How much will an Overseas Pension transfer cost me?

Anyone with a pension in a UK registered scheme can make an overseas transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS). But before undertaking such a transfer, it is important to establish the charges you will pay, both to conduct the transfer and as a member of the QROPS scheme.

One must also consider the stability and regulatory environment in which the QROPS exists. For example, the Isle of Man is home to many household names in pension provision and large Merchant Banks, with a variety of different QROPS offering. The regulatory and compliance regimes are all government controlled in a jurisdiction with no language barriers to UK nationals. Funds can be held in and paid out in Sterling, Euros or US Dollars. These jurisdictions have an existing structure which will not change in the foreseeable future.

The Government Regulatory controls and investor compensation schemes can even surpass the protections in place in the UK. The Guernsey Financial Services Commission is a good example of a regulatory body. Other jurisdictions may offer attractive benefits, but with accompanying problems and risks. Having an awareness of where your QROPS will be held is essential. Understanding the regulatory regime of a completely different country is a tricky proposition, since business practices and Government actions may be dramatically different from those to which you are accustomed.

The advice you get on QROPS should be totally transparent. QROPS charges, if done correctly, are exactly the same as those to a UK based Personal Pension or Self Invested Personal Pension (SIPP). If you’re considering an offshore transfer and you can’t get a clear, unambiguous statement of the charges you will face, then we’d advise you to give the scheme a wide berth. Example of Charges There are two main components to a QROPS. The Master Trust which is the entity authorised as a QROPS. The Trust administrators have given HMRC an assurance that the scheme is suitable to receive UK Personal Pension transfers and they will notify HMRC of transactions for five complete UK tax years after you become non UK resident. The underlying investments can be cash, and asset backed such as collectives, equities and property. You will normally have a Master Trust provider and then decide with your Financial Adviser where the underlying investments are placed. There is dual charging as you need to pay the Master Trust for the administration and the investment vehicle, such OEIC’s (unit trusts) for the investment management. Packaged arrangements will normally be the most competitive where the provider operates both the QROPS and underlying investments.

For most people if the establishment fees exceed 3% to 4% (that includes the Master trust and initial charges of any collective investments) then take a close look at other arrangements. Remember the administration of a QROPS in the long run is easier than a UK Personal Pension. Whilst QROPS are a new niche product, you don’t need to accept unrealistic charges. With living abroad it’s always worth making sure that you have access to free on-line valuations otherwise getting up to date information via the post could be difficult.

The main reasons people consider QROPS are: No restrictions on the level of income at retirement after five full UK tax years of non UK tax residency (from 6th April 2011 the UK also introduced flexible drawdown which for some alows far greater access to pension funds). No requirement to buy an annuity or at any age (from 6th April 2011 the UK also removed this requirement). On death pass the fund intact to spouse and heirs’ UK pension death tax (now 55% in a UK registered pension drawdown fund and post age 75 years) and inheritance tax free. No liability to changes in UK Pension taxation or legislation.

To any individual in foreign lands or considering living abroad, QROPS potentially offer more flexible terms than in the UK and we believe without any major negative points. You will of course be subject to tax in your country of tax residency on income and capital etc. And we ask you seek advice from a tax professional in that jurisdiction.

Full Access to your Funds

 

QROPS providers are recognised by HMRC under two main pieces of legislation: 

  1. Give an undertaking to HMRC that 70% of crystallised Pension funds are used to provide a lifetime income. This is more flexible than the UK arrangements which are linked to Government Actuaries Rates (GAD).
  2. A country or territory with which the UK has a double taxation agreement in force that contains provisions as to exchange of information and non-discrimination. Go to http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM14101046.htm  to see the list of countries. 
    • The scheme is open to persons resident and non-resident.
    • The scheme is established in a country with a system of personal taxation as required.
    • The scheme is approved, recognised and registered with the relevant tax authority as a pension scheme.

Many QROPS providers give an undertaking to HMRC that 70% of crystallised Pension funds are used to provide a lifetime income. This is more flexible than the UK arrangements which are linked to Government Actuaries Rates (GAD).

Be aware that many jurisdictions do not recognise tax free cash. Most UK Pensions can have 25% of the fund paid as tax free cash but if you are resident elsewhere there may be a liability on this sum. Check with us before crystallising your Pension.

QROPS - the right choice for me? It is essential that you don’t transfer your pension without being fully informed of all the features and benefits of your existing scheme. For a no-obligations quotation, contact Gerard Associates now. The next stage is to get a letter of authority from you so we can approach your Pension Company for the relevant information about your existing scheme(s). We will then compile a full report for you before any advice is implemented. There will be occasions that we advise not to transfer but ultimately the informed choice is yours.