QROPS Pension Transfer Article by:Alexander Read
A QROPS Pension Transfer is a transfer of a UK Pension
, or a frozen UK pension into another HMRC approved pension scheme, in a jurisdiction outside of the UK. QROPS means Qualifying Overseas Recognised Pension Scheme, and is a fantastic option if you have left the UK or are planning to leave the UK within 12 months.If you have the option and qualify for a QROPS Pension Transfer, it is something that you should definitely consider as the benefits far exceed the costs, and it is an easy way to increase the value of your estate.
The reason that a QROPS Pension Transfer is such an attractive option is due to the limitations and restrictions placed upon an existing UK Pension or frozen UK Pension. Most people have a minimal understanding of UK pensions, and as a result are ignorant of the limitations. Once they understand the limitations of their current pension scheme and how a QROPS works, it becomes apparent why 90% of people who qualify for a QROPS Pension Transfer, utilise the option.
Each existing scheme is limited both by UK Pension Regulations, as well as the specific regulations of the individual pension scheme.
These regulations can be summarised as follows:
You have to take an annuity by age 75, or face an 82% tax charge!
Annuity rates in the UK are very low (between 2 to 3%) and this annuity is taxable.
It can be taxed at 21%!
You can take a tax free lumpsum of 25% at age 50 (or 55 depending on when you were born)
Pension fund managers try to grow the pension funds, by slightly more than inflation. Thus, before you retire, you can expect minimal growth on your pension value. In recent years many funds have lost over 20%, meaning that people are unable to retire when they wanted to.
There is a pension crisis in the UK, and due to the ageing population and more people withdrawing funds, than contributing, many pension funds run the risk of being depleted before you retire. Thus, you may not have any pension at all.
What most people dont realise, is that if you die, 50% of the funds will go to your spouse, and the remaining 50% will return to the pension company.
In many instances pension companys even add the clause that it will pay 50% to your first spouse. (i.e. if you have remarried, your spouse will get nothing if you die)
If you and your spouse die (i.e. in an accident), 100% of the funds will go to the pension company. Nothing will be in your estate to pass to your beneficiaries.
In 2006, the UK Government introduced QROPS Pension Transfer legislation. If you qualify, this allows you to transfer your UK Pension to another jurisdiction with greater flexibility and less restrictions. For the first five tax years (6 Apr to 5 Apr), the QROPS Trustees are required to report any withdrawals or contributions to the HMRC. However, after these 5 years, they are no longer required to report to the HMRC and you will now have effectively 100% control of your pension.
One of the most important considerations of a QROPS is the jurisdiction of the QROPS Pension Transfer. You need to ensure that it is safe, secure and has similar financial principles to the UK.
Many individuals have moved their UK Pension to a jurisdiction such as Thailand or New Zealand, and have found that they have lost much of the value, due to a weak currency. Other jurisdictions have a higher tax charge, or even more restrictions than the UK. Thus, you need to carefully consider the jurisdiction that you want to transfer your UK Pension to, and this should be discussed with an adviser.
One of the most popular jurisdictions is Guernsey, due to their strong investor principles, established financial security, and the fact that they have worked closely with the HMRC to ensure a robust QROPS framework.
Guernsey was recently voted the top financial jurisdiction in the world, even ahead of the UK! If you do a QROPS transfer to Guernsey, you can keep your pension in a safe, neutral jurisdiction, in a currency of your choice. Thus, wherever you are in the world, or how often you may move, you know that your pension will be safe.
Who Qualifies for a QROPS Pension Transfer?
If you are between the age of 18 and 75, and are a non-UK tax resident, or are planning to leave the UK within the next 12 months, you can qualify for a QROPS Pension Transfer.
If you are a citizen of either Canada or the US, you will require specialist financial advice and will need to discuss this specifically with your financial adviser.
What are the Benefits of a QROPS Pension Transfer?
The benefits of a QROPS Pension Transfer are numerous, and depend upon the jurisdiction chosen.
These benefits can be summarised as follows:
No need to purchase an annuity. (although you can if you want to)
Tax-efficiency (this saving alone, will generally cover all the QROPS costs)
Higher investment flexibility. (instead of beating inflation, you can now target higher returns, with more stable investments)
Consolidate multiple pension funds into one.
All assets within the QROPS are distributed to your Named Beneficiaries on death.
100% control after 5 years.
Thus, if you consider the benefits, as opposed to keeping your Pension in the UK, you can now understand why a QROPS is so popular.
What are the Costs of a QROPS Pension Transfer?
The costs of a QROPS Pension Transfer depend on the value of your UK Pension. If you consider costs as a percentage of the pension value, then the higher the pension value, the lower the costs.
Each specific QROPS scheme varies and has different costs and flexibility. Generally, costs are comprised of three components:
A fixed setup cost.
An annual management cost
The underlying fund charges. (these depend on the funds chosen)
If you consider the benefits of a QROPS Pension Transfer, the costs should not be the consideration. However, there are many advisers who advise schemes with extortionate costs, that arent necessary. The key thing that you need to consider is the flexibility and restrictions of the QROPS scheme that you are transferring your UK Pension or frozen pension into. These restrictions depend on the jurisdiction, and we have found Guernsey to be the most favourable.
Due to the fixed setup costs, it is generally advisable that pensions in excess of 25 000 be considered. If you have multiple pensions you can combine these to reach this figure, and if your value is a little less, you can make an additional contribution. Remember, that you will now have a tax-efficient, structure with diverse funds and flexibility that are generating a better return. This structure is a good savings vehicle and adding additional funds, would be putting those funds to good use.
How do I go about a QROPS Pension Transfer?
The process of a QROPS Pension Transfer is a lengthy one, and one that you cant do by yourself. You will need to be in contact with an authorised provider.
The first step of the process is to obtain a Pension Valuation, and the specific details of your pension plan. To do this you can complete a very simple form that provides authority to obtain a valuation. This form is completely safe, as it does not authorise for any transfers, but merely authorises the pension company to provide the information. The Pension Company will respond to this within 90 days.
You can either get your financial adviser to do this (which is expensive), or you can utilise the services of http://QROPS-Pension-Transfer.co.uk. They will obtain this information on your behalf and provide it to you or an accredited financial adviser of your choice.
They offer you two options:
You pay 100
Or, you send an email to 10 friends informing them of the site.
Due to the fact that they are global and assist financial advisers around the world, they can also introduce you to an accredited financial adviser in your region/city, if you dont already know one.
Once your adviser has this information, they can asses your specific situation and decide if it is in your best interests to utilise a QROPS Pension Transfer. If it is in your best interests, they will assist you to choose a jurisdiction, and setup the QROPS scheme/structure. Once this is complete, you can then discharge your existing pension and transfer the funds into the new structure.
90% of the time, it is in a clients best interest to transfer their UK Pension or frozen UK Pension to a QROPS. However, some of the defined benefit, or final salary schemes were set with higher interest rates, and it may not be advisable to transfer in this instance. This however, is something you will need to discuss with your accredited financial adviser.
In Conclusion
If you have a UK Pension or frozen UK Pension and qualify for a QROPS Pension Transfer, it is important that you understand how it works, what are the pros and especially, what are some of the costs and restrictions.
Most of this information is on the internet and if you spend a few evenings you should have a rudimentary knowledge. This article offers a high-level overview and is by no means comprehensive. Unfortunately, there are far too many sites with less information than this article on a QROPS Pension Transfer, and the only information they really provide is how to contact their adviser.
The site that we mentioned above (QROPS Pension Transfer), that offers to obtain the information on your existing pension, also offers a wealth of knowledge, in an easy to understand and simple layout. They strive to be the most comprehensive QROPS Pension Transfer resource on the internet, and have either achieved this goal, or are extremely close.
For those who have the time and inclination to delve further into a QROPS Pension Transfer, they have also offer a wealth of detailed information.
About the author
Alexander works for the world's largest financial consultancy and assists clients in South Africa with a QROPS Pension Transfer.
He works primarily in the British community in South Africa, as well as South African's returning from the UK.
He also focuses on tax-efficient structures, and personal financial planning. While outside of the UK, you may have access to safe and secure, tax efficient structures, which should be considered.
Due to the size of the company he works for, they are able to obtain access to products at institutional rates.
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