Human Interest

QROPS 22nd September 2011 pension drawdown, flexible pensions QROPS and QNUPS

Submitted by qrops on Thu, 22/Sep/2011

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

 

Tuesday saw the market yet again flooded by comments regarding the Euro debt crisis story,

that still continues and shows no sign of reaching a near term conclusion. Italy took centre

stage under the spotlight as overnight leading credit rating agency S&P, proceed to

downgrade the country’s sovereign debt rating from A+ to A.

S&P commented on their downgrade saying that it had considered the outlook for Italy’s

economy to be negative and voiced concerns regarding future growth rates following the

stringent austerity measures recently passed by the Italian government, in recent months.

Secondly, Greece come under further scrutiny as its painful debt saga continues, with

Greece policy-makers meeting with the so called “Troika” of the European Central Bank,

European commission and International Monetary Fund on Monday.

The 'Troika' are the combination of authorities who hold Greece’s fate in the palms of their

hands, so there was some relief when Greek officials described Monday’s meeting with ECB,

EC and IMF officials as ‘productive’. Talks continued over the course of Tuesday, and a

decision has yet to be reached.

Global stock markets lost considerable ground on Monday, with rumours of an imminent

Greek debt default failing to dissipate. The US Dollar continued to be the main beneficiary as

appetite for risk drained from the market, taking the GBP/USD rate to a new 8-month low of

1.5633 during the afternoon’s session. The USD continued to trade within a range for the

majority of Tuesday ranging between the prices of $1.5661 and $1.5735.

Meanwhile, the Euro lost ground against most of the other sixteen most actively-traded

currencies. However, GBP/EUR failed to break last week’s 6-month high of €1.1724, in spite

of all of the Euro-negative sentiment in the market. Instead the currency pair continues to

trade in a fairly tight trading range varying from lows of €1.1444 to a high of €1.1522.

Today’s main headline data is the release of the Bank of Engalnd rate policy meeting minutes which may

show the willingness for further expansion to our asset purchasing programme to offset the

shrinking fiscal policy measures undertaken through government austerity. There is also the

FOMC statement that is due to be released at 7.15pm (UK time) again the markets are

paying particular attention to the mention of further Quantitative Easing moving forward.

 

IN THE UK

  • Bank of England minutes flag chances of more QE, possibly as soon as Oct.
  • Sterling hits 8 month low against USD (1.5578) & 2 ½ year low against JPY 119.
  • Worries continue about the UK economy with public finance data being weak.
  • UK Govt net debt stands at 61.4% of annual economic output, up from 55.3% last year.
  • GBPEUR range bound trading yesterday although we did briefly touch 1.1380 when the euro staged a small comeback to 1.1430 this morning.
  • GBP/USD falls again,  1.5650 broken, 1.5550 broken, currently at 1.5450. Next stop 1.5350 and it that is broken?

 

ELSEWHERE

  • During yesterday’s London session US Home Sales Data gives the dollars a boost as the numbers released surprised the forecasts, (a rise of 7.7 %).
  • Greek debt crisis continues to unsettle markets with major exchanges sliding in early trading.  Germany’s Dax & France’s Cac 40 fell 1%, doubts still remain over the €8bn aid package for Greece as Debt inspectors from the EC, ECB & IMF gear up for their visit to Athens.
  • Main news overnight is later on after the London close, the USD strengthened sharply as the FOMC announcement last night revealed the more USD friendly “operation twist” was to be put into place.
  • Risk appetite may now be dependent on some good news from Europe. Certainly delivery of the next Greek bailout tranche would be welcome, but there likely won't be a decision until the EcoFin on Oct 3. If the next tranche is approved then the prospect of an imminent Greek default is taken off the table, at least for the next three months, but possibly much longer.
  • NZD hit  by weaker than expected Q2 GDP.
  • EUR/USD traded lower following the FOMC announcement touching the very bottom of the range that I mentioned yesterday (1.35). If we don’t break this number then I wont rule out a bounce back up to 1.37.
  • The Canadian Dollar Ignored a higher inflation reading and followed the risk trends causing more than a cent and a half weakness. 

 

DATA TO LOOK OUT FOR

  • Swiss ZEW survey is released at 10.00, after the SNB’s intervention and a weakened CHF have expectations improved for economy.
  • 11.00 sees CBI Industrial Trades Survey, figure is expected to fall to -0.5% and won’t help the pound at all.
  • 1.30pm Retail Sales in Canada are expected to fall and could weaken the CAD further.
  • Jobless Claims, leading indicators and Housing Price Index are released this afternoon in the US, the data is expected to poor but will it have any effect on USD strength after last nights gains.
  • In Europe at 3.00pm Consumer Confidence is released, with the on-going concerns over debt, confidence is expected to fall further.

 

Current Spot Rates (9.00am)

22nd September 2011

 

 

 

 

 

 

 

 

 

USD

EUR

AUD

CAD

CHF

DKK

NOK

HKD

SEK

ZAR

JPY

GBP

1.5462

1.1428

1.5519

1.5742

1.4025

8.5109

9.8218

12.0560

10.54

12.61

118.030

USD

 

1.3519

1.0037

1.0181

0.9071

5.5044

6.3522

7.80

6.81

8.15

76.336

EUR

0.7391

 

1.3580

1.3775

1.2272

7.4474

8.5945

10.55

9.22

11.03

103.281

 

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

This with the reassurance and security of UK FSA authorised and regulated advice - essential for your security.

 

 

 

 

 

 

 

 

 

 

QROPS update 19th May 2011 Pension Foreign exchange QROPS and QNUPS

Submitted by qrops on Thu, 19/May/2011

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, QROPS and now QNUPS (Qualifying non UK Pension schemes).

 

On Wednesday the UK saw the release of unemployment data which pushed Sterling into

the red across the board. The jobless total in the UK fell by 336,000 to 2.46M, in the three

months to March, matching a level not seen since September 2010. The market reacted in a

negative way towards GBP as the number was accompanied by a downward revision to

March’s numbers and those seeking jobseekers’ allowance rose by 12,400 to 1.47M for

April. The UK labour market can be seen to be stuck between a rock and a hard place. As

part of the government’s austerity measures, 330,000 public sector jobs are cut and reliance

is placed upon the private sector to help in the regeneration process. However, with the

economy showing signs of little growth and the on-going rise in energy prices, companies are

unwilling to expand their workforce.

“We believe that private sector companies will become increasingly careful in their

employment plans in the face of a struggling economy and elevated input costs,” said

the chief UK economist at HIS Global Insight.

The publication of the Bank of England’s minutes showed the committee voted 6 to 3 in

favour of keeping interest rates on hold at 0.5%. The 5th May meeting was the last

attended by Andrew Sentence, who has been the chief advocator for a rate increase over

recent times. He is to be replaced by Ben Broadbent, who is widely expected to be of the

opinion of the majority of the members. If this is the case, it could be highly likely that the

bank will likely delay any rate rise now until external pressures on prices ease off and wages

begin to grow in real terms. Once consumer demand starts showing signs of recovery and

the economy moves consistently in the right direction, the central bank can start tightening

policy without the risk of plunging the U.K. back into recession.

“ So the MPC has lost its arch-hawk, and while there are still members in favour of higher

interest rates, nobody, for now at least, seems to want to run with the monetary policy

tightening baton with the gusto that Sentence did,” said Global Insight.

GBP/USD saw a session low of 1.6104 whilst GBP/EUR hit 1.1309 on a day that saw an

overall negative view over the Pound. Opinions in the market were that this negative view

may be the shape of things to come, given the Bank of England’s interest rate policy. One scenario

shows that low interest rates will stand out in a global market where policy is being

tightened in many major economies. The pound may not be seen as attractive to investors

given a back drop of high inflation, low growth and a central bank that has chosen an

incorrect route of correction.

 

IN THE UK

  • MPC vote 6-3 to leave interest rates on hold, rumours were running just before the announcement that Martin Weale who has previously voted for hikes was to change back to a ‘no change’ vote resulting in a 7-2 vote.
  • The pound hits a low of 1.6104 against the US dollar after negative market sentiment stemming from poor unemployment figures.
  • GBP finishes in the red across the board, falling 0.6% vs. euro.
  • UK Nationwide Consumer confidence falls overnight to just 4 points off an all-time low and the outlook remains tough.
  • This morning UK Retail Sales released match analyst’s expectation of 1.1%, factors such as good weather and royal wedding are said to have contributed. Sterling makes slight gains immediately after the announcement.  

ELSEWHERE

  • Japan enters technical recession as GDP falls to -0.9% for Q1, although earthquake is partly to blame, the majority of Q1 activity was before the quake and this means that Q2 could be even worse.
  • Euro finds some hesitant support despite being held back by rumours regarding Greek debt restructuring.
  • US Dollar helped by market sentiment as opposed to data releases.  MBA Mortgage applications for May come in below expectation.
  • European construction output falls Year on year for March, but fails to dent EUR/GBP strength.
  • Higher shares & commodity prices help bolster the Euro.
  • EUR/USD fails to break through key technical levels, prompting profit taking.
  • In a TV report yesterday, Greece claim to have no desire to revert back to Drachma but future seems bleak as necessary rises in tax, lowered wages, increased retirement age to remain in the euro could lead the country into civil war.  
  • In the US, the Fed minutes reveal no surprises, however have started planning their exit arrangements for QE2
  • Strauss-Kahn resigns as head of the IMF, lots of names suggested to replace him including the UK’s Gordon Brown.  

DATA TO LOOK OUT FOR

  • At 11.00am UK CBI Industrial Trends survey is published and is expected to improve to -5 from -11 last month.  
  • ECB President Jean Claude Trichet speaks today at 2.00pm, markets will be monitoring his words regarding interest rates closely
  • Philadelphia Fed Manufacturing Survey is released in the US at 3.00pm and serves as a useful indicator of manufacturing conditions in the US, a figure above the expected 20.0 might suggest that nationwide manufacturing is improving and would subsequently effect the outlook for the US dollar
  • Negative Existing Home Sales data at 3.00pm in the US may pull back any early strength from the Greenback.  

Current Spot Rates (9.30am)

19th May 2011

 

 

 

 

 

 

 

 

USD

EUR

AUD

CAD

CHF

DKK

NOK

SEK

ZAR

JPY

GBP

1.6135

1.1340

1.5164

1.5630

1.4239

8.4569

8.9553

10.19

11.18

132.100

USD

 

1.4227

0.9398

0.9687

0.8825

5.2413

5.5502

6.32

6.93

81.872

EUR

0.7029

 

1.3372

1.3783

1.2556

7.4576

7.8971

8.99

9.86

116.490

 

 Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

This with the reassurance and security of UK FSA authorised and regulated advice - essential for your security.

 

 

 

 

 

 

Control Your QROPS Pension Funds the Best Way

Qualifying Recognised Overseas Pension Schemes(QROPS), mostly referred to as QROPS are pension schemes that fulfill the requirements in the manner that can be recognized by HMRC. UK pension benefits can be easily transferred without any scheme sanction charge via QROPS. It was introduced as a part of the government's pension generalization initiative on April 2006.

Her Majesty’s Revenue and Customs better known as HMRC and is a non-ministerial unit of the British Government that is primarily responsible for tax collection and is the monitoring body for QROPS transfers. HMRC has set rules such as HMRC 6 through which it regulates Qualifying Recognized Overseas Pension Scheme transfers. The QROPS providers are supposed to provide all the information and get approval of HMRC.

There are certain annual reporting obligations that need to be accomplished by the QROPS providers. Certain countries may have double taxation agreement with UK. When a resident of UK country who is having a pension fund that is approved by HMRC permanently emigrate to in order to retire in some other country or decides to come back to his home country with the desire to retire in UK.

In order to avail benefit payments of this plan a person should necessarily be a tax resident of UK, if the person is not a tax resident then he must be residing in UK in any of the former five tax years  in which the payment of tax has been made. Her Majesty’s Revenue and Customs also monitors the indirect QROPS i.e. the non UK pension plans.

 Some of the registered pension schemes of UK include:

o   SSAS-Small Self Administration of Pension Schemes.

o   SIPPS-Self Investment Personal Pension Scheme.

o   Occupational Scheme or company pension.

o   Unsecured Pensions or income drawdown.

o   Personal Pensions.

If you are seeking an expert opinion for QROPS for the issue such as QROPS list, HMRC QROPS, QROPS providers, QROPS Guernsey, or on the similar matters you can easily find answer to all your queries through certain web portals.

Such websites provide quality counseling covering the entire range of QROPS matters. With their assistance you can understand what the advisor is supposed to do and what not. In order to have a hassle free QROPS transfers you must take assistance of a good advisor. It is always better to have expert guidance to have in depth understanding of such issues.

The QROPS providers that reside in UK must have knowledge of HMRC 6 which forms the basis for QROPS, this proves to be beneficial for registered pension schemes in UK.

DEATH BENEFITS

This is one of the key areas in which annuities and income drawdown differ, so it is very important to understand the differences. This is based on our understanding of current tax and pensions rules which can change. The tax situation depends on your individual circumstances. If you are worried about tax charges on death, you should seek advice from a tax professional.

The death benefits available will depend on the type of option you have chosen.

 Lifetime annuities

There are three possible types of death benefit you can include in an annuity. You have to make your choice at the outset and once your annuity has been set up you cannot normally change it.

 

1.  You can select a spouse’s pension at the outset. In this case, after your death, payments will continue to be made until their death. The higher the level of spouse’s pension you choose, the lower your starting income will be. If you outlive your spouse, the money you have used to buy their additional pension will have been wasted. However if you die before your spouse, you should consider whether they would have sufficient income without your annuity.  Contracted out pensions require that in the event of your death, your annuity continues to provide 50% of the income to your spouse or civil partner for the rest of their lifetime.

2.  You can choose a guarantee period of up to ten years which starts on the commencement of your annuity payments. This means your annuity income will be paid out for the guarantee period even if you die before then. If you survive the guarantee period, the income will be paid for the rest of your lifetime. Like all other benefits on an annuity a guarantee period will lower your own starting income. Contracted out pensions only allow guarantee periods of up to 5 years.

3.   You can buy a value protected annuity where an amount up to the original purchase price, less any gross income payments received, can be returned less 55% tax (note this tax charge is not inheritance tax). Where benefits are paid on a discretionary basis, the lump sum would not normally be subject to an inheritance tax charge.

 

Pension Income drawdown (until 6th April 2011 known as Unsecured Pension/USP).

The death benefits under pension income drawdown are generally more favourable than under an annuity. This is a popular reason for people to enter pension income drawdown.  If you die whilst in income drawdown there are several options for the remaining pension fund including:

 1.  Your dependant could carry on with pension income drawdown until their death. Any income taken would be taxable.

2.  Your dependant could take the fund and buy a lifetime annuity with it. The income from this annuity is taxable.

3.  Any beneficiary could receive some or the entire remaining funds as a lump sum less a 55% tax charge (note this tax charge is not inheritance tax).

4.  Contracted out pensions require that an income is made available for a surviving spouse or civil partner.  Only where there is no spouse or civil partner may the fund be passed to another nominated beneficiary. A lump sum payment would be subject to the 55% tax charge.

 

 Phased Retirement

It is possible for you to have various types of pension funds or benefits on death and each one would be treated separately according to their own rules. For example, you could have an annuity and an income drawdown plan (subject to the rules of each option) and also some funds from which you have not taken benefits. 

 

‘Third Way’ (Fixed Term Annuities)

At the start of the plan, you can choose the level of benefits that will be paid if you die before the end of the term.  The death benefits that are available are:

 1.  Dependant’s income

If you die during the term of the plan you can choose to provide your spouse, civil partner or financial dependent with an income. The surviving dependant will be paid an income equal to the chosen percentage of your income until either the end of the plan or until they die – whichever happens first. If your dependant survives until the end of the term, the provider will pay out the chosen percentage of the maturity value

2. Guarantee period

This allows you to protect your income for a set period of time. If you die within the guaranteed period, the remaining income less tax (now 55%) will be paid as a lump sum. 

If your plan also includes a dependant’s income benefit and, if your dependent is still alive when you die, your income will continue to be paid at the full amount until the end of the guaranteed period. If your dependent is still alive at the end of the guaranteed period, the dependant’s income will be paid. 

If your dependent dies within the guaranteed period, the remaining income less tax (now 55%) will be paid as a lump sum.

3.  Value protection

Value Protection allows you to protect up to 100% of your original investment if you die within the plan term. 

The lump sum payable will be the initial amount used to purchase the Protected Retirement Plan (or you can choose to protect a proportion of this amount), less the total amount of income paid. Any lump sum payable will be subject to a 55% tax charge.

'THIRD WAY' (also known as Fixed Term Annuities)

New pension products have become available over recent months.  These are known as “Third Way” or “Fixed Term Annuities” and they provide guarantees such as:

  • Income guarantee
  • Fund value guarantee

These new type of products aim to provide an element of secured income, combined with some of the flexibility on an Income Drawdown plan.  However, there are a number of different plans all offering different guarantees and different risks. 

This type of plan is most appropriate for people who want the flexibility of an Income Drawdown but do not want their income to be directly affected by changes in the stockmarket.

Generally these products will guarantee to provide a set level of income based on a percentage of the fund value at outset for a guaranteed period of time.  At the end of this period if the fund value has increased your income will be increased.  If, however, your fund value has fallen your income will still remain at the existing guaranteed income level.

Some products will also “lock-in” the growth that has been achieved either on an annual basis or at an agreed date.  Once the agreed growth is “locked in” this will be part of the guaranteed fund value at maturity or on death within the term.

‘Third Way’ annuities provide a guaranteed level of income for a specific term. An individual can choose the make up of the temporary annuity selecting the benefits that are most important to them, for example spouse’s pension, guaranteed periods, value protection, and indexation.

At the end of the term a Guaranteed Maturity Amount is provided with which a further ‘Third Way’ annuity can be purchased or a conventional Lifetime Annuity bought.  Other options may also be allowable at this point dependent upon the pension legislation in force.  NB.  The Guaranteed Maturity Amount must stay within a pension arrangement of some kind and cannot be paid out to you.

If a further ‘Third Way’ annuity is bought the income can be reset according to requirements at that time.

However, the ‘Third Way’ annuity must end before the annuitant’s 77th birthday.  At this time, the matured fund can be used to buy a conventional annuity, or be transferred to an Unsecured Pension arrangement.

This approach enables people retiring to enjoy certainty with regard to their income payments, as they would with a Lifetime Annuity, but only for the term selected, rather than throughout life.

The ‘Third Way’ annuity provides future flexibility by offering the ability to change the amount and shape of income at agreed intervals in retirement.

There is no minimum level of income that needs to be taken, which means you can take the tax-free cash alone and defer income to a later time.

This type of annuity can be free of investment risk and is therefore suitable for clients who want minimal risk.  The income payments are guaranteed, as well as the Guaranteed Maturity Amount available at the end of the term, which is known at the outset of the arrangement.

As mentioned above there are various benefits that can be added to this style of annuity, these can be summarised as follows:

Value Protection

Some annuity contracts offer, upon your death, to pay back to your estate the value of your original investment less the total of any income paid to date.  This ensures that overall you, or your estate will at least receive your money back over the contract period, subject to a potential tax charge of 35%.

Guaranteed Period

It is possible to add a guarantee to this annuity, although this cannot be longer than the annuity period you have chosen.  On the death of the annuitant the income will continue to the end of the guarantee period, which commences at the start of the annuity.

Value Protection and Guarantee Periods are mutually exclusive.  You can have one or the other, but not both.

Spouse’s Pension

If you are married or have a financially dependent partner, the annuity can be set up to continue paying them an income after you have died.  This can be at the full rate, or at a reduced level of two thirds or a half.  However, this continuing income is payable for the remainder of the fixed term, with the Guaranteed Maturity Amount then being available for reinvestment by the surviving spouse / partner.

Frequency

You can chose to have your income paid in a frequency that suits you.

Indexation

You can chose to have income remaining level or rise to help offset the effects of inflation.

 

 

‘Third Way’ Annuities – Advantages & Disadvantages

Advantages

  • Immediate access to all of your tax-free cash.
  • You can choose to take just the tax-free cash and no income.
  • There is no exposure to investment risk.
  • Your income is guaranteed for the fixed term of the annuity, provided it remains within allowable limits.
  • The plan will also provide a Guaranteed Maturity Amount, known from the outset.
  • At the end of the fixed term, you can use the Guaranteed Maturity Amount to purchase any allowable form of pension income product suitable for you at that time.  As such it provides considerable flexibility.
  • You may be eligible for an Enhanced Annuity if your health has worsened in the period between establishing the ‘Third Way’ annuity and the maturity date of the plan.  This may lead to a significantly higher income.
  • The Value Protection death benefit, if selected, ensures that your spouse or partner and/or dependants, or estate, receive the full value of the original purchase price of the annuity, less the value of any income payments actually paid. This benefit will be subject to a 35% tax charge unless reinvested in another appropriate pension product for the beneficiary.
  • Income payments can be ‘guaranteed’ for a certain period so that they will continue to be paid for the remainder of the fixed period after your death.  However, this cannot be used in conjunction with Value Protection.
  • You can choose for a surviving spouse’s / dependant’s pension to carry on being paid after your death. The Guaranteed Maturity Amount is made available at the end of the fixed term to purchase any allowable form of pension income product, suitable for them at that time.

Disadvantages

  • The starting income for a Fixed Term Annuity is often less than for a comparable lifetime annuity, Essentially you are sacrificing a small amount of income in the short term to maintain flexibility in the longer term.
  • Your pension options are fixed for the term of the annuity, and cannot be altered to take account of changes in personal circumstances during the term.
  • The pension you receive is dependent upon annuity rates at the time of purchase – which are currently low when compared to historical rates.
  • Whilst the Guaranteed Maturity Amount is guaranteed, the actual amount of income in the future will be dependent upon the prevailing annuity rates at the time.  Your future income may be lower or higher than the current level of income.
  • The maximum income you can take through a fixed term annuity is restricted by GAD rates.  It is therefore possible that your income level may have to be restricted at the 5 yearly GAD review.  There is a greater chance of this happening if you choose to take a high income above the default level.
  • Unless you include inflation proofing, you are exposed to the risk of inflation eroding the value of your income during the contract term.
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