QROPS Pension transfers

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What is a Qrops pension transfer?

Qualifying Recognised Overseas Pension Schemes - QROPS

It was announced in April 2006 that British ex-patriates would be able to move their pension benefits to a QROPS with the UK revenue’s approval.

QROPS (Qualifying Recognised Overseas Pension Schemes) was launched by the British Government as a way to make ex-patriate retirement easier for Britons. It effectively allows Brits to retire abroad while taking their pensions with them.

In simple terms, this means that anyone who now lives overseas, or is intending to leave the UK long-term, can transfer their existing pension plans into a QROPS. However, the tax-free income and withdrawals allowed within the first 5 years of being a non UK resident will depend on personal circumstances and the jurisdiction of the QROPS. After the 5 years, the pension fund will become subject to the laws of the relevant overseas jurisdiction and the need to purchase an annuity by age 75 no longer applies(age 77 following the Emergency Budget).

Currently, the minimum retirement age of 55 will still normally apply before benefits can be taken. However, the QROPS can offer considerably more flexibility, tax benefits, greater income potential and investment freedom compared to a UK pension.

QROPS may be used to receive transfer values from UK registered pension schemes which can include Protected Rights funds. This may also apply to those already receiving benefits from a UK Self-Invested Personal Pension Scheme (SIPP).

Most of the QROPS schemes are not taxed at source, however the tax applicable to any income will depend upon where you are tax resident at the time.

Comparison Between UK Pensions and QROPS (Qualifying Recognised Overseas Pension Scheme )

CASH LUMP SUM

UK Pension:- This is limited to a maximum of 25% of the value of your pension fund and for occupational pension schemes the tax free amount is based upon a formula involving salary and service.

QROPS:- May offer a much higher tax free cash lump sum which can be upto 100%.

TAXATION

UK Pension:-All income tax derived from a UK pension is taxed at source.

QROPS:- Can significantly reduce the amount of income tax, in some cases to zero.

ANNUITY

UK Pension:- Pension law forces you to purchase an annuity by your 75th birthday (age 77 following the Emergency Budget).

QROPS:- No need to EVER purchase an annuity. This means pension companies do not keep your money when you die.

PENSION INCOME CHOICE

UK Pension:- Income drawdown (until 75th birthday) available but only in Sterling and normally subject to minimum pension pot of £100,000.

QROPS:- May allow flexible ‘income drawdown’ known as ‘unsecured pension income’ to continue after age 75, also allows you to alter amounts and currencies.

BIGGER LEGACY

UK Pension:- If you die with a UK pension scheme your spouse can get up to 2/3rds of the pension you would have received (dependent upon the scheme). If you both die your pension WILL die with you.

QROPS:- All of your pension passes to your nominated beneficiaries in full, TAX FREE, and not a windfall for the pension company or the tax man.

INHERITANCE TAX

UK Pension:- Any asset left upon death to your beneficiaries (except your spouse) will be subject to UK Inheritance Tax currently at 40%.

QROPS:- No UK Inheritance Tax charge upon death.

INVESTMENT FREEDOM

UK Pension:- Can be limited to the insurance companies choice of funds or an outsourcing of fund managers, you have no control of the pension fund.

QROPS:- You have greater investment freedom as you have full control of the investment choices as well as the currencies you wish to invest in. You may invest in onshore / offshore funds, fixed deposit rates, total diversification.

INCOME AND BENEFITS

UK Pension:- You are restricted to the amount of income and the currency received.

QROPS:- You may take an income of your choice, alter your income at any time, take capital amounts at any time and in a currency of your choice (subject to scheme rules).

PROTECTION AGAINST CREDITORS

UK Pension:- You have none!

QROPS:- Protection against possible future creditors. (Dependent on jurisdiction of QROPS).

CONFIDENTIALITY

UK Pension:- You have none!

QROPS:- Protection against ex-spouses, business partners and creditors.