People tend to think of Qualifying Recognised Overseas Pension Schemes (QROPS) as stand-alone products, whereas in fact they are personal pensions (SIPPS) that are domiciled outside the UK, and meet HMRC’s regulations to receive transfers from UK pension schemes.
So, the question that should be asked is not, SIPPS or QROPS, but whether to leave your pension in the UK, or move it. This depends on the same factors as in the UK, e.g. Critical Yield, charges and the ability to consolidate a number of schemes into one.
One of the main drawbacks of UK pension schemes is that, on death while in drawdown, the fund is subject to a charge of 55% on passing to beneficiaries. If you are planning to retire outside of the UK, this charge is not payable if from a QROPS and you have been non-resident for at least five tax years.
On retirement, the major QROPS jurisdictions allow for a Pension Commencement Lump Sum of up to 30% to be taken, as opposed to 25% from UK SIPPS. While the QROPS scheme has to provide an income for life, they are not restricted to UK GAD limits, which potentially provides higher income levels. In some cases QROPS benefits can be taken from age 50.
UK schemes are subject to a maximum fund size, known as the Lifetime Allowance (LTA). This is £1.5 million, and reduces to £1.25 million from April 2014. Should a fund grow larger than this amount, a tax charge is levied on additional funds. This charge applies to any benefit crystallisation event, including transferring to a QROPS.
This LTA does not apply to non-UK schemes, provided you have not been resident in the UK for five tax years prior to taking benefits. This means that a fund that grows over the LTA will not suffer the additional tax charge within a QROPS.
UK domiciled individuals pay inheritance tax on worldwide assets. It is very difficult to lose UK domicile, as HMRC look at a number of factors, generally around the ‘intent’ to move back to the UK. Would someone, living outside the UK for a number of years, who decided to transfer into a UK pension be seen as showing ‘intent’ to return to the UK and deemed domicile?
Will it be possible to transfer overseas when the time comes? QROPS rules were introduced in 2006, changed in 2012 and may change again before retirement. We know you can transfer overseas today, but will you be able to when the need arises?
By Paul Beckwith
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Paul Beckwith is an International Financial Adviser working with Blacktower Financial Management (International) Limited
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Blacktower Financial Management (Intl) Limited is licensed by the Financial Services Commission in Gibraltar. Blacktower Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK.