Releasing capital from your pension fund .jpg

Releasing capital from your pension fund

By STEPHEN WARD [email protected]

Stephen Ward BA (Econ), ACII, APMI, AIFP, APFS, Managing Director of Premier Financial Solutions (UK) Limited, has more than 30 years experience in the UK pensions industry, is a Senior Lecturer with the UK’S Chartered Insurance Institute, and frequent speaker at Pensions Conferences throughout the world.

We live in interesting times. Well that’s one way of putting it. 

The fact is that the financial system is in a critical condition and the authorities have it on life support whilst they look to solutions that will mend it.

They will succeed – we have to believe that because the alternative is unthinkable. 

Much depends, though, on the policies to be adopted by the newly inaugurated Obama administration. As is often the case with any patient on life support, there may only be a single opportunity to get this right  – and one which will involve massive risk to the taxpayer at a cost of trillions of dollars ( and pounds).

The only thing I am sure of, is that things will probably get worse before they get better. They may get a lot worse.

“Expats” hit from all directions

The typical expat, meantime, is beleaguered.  In many instances, their investments have suffered partial destruction because of falling stockmarkets, their deposit interest payments have fallen to next to nothing, and an unstable exchange rate has led to a dramatic fall in income in Euro terms, where that income is first derived in Sterling. 

Many are struggling to pay the mortgage each month and there are signs that some lenders are looking to begin repossession proceedings after only a few months of mortgage arrears. 

We are, as a consequence, seeing an increased number of people coming to us who are financially distressed, looking for a solution that will see them through these difficult times. A solution that often emerges relates to the funds they have in a UK pension scheme.

This is an often forgotten asset that can in many instances be harnessed to alleviate current financial stress. There are a number of ways of achieving this relief and generally they involve the use of a Qualifying Recognised Overseas Pension Scheme (QROPS).

What is a QROPS?

A QROPS is an overseas based pension fund, normally in Guernsey, New Zealand and more recently Gibraltar, which has obtained approval from HMRC in the UK to accept the transfer of pension funds. For investors who have been non resident for five complete tax years, QROPS funds offer greater flexibility in the way such funds may be invested, for example they may invest in residential properties, and greater flexibility in how benefits may be withdrawn both as a lump sum and in income payments.

However, transferring during the first five years of non-residence has many other advantages, including the ability to pass on your fund in full on death, with no liability to death duties, and the certainty that you will never have to buy an annuity.

QROPS fund holders resident in countries like Portugal and Spain benefit greatly by being able to take their pension income with dramatically reduced levels of taxation.

More importantly, for those in immediate need of capital, obtaining an immediate lump sum from the fund is nearly always possible, particularly when the QROPS member has been outside of the UK for at least five complete tax years.

The amount of capital that can be drawn from your fund following a transfer to a QROPS varies case by case but whether large or small it may provide some welcome respite from the whirlwind of bad economic news that currently surrounds us, with its potential for catastrophic effects on your financial well-being.

Which QROPS?

There are now more than a dozen QROPS that could be considered.

These schemes enable the expat who has been outside of the UK for more than five complete tax years to escape the rules associated with their UK pension schemes and UK pension legislation.  This is however a specialist area of advice and requires expert knowledge of both UK pensions and of this ever growing range of QROPS available in the market place.

The financial world will eventually revert to stability and normality. However, this may easily be a couple of years or more away.

Meantime we all have to find ways to get through the current turmoil and the availability of innovative solutions of the type described here may for some be crucial.

This powerful benefit of access to an instant cash sum available with QROPS, together with significantly reduced taxation of pension income (a saving of up to 65% in Portugal),  which we will write about in future articles, helps explain why there has been such an upsurge of interest in this area.

You can hear how a QROPS could provide immediate benefits for you, whilst at the same time having the opportunity to discuss the structure of your pension fund, on a one to one basis, in these difficult times for pensions and investments.

Free Pensions Seminar and Clinic

We are holding a free Seminar and Pensions Clinic on March 25 at 11 am at the Quinto Do Lago Hotel in conjunction with Castle Trust and Management Services of Gibraltar.

As the number of places available are limited please contact Brian Brannan on 0034 952 789 297 or email [email protected]

Stephen Ward was a member of the UK Government’s Pensions Industry Working Group which assisted HMRC to plan and implement the changes in pensions legislation which introduced Qualifying Recognised Overseas Pensions Schemes, (QROPS), in 2006.

Premier Financial Solutions (UK) Limited is authorised and regulated by the Financial Services Authority. Castle Trust and Management Services Limited are registered and licensed by the Gibraltar Financial Services Commission.