QROPS, SIPPS & UK Pension Advice

UK Pension Transfer – Is a QROPS or a SIPP right for me?

QROPS (Qualifying Recognised Overseas Pension Scheme) or SIPP (Self Invested Personal Pensions) allow for the transfer and consolidation of UK pensions to a single personal pension structure.

What is a QROPS?

QROPS – Qualifying Recognised Overseas Pension Scheme is a term introduced by the UK Finance Act in April 2006. Since then, it has been possible to transfer a UK registered pension to an overseas pension scheme which has obtained HMRC QROPS recognition. 

If you have an existing UK pension fund and are living abroad then a Qualifiying Overseas Pension Scheme is an option to provide you with more control over your pension fund investments. With a QROPS you can also combine various smaller pensions into one large pot. Additionally, you can remove the need to purchase an annuity thanks to this scheme allowing you to structure your own income drawdown during retirement.

Other benefits include:

Depending on the QROPS jurisdiction, up to 30% Pension Commencement Lump Sum (PCLS) compared with 25% in the UK. When you start drawing benefits from a UK Pension scheme typically 25% can be taken immediately as a PCLS. This is provided certain limits are not exceeded i.e. total pensions are not larger than the lifetime allowance (LTA) currently £1,000,000, unless you have secured one of the protection measures available.  As long as you have been non-UK resident for at least five full complete and consecutive years you may qualify for this increased lump sum allowance.

Testing against the falling Lifetime Allowance now. The LTA has reduced in real terms ever since 2010/11 when Alistair Darling saw it as a means of raising funds through this additional tax.  The LTA has fallen from its high in 2006 of £1,800,000 to the low of £1,000,000 which came into force in April 2016. For anyone with a pension over this amount the excess is taxed at 55% if taken as a lump sum or 25% if taken as income - in addition to marginal income tax. Upon transferring your pension into a QROPS your pension will be tested against the lifetime allowance once whereas by keeping your pension in the UK this will continue to be evaluated.

Income taxed in country of residence. UK pensions are generally paid out net of basic-rate tax. PAYE applies to all pensions from registered pension schemes. However, non-UK tax resident members can elect for payment to be paid out gross by completing the relevant HMRC form, if a preferential double-taxation agreement is in place for the two countries. If there is no tax treaty, we can use a QROPS outside of the UK which can offer fantastic income tax planning opporunitites. For example, a Gibraltar QROPS currently carries a tax at source of 2.5% which can offer huge savings compared to having to pay UK tax on top of your local taxes.

Defined Benefit Salary Related Pension Schemes. A defined benefit, better known as a salary related scheme, is the most generous and secure type of pension arrangement you could ever expect to receive.  The generosity of these schemes has meant most have been forced to close, restrict access or reduce benefits because they are so expensive for the employer to provide and operate. Due to these problems, we recommend everyone who is a member of a Defined Benefit pension to ensure that their pension is not facing any of these issues otherwise a transfer could be something seriously worth considering. As of 2016 we have been finding that transfer values for Defined Benefit pension schemes are at an all-time high and with more uncertainty in the UK than ever, it could be the perfect time to look into transferring your pension.

No income tax charge on death. For UK pensions, so long as an individual is aged below 75 and pensions do not exceed the LTA their pension on death can be passed on to a nominated beneficiary as a tax free lump sum. After 75 years, your pension fund would be taxable on your nominated beneficiary according to their own marginal income tax. Withdrawals can be spread across tax years to mitigate this.  With a QROPS, if you live and die outside of the UK, there will be no tax to pay, depending of course on your period of non-UK tax residency.

More investment choice and currency options. A QROPS can access a huge range of investment funds across a multitude of differing currencies using fund platforms or offshore bonds. They will provide the option to diversify and the opportunity to tailor an investment portfolio to an individual’s specific needs. By having more investment choice and working with us, we should be able to achieve an annualised return between 5-10% for your pension which could make a considerable difference to your retirement income.

Continuing advice on your pension assets. A Pension is often an individual’s largest asset which means that if an expatriate leaves it unattended in a UK Pension arrangement the likelihood is it may receive no ongoing adviser oversight. UK Pension legislation are forever changing and as an expat it is very difficult to keep up to date. Transferring your pensions to a QROPS will bring your assets under an umbrella from where we can help to advise and monitor the pension and keep you advised on any changes to UK Pension Legislation.

Case Study

Paul, 48, and his wife Sandra, 42, have lived in Malaysia since 2010 and don’t want to return to the UK and resume UK tax residence. Paul originally had a pension fund of just under £400,000 in a UK pension scheme and has now transferred it to a Maltese-based QROPS. Paul invests his pension funds in a diversified portfolio, appropriate to his tolerance for investment risk and required returns. The portfolio is denominated in euros to reduce currency risk, as his goal is to retire to Spain. In 2019, when they find their ideal retirement villa in Spain, Paul can draw up to 25% of his fund as a Pension Commencement Lump Sum to pay for their new home. In fact, he can take his pension fund as regular cash lump sums in the currency of his choice, since you don’t have to take an annuity with a QROPS.

What is a SIPP?

A SIPP (Self Invested Personal Pension) is a great way of consolidating your pensions and taking control of how your pension is invested. Many people when they move abroad forget about their UK pension funds and are under the misapprehension that the pension provider is micromanaging the funds. Those people are leaving to chance the eventual outcome of their pension. In many cases pensions will be invested into one or two funds which are centric to UK bonds and equities which is not a diversified portfolio. Compound interest is the eighth wonder of the world and makes a phenomenal difference to the size of the pension fund at the point of retirement. By using a SIPP and a fund platform or open architecture investment bond the choice of investments is increased tenfold.

It is common to find clients who are very aware of how much they have in their bank accounts and how any of their investment portfolios are performing - but when it comes to their pension they are often not aware what fees they are paying, how their pension is performing, or what their forecast expected retirement income will be. By working with us you will have a much clearer view of your pensions and we will be able to provide some forecasts for your retirement income and ensure that no additional savings need to be made to reach your expected retirement scenario. A SIPP arrangement is a great alternative to a QROPS if you are unsure whether or not you will be moving back to the UK in the future and resuming UK tax residency and do not face any issues with the Lifetime Allowance (LTA.) To keep matters simple, we only work with providers who offer both SIPP and QROPS structures so that our clients can switch from one to the other if their circumstances change.

Case Study

Alan spent 23 years working in the UK before becoming an expatriate. He thinks he will probably go back to the UK in the future and resume UK tax residency, but he's not really sure. Whilst he was working in the UK he accumulated 23 years' worth of pension contributions with three different pension providers. When he looked into his pensions he was surprised at the lack of investment choice that was available to him, and that they were not being managed by his pension providers. Alan decided to consolidate his pensions into a SIPP which provides him with more flexibility, greater returns and better planning options for the future. He is also able to keep track of his pension through a online portal which gives him a clear view of how his investments are performing. Alan is also aware that if he decides to stay abroad in the future he could easily transfer his SIPP into a QROPS.