Posts Tagged ‘QROPS transfer’

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Transfers to QROPS and the Pension Special Allowance Rules

Saturday, December 19th, 2009

Many of Global QROPS Ltd’s clients, that fall into the high earner category, look to maximize the funding in the their UK pension before they migrate and potentially transfer those funds to a QROPS (Qualifying Recognized Overseas Pension Scheme).

Before a change in the rules, introduced in the Finance Act 2009, a high earner could contribute up to their earnings into a UK pension scheme, subject to the annual allowance (£245,000 in tax year 2009/10), and receive full tax relief on the contributions. However, a temporary measure introduced by the Finance Act 2009 placed a restriction on the amount that could be contributed.

What changes do Global QROPS Ltd’s clients, that are high earners, need to be aware of?

The temporary measure (mentioned above) is the ‘pension special annual allowance’ and is a tax allowance that restricts the tax breaks on UK pension contributions for high income individuals with relevant income of £150,000 a year and over. This temporary measure commenced on 22nd April 20009 and is expected to be in place until 5th April 2011 – at which point the Government intends to finalize the rules.

The basic allowance is set at £20,000 (although an individual may qualify for an enhanced allowance of up to £30,000). Should a high income individual contribute in excess of the pension special allowance, then a tax charge on the individual would be generated.

High earning individuals, looking to top-up their UK pensions before transferring to a QROPS, should be aware of the potential restrictions.

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Global QROPS Ltd – Clients with Contracting Out pensions (2)

Thursday, October 29th, 2009

As well as employer and employee contributions, an individual could have built up an entitlement to an employers or personal pension through ‘contracting out’. Global QROPS Ltd have established, in previous news items, that these benefits are both transferrable to a QROPS (Qualifying Recognized Overseas Pension Scheme) and not detrimental to the Basic state pension. Having said that, what affect does contracting out have on the State pension overall?

What impact does contracting out have on my state pension entitlement?
When an individual is contracted out, some (or even all) of their entitlement to additional state pension (S2P) or State Earnings Related Pension (SERPS) would be reduced or even lost.
 
The affected on an individual’s overall benefit depends on whether they are contracted out under a stakeholder/personal pension plan or their employer’s Occupational pension scheme (such as a contracted out salary related pension scheme (COSR) or a contracted out money purchase occupational pension scheme (COMP).

Some of the national insurance contributions (NICs) paid by an employer or an individual, contribute towards their state pension.  If an individual is contracted out, they lose some or all of their entitlement to the additional part of the state pension over and above the Basic State Pension. (Global QROPS Ltd can help their clients obtain a State Pension forecast in order to determine their State pension entitlements).

As a result of this, the State reduces the NIC liability on earnings between the lower earnings limit and the ‘upper accrual point’ for these individuals and their employers.

The method used to reduce the NIC liability depends on whether the individual is contracted out under a COSR, COMP or personal pension. For Global QROPS Ltd’s clients, that are looking to transfer to QROPS from a contracted out scheme, they can conceivably transfer from all of these schemes regardless of the method of contracting out.

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Global QROPS Ltd – Clients with Contracting Out pensions (1)

Wednesday, October 28th, 2009

Many Global QROPS clients are members of employer sponsored or personal pension schemes where they have ‘contracted-out’. Before an individual looks at potentially transferring their UK pension benefits to a Qualifying Recognized Overseas Pension Scheme (QROPS), they should, ideally, be familiar with what contracting out means.

What is contracting-out?
Contracting out is, basically, when an individual receives private pension benefits instead of part or all of their entitlement to additional state pension – which is now called the Second State Pension (S2P) but was previously know as the State Earnings Related Pension (SERPS) and prior to that the State Graduated pension.
 
An employer has two options, when choosing to contract a scheme member out of S2P. Either the member can be in a defined benefit (final salary) pension scheme, in which case they are contracted out on a salary related basis (COSR), or the member may be in a defined contribution scheme – in which case they are Contracted out on a money purchase basis (COMP).

Should an employer not offer contracting out in the employer’s scheme an individual can use a stakeholder or personal pension to contract out.

For those people that have employment based on self employed earnings, contracting out is not available.

Should I contract out? 

If you are a member of an employer’s pension scheme, you could be contracted out without even realizing it. For those that are looking to migrate now, or in the future, having contracted out rights is advantageous. As being contracted out allows you to have a separate pension fund built up from the State, in your own right, that is transferrable to a QROPS whilst not affecting your Basic State pension benefits.

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Guernsey’s QROPS Stance

Saturday, October 24th, 2009

Since the introduction of QROPS (Qualifying Recognized Overseas Pension Schemes) in April 2006, the Channel Island of Guernsey has introduced many schemes that are available to accept UK transferred pension money.

As QROPS have evolved Guernsey, as a reputable financial centre, has been involved in discussions with the UK’s Her Majesty’s Revenue & Customs (HMRC). These discussions have taken place to ensure that Guernsey QROPS can continue as approved schemes, with HMRC, for accepting UK pension transfers.

With jurisdictions, such as Singapore, removed form the HMRC QROPS list in 2008 and other countries reviewed, Guernsey want their QROPS to be viewed favorably by both the customer and the authorities.

One of the first steps that the Guernsey tax authorities took was to restrict the maximum tax free cash lump sum payments to 25 per cent of the QROPS fund, applying to residents and non-residents of Guernsey alike. This applies to pension members outside of the QROPS reporting period as well as those within it.
 
Another major step was to ensure that any transfer from a Guernsey QROPS, made to a scheme outside of Guernsey, can only be made to another registered QROPS that, broadly speaking, imposes the same restrictions as Guernsey QROPS – such as 25 per cent tax free cash at retirement.
 
The main concern for Guernsey is that they do not want to be seen as a jurisdiction that encourages 100 per cent cash commutation from their schemes. The Guernsey tax authorities see that as something that could damage their reputation and potentially lead to Guernsey QROPS being removed from the HMRC list.
Global QROPS Ltd can advise people on the benefits of Guernsey QROPS as well as the flexible benefits of QROPS in other countries.

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Transferring UK Pensions to Isle of Man QROPS

Wednesday, October 21st, 2009

When migrating overseas many UK pension members investigate the possibility of transferring their UK schemes to overseas pensions. Since 6th April 2006 the overseas scheme would have to register and be approved by the UK’s Her Majesty’s Revenue and Customs (HMRC) as a QROPS (Qualifying Recognized Overseas Pension Scheme) in order to be able to accept UK pension transfer money.

Many jurisdictions, throughout the world, have QROPS. One such jurisdiction, that is close to home, is the Isle of Man. What are some if the considerations that someone would need to take into account with Isle of Man QROPS?

Amongst the main points to consider will always be how pension funds, transferred to a QROPS (anywhere in the world) would be treated for tax and what level of retirement benefits can they provide?

An Isle of Man QROPS will pay to it’s members income at UK Government Actuary Department (GAD) rates within the QROPS ‘reporting period’ – which is 5 complete tax years of the member’s overseas residency. This income will be taxed at source at a rate of 18% – although there is an allowance for the first £2,120 per annum (for tax year 2009/10) on this income for Isle of Man non-residents. (Although a non-resident may have to pay further income tax on receipt of QROPS income in their country of residence).

As far as the payment of tax free cash is concerned, a member can receive 25% of the fund as a tax free lump sum if this is paid out within the (QROPS) reporting period. If the member waits until after the 5 year reporting period – and they haven’t drawn any tax free cash previously – 30% of the fund is available as a lump sum.

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QROPS and the UK Lifetime Allowance

Wednesday, October 14th, 2009

On the 6th April 2006 (A-day) major changes happened to UK pensions as a result of Pensions Simplification. Amongst the changes introduced were QROPS (Qualifying Recognized Overseas Pension Schemes) and the pension lifetime allowance. Broadly speaking, QROPS are overseas pension schemes that have been registered and approved by the UK Her Majesty’s Revenue and Customs (HMRC) to accept transfers of UK pension funds. The lifetime allowance, basically, is a tax allowance that limits the amount of tax privileges on an individual’s total UK pension benefit over their lifetime. It was set at £1,500,000 in tax year 2006/07 and will increase to £1,800,000 by 2010/11.
Each time an individual brings new benefits into payment under a UK pension scheme it is known as a benefit crystallization event (BCE). Each time benefits are taken, the ‘crystallized’ value of the benefits must be tested against the individual pension member’s available lifetime allowance.
How does this affect someone looking to transfer to a QROPS scheme? In short, a transfer of a UK pension fund to a QROPS is a BCE. If the crystallized value of the pension funds are above the remaining lifetime allowance available, a lifetime allowance tax charge will apply to the excess amount.
In some cases, such as when an individual can apply for enhanced protection, a UK pension fund value above the lifetime allowance can be transferred to a QROPS without penalty. However, an individual, who has funds approaching the lifetime allowance would, be wise to take specialist advice before transferring to QROPS.

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Reasons for QROPS Advice

Monday, August 3rd, 2009

There are many reasons as to why and individual would consider transferring the their pensions from the UK to a Qualifying Recognized Overseas Pension Scheme (QROPS).
For an individual moving abroad, there could be more options available, with their pension benefits, then if they remained in the UK.
For many the UK pension regulations are too restrictive, however, not all overseas pensions have unlimited options and access to benefits.
In order to understand the options available and the best scheme that they could be obtained, it would be prudent for a UK pension member to seek QROPS advice.
There are almost 1,800 schemes currently registered as QROPS on Her Majesty’s Revenue and Customs (HMRC) website. There are also schemes registered and approved as QROPS that do not appear on the list.
Not all of these schemes are available for everyone to use and many of those available may not be suitable.
Some factors that someone, giving QROPS advice, may have to be consider when selecting an appropriate product are:

• Individual’s plans for retirement;
• Whether the individual has beneficiaries
• Individual’s risk profile;
• Investment options in the scheme;
• The exchange rate on transfer;
• The tax regime in the country that the individual has migrated to;
• Tax rules in the country that the QROPS is based;
• Is the QROPS in a jurisdiction under investigation from HMRC?
• Transfer options from the QROPS. Can funds be transferred out?

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