If you are an ex-pat of the UK living abroad, you may have heard about QROPS Pensions. Perhaps you have always wondered what they are exactly and whether you are entitled to them and if they could benefit you. In the article below this what we will be looking at. We hope you find the information useful and it helps you to decide whether or not you can and should opt in for QROPS.
QROPS Pensions Explained
QROPS is form of offshore pension that the HMRC recognises as being legally able to receive transfers from registered UK pension plans. This means that ex-pats living abroad can transfer both person and work pension savings into a RROPS, as long as the payment has not begun if its a final salary scheme or the annuity has not been bought yet.
How Can QROPS Benefit You?
What then are the benefits of opting for a QROPS pension? There are three main advantages to QROPS and they are:
This type of pension offers more flexibility. For example, you are able to continue to take completely tax-free lump sums from the pension, even if you taken as much as 25% already. This pension also allows you to open high interest rate deposit accounts for any currency and you can invest in offshore and onshore funds.
Freedom Of Inheritance Tax
With a QROPS you are not required at the age of 75 to buy annuity and as such are not liable to inheritance tax on any residue funds you leave in your pension for your heirs.
Decreased Income Tax Liability
In the UK pension schemes are taxed at the same rate as income tax. As some countries have a much lower rate of income tax or no tax pension, if you retire to a country with an interest rate lower than the UK’s, you could benefit from an even bigger chunk from your pension income.
What Are The Potential Risks Of QROPS?
High Commission Rate For Some Advisers
You need to be careful to only use a registered UK financial advisor with a good reputation when looking to transfer into a QROPS from a UK pension, as well as checking how their fees are calculated. There are some out there who take up to 30% commission on these kinds of transfers. The general rule of thumb you should follow is that the charges and fees negate the benefits of transferring to a QROPS, unless you have a pension fund valued at over £100,000. So always get help from a QROPS pension specialist before making up your mind.
Funds Could Run Out Quickly
As mentioned above, one of the advantages of QROPS pensions is that you are able to take out lump sums whenever you want, even over the 25% mark. While this obviously gives you flexibility you might not get with other schemes; it does present the risk that you could run out of pension funds faster and be left with nothing.
Most Suited to Long-Term Expatriates
Generally speaking, QROPS are suitable only for people who are living abroad for tax purposes and who are aiming to be living abroad for at least 5 years or more. So if you only have short-term plans, under 5 years or less; QROPS are probably not right for you.
There you have it, the advantages and disadvantages of QROPS. In any situation, if you are contemplating QROPS for your pension plans, you need to speak to an experienced, reputable and registered UK financial advisor before you make any decision.2014-12-05