Retirement Planning

From April 2015 a ban will be introduced on the transfer of most public sector pensions. If you hold a pension such as a Teacher’s Pension and are considering transferring it, you should take advice now.

This article will focus on expatriates who resided and worked in the UK. By law the any UK employer has to provide a pension scheme for their employees, but what happens once you leave a particular employer? Are there options available? As an expatriate with a UK occupational or personal pension scheme, you can do one of three things. You can leave your pension exactly where it is or you can transfer it to either a Self Investment Personal Pensions (SIPP) or a Qualifying Recognised Overseas Pension Scheme (QROPs).

SIPP (Self Investment Personal Pensions)

SIPPs are intended for those who plan to retire in the UK. SIPPs offer investment advantages over traditional pensions, such as greater flexibility and investment choice. They are not restricted to the limited fund range usually offered with an occupational or personal pension scheme. You have the option to set your own level of investment risk and even select your own investment portfolio if you wish, although your money would usually be managed for you. You can also have more flexibility over when and how you take your tax-free cash and your income.

  • ASIPP is also a way of amalgamating all your pensions into one pot for ease of administration.
  • A SIPP falls under UK HMRC pension regulations and income taken from a SIPP is subject to UK Income Tax. You can start to take pension benefits from age 55 and at that time, can take up to 25% of your pension as tax-free cash.
  • A SIPP is fully inheritable without death tax before retirement. After retirement, 100% of its value can provide a dependent’s pension, but if a lump sum is taken by the dependent it will be subject to taxation.
  • SIPPs can be converted to a Qualifying Recognised Overseas Pension Scheme (QROPS) at anytime, if a change in your circumstances makes it advantageous.
QROPS (Qualifying Recognised Overseas Pension Scheme)

QROPS are intended for those who plan to retire outside of the UK with no intention of ever becoming a resident in the UK during retirement. QROPS involve transferring your UK pension(s) into another country’s jurisdiction for retirement abroad. the most popular countries offering QROPs currently include; New Zealand, the Isle of Man, Malta and Gibraltar.

Although QROPS are held outside of the UK, they remain subject to HMRC regulations. HMRC limits the tax- free lump sum that can be taken at retirement. This is set at 30% although our New Zealand QROPS allows 30% of the initial investment plus 100% of the growth since the start of the QROPS. It is not possible to fully en-cash a QROPS legally and anyone doing so will be subject to a 55% tax penalty imposed by HMRC. You can start a QROPs at any time, but you must be out of the UK for 5 full tax years to receive the benefits of a QROPS.

Benefits include no UK income tax on your pension income. You may be subject to income tax in the country where your pension is held and also in the country where you will retire. This requires a careful selection of your QROPS jurisdiction and an awareness of double taxation agreements to minimise or eliminate income tax payable. We will help with this.

QROPS in Malta, Gibraltar and the Isle of Man allow you great investment flexibility. On the other hand, a New Zealand QROPS has a Discretionary Fund Manager who manages your investments on your behalf according to applicable regulations. There is no death tax applied to a QROPS, meaning that it can be fully inherited both before and after retirement.

By Aaron Crotty

Aaron is a certified Senior Financial Planner with over seven (7) years experience in the financial industry. He is based in Dubai where he utilises his expertise representing Arlo Associates. For additional information, contact Aaron at aaron.crotty@arloassociates.com.

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