When living, emigrating or retiring abroad there are very important matters to consider concerning the amount of income that you and your family will receive.
British pensions – when paying out – are now deeply unattractive. The income generated by a pension is restricted by the fund. Only 25% of the fund value is available as a tax-free lump sum. The annual/monthly amount paid is taxed at source. The pension holder is forced to take out an annuity whether they need it or not. And sadly, a major proportion, if not all, of the final proceeds on death often disappear back to the insurance company rather than going to loved ones. Add to all this the ‘black holes’ (underfunded company schemes) that abound and the situation is indeed dire.
Many people are interested in alternatives. They’d like to have the option to increase the amount of overall income they receive and to be able to leave ALL unused pension funds to their partner and/or children. Many don’t want to be forced to invest 75% of their pension into an annuity that may produce deplorable or at best limited returns.
People want to have more control over their pension pot and remove the UK governments’ ability to dictate what they do with it. In the current risky financial climate many find themselves asking, “Do I want to run the risk of my former employer screwing up my pension funds by creating a massive pension deficit that they can’t fund...and then going bankrupt and bringing down my pension fund with them?”
Fortunately, if you’re going to emigrate or no longer live in the UK, there are excellent alternatives available. In 2006 new EU legislation opened up opportunities for UK pension holders to move their pensions overseas, thus giving greater control to the pension holder. However, the UK authorities will only allow you to transfer a pension abroad if the scheme meets certain criteria. Firstly you need to be living, or going to live, abroad and secondly you must remain living abroad.
Whilst you don’t have to reside in the same country, the scheme needs to be registered with an authorised trustee within the legal jurisdiction of the country it’s based in such as Spain, America, Australia, Guernsey or Hong Kong. Also, it must be a true pension scheme, not a vehicle that simply allows pension holders to access all their funds immediately, tax free.
The benefits of a Qualifying Recognised Overseas Pension Scheme (QROPS – pronounced Crops) can be extremely advantageous. It may be possible for you to:
Eventually take out the majority of your fund by the time you reach retirement over and above the UK’s 25% threshold
Set it up so that any unused pension monies can be left to your heirs – not your annuity provider or your previous employer’s fund
Avoid UK income and inheritance taxes
Receive income in a more tax efficient manner than offered in the UK and/or have more freedom with your investments rather than having to follow set UK procedure (diversify investments)
Take income from the currency of your choice avoiding adverse exchange rate conversions
Avoid having to buy an annuity (when you die your annuity goes with you, meaning that the hard work that helped you create your pension does not get passed to your beneficiaries)
The good news is that getting a QROPS can greatly benefit anyone planning to move overseas or those who have already moved. The not-so-good news is that it takes 5 years of being a non-resident and moving the pension for a QROPS to show real benefits. That’s why it’s important to consider your options now rather than later.
After your pension scheme has been transferred and you’ve been non-resident outside the UK for 5 years the QROPS Trustee no longer has to report any withdrawals or payments to the HMRC. This is when the relevant overseas jurisdiction takes over and UK laws such as the requirement to buy an annuity by age 75 (or be faced with an 82% tax charge) no longer apply.
After the 5 years, QROPS arrangements can offer more flexibility, greater income potential and more investment potential than a UK pension. Furthermore, it’s amazing what can be done with regards to various tax benefits.
To get the full QROPS guide please email me at: emigration@overseasguidescompany.com
Kim Brown
The Overseas Guides Company
Visit my website at: http://www.emigrationguide.com/
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