UK pension funds or have benefits paying directly from their employer’s final salary scheme, a transfer to a QROPS is no longer available for those funds. For people that are taking their benefits in the form of drawdown (unsecured pension) QROPS is very much still an option.
Since 6th April 2006, UK pension funds that are drawing down can transfer to another UK registered pension scheme, including QROPS. Indeed, since April 2006 the option to take tax free cash from these funds (at pension age) and deferring income benefits has been available.
However, if a migrating pension member is still within the 5 year QROPS reporting period, the benefits that an individual can take from their QROPS – in respect of the unsecured pension transfer in – would have to be in line with the UK pension income rates or the member could face an unauthorized payment charge.
The UK’s HMRC Issue New Guidance Regarding QROPS and Residential Property
Thursday, November 19th, 2009On 16th November 2009, the UK’s HMRC (Her Majesty’s Revenue and Customs) have issued an update in their Registered Pension Scheme Manuals confirming the situation regarding residential property (and other taxable property) within QROPS (Qualifying Recognized Overseas Pension Schemes).
This update has been issued by HMRC because there has been much misinterpretation in some quarters regarding residential property as an investment, within QROPS, after the 5 year reporting period.
What has the guidance confirmed?
The guidance has confirmed what the Global QROPS Ltd advisory team already knew, which is the 5 year QROPS reporting period that applies to the payment of QROPS benefits, to a member, does not apply to permitted investments within a QROPS.
It has been incorrectly assumed by people, in the past, that because after 5 complete UK tax years of a QROPS member’s overseas residency benefits can be paid in accordance with local rules of the jurisdiction (such as income and tax free cash), that investments would also be outside of the UK HMRC’s reporting requirement after the 5 year period.
However, because taxable property investments (such as residential property) are not subject to the same rules as member payment charges in the Finance Act 2004, the ‘5 year rule’ does not apply. There is, in fact, no time limit on the requirement for the QROPS ‘manager’ to report a purchase of a taxable property. Therefore, regardless of how long an individual has been outside the UK, they can not purchase a residential property as an asset within a QROPS.
Global QROPS Ltd would like to stress that these taxable property rules have always applied. The recent guidance HMRC have updated, on their website, has been produced to make this clear.
Transferring to QROPS – Primary Protection
Tuesday, November 17th, 2009For the people that had built up funds, in excess of the UK Lifetime Allowance, prior to A-day (the 6th April 2006), major decisions had to made with their UK pension funds. For those with large funds looking to migrate, the introduction of QROPS (Qualifying Recognized Overseas Pension Schemes), on A-day also, would have a part to play in their decisions.
The UK Lifetime Allowance was introduced as a tax allowance that limits the amount of tax benefits an individual can accrue in a UK pension during their lifetime. This limit is tested at each ‘Benefit Crystallization Event’ (BCE). These BCE’s include taking retirement benefits, the paying out of death benefits and the transfer to an overseas pension (QROPS).
In order that people with UK pension funds, already in excess of the Lifetime Allowance before A-Day, were not penalized retrospectively the UK’s HMRC (Her Majesty’s Revenue and Customs) allowed them to ‘protect’ their funds. The most common form of protection used, for those in excess of the Lifetime Allowance at A-day, was Primary Protection.
Effectively, Primary Protection gives an individual their own Lifetime Allowance and allows their UK pension funds to increase at the same rate as the actual Lifetime Allowance. Therefore, an individual can legitimately have UK pension funds above the Lifetime Allowance.
Primary Protection is crucial to understand when a transfer of UK pension funds to a QROPS happens. As a transfer to an overseas scheme is a BCE and the Lifetime Allowance is therefore tested, there are circumstances – such as the individual has Primary Protection – where large funds can transfer without UK tax implications.
Is a UK Pension Transfer to Australia as Simple as a Bank Account Transfer?
Saturday, November 14th, 2009When someone looks at migrating to Australia permanently, they instinctively look at moving their assets with them. Whether it is switching funds from one bank account to another, a pension transfer to Australia or moving any other asset across, advice is needed.
If you have funds in a UK bank account, the transfer of those funds from the UK to an Australian bank account can be quite simple. But is a pension transfer to Australia just as straight forward?
There are similar considerations when looking to transfer both bank account and pension funds – the exchange rate, for example or the financial strength of respective institutions.
However, because of the Australian tax issues involved – such as FIF (Foreign Investment Fund), tax on growth within Australian superannuation schemes and the ‘6 month’ rule – an individual needs to be aware of more points with pensions than they would with moving money from one bank account to another.
In addition, there are the UK rules for a UK pension transfer overseas to consider. From April 2006 only schemes registered as a QROPS (Qualifying Recognized Overseas Pension Scheme) with the UK HMRC (Her Majesty’s Revenue and Customs) can accept UK pension transfer funds. Many migrants would look to move their UK employers pension to their new Australia employers superannuation but what if their Australian employer’s scheme is not a QROPS?
From both a practical and tax saving point of view, an individual should speak to an experienced adviser at Global QROPS Ltd before deciding on whether a pension transfer to Australia is suitable.
Do Returning Foreign Nationals need QROPS Advice?
Wednesday, November 11th, 2009Global QROPS Ltd examine whether foreign nationals need QROPS advice.
Many workers and business people come to the UK, from overseas, to ply their trade. Many of these foreign nationals will spend long periods of time in the UK, build up employment benefits and often settle permanently. However, there are plenty of foreign nationals that chose to return home on, or before retirement. On many occasions, returning foreign nationals would have built up sizeable pension benefits and are faced with the problem of how to take them.
The options would seem straightforward on the face of it. Take the benefits from the UK scheme or transfer the benefits to a scheme in their home country. The reality is, however, that the choices may not be that simple. For example, the returning foreign national may be moving back to a country that does not have any QROPS to accept the transfer. After all, not all jurisdictions have approved QROPS and some that do – such as the USA, do not have schemes that can accept a pension transfer to the USA.
Taking benefits from a UK scheme, regardless of where you are in the world, is always an option but not always tax efficient – particularly if the returning resident is retiring in a country with no double taxation treaty with the UK.
The good news for a returning foreign national is that they could have the option of a QROPS in a different country to the one they are retiring to and Global QROPS Ltd can provide QROPS advice solutions for people migrating all over the globe.
QROPS Advice for Temporary Migrants
Sunday, November 8th, 2009For the many people that migrate from the UK each year, their move abroad is permanent. However, for some people, whether it is intended or otherwise, their time abroad is temporary and they eventually return to the UK. Is QROPS advice the same for both temporary and permanent migrants?
There are various reasons as to why a migrant would have left the UK on a temporary basis. One of the main reasons is usually that their employer has sent them to work overseas. Other reasons maybe that the individual is on an extended holiday or that their permanent migration plans have fallen through.
QROPS advice for temporary migrants should be treated on the same case by case basis as it would be for permanent residents.
One of the first considerations would be to establish just how long the migrant is going to spend abroad. If their time outside of the UK is only a matter of months (rather than years) it makes a huge impact as to whether someone should be considering a pension transfer overseas to a QROPS. Generally speaking, QROPS are a long term retirement solution. Many of the tax benefits and flexibility from a QROPS come at retirement – although their can be tax breaks on accumulation, too.
If an individual is in a position to take retirement benefits from a scheme, during their period of overseas residency, or they are concerned about death benefits and UK inheritance tax implications – QROPS advice should still be considered.