For many people, the key financial questions when moving abroad are: Can I leave my pension in the UK, what is a QROPS, and should I transfer my pension overseas?
These are important issues. You have worked hard and saved for your pension and you want to be able to enjoy a secure income in retirement without being liable to extra tax, or the worry that your fund might not be fully protected.
Why make the transfer?
There are a number of reasons why you might want to make a transfer in order to have your pension fund in the same place as you are living and working:
- You may want your pension to be in the country that you retire so that you are not subject to worries over currency fluctuations
- It will be simpler to keep track of tax and regulation changes to a pension which is based in the country where you are living
- You don’t want to be taxed twice or pay unnecessary tax
- You like the benefits of a more flexible pension system
Many expats considering making a pension transfer using a QROPS if they are not planning to return to the UK.
What is a QROPS?
A QROPS is an alternative pension scheme based in a country outside the UK which HMRC has approved as eligible to receive transfers from UK pension funds. There are strict criteria for QROPS schemes and qualifying providers are available at the HMRC website.
What if I leave my pension in a UK pension plan?
It is possible to do this, and you may wish to delay the transfer until you are sure that you are going to be overseas for some years or until you decide that you want to retire abroad. If this is the case then you can continue to contribute towards your fund, or leave it to grow without funding it further.
However, you need to bear in mind that:
- Your contributions may not qualify for tax relief under tax regulations if you don’t earn any income in the UK
- Tax relief is likely to be limited to £3,600 per annum or 100% of your income if you have relevant UK income
What are the options if I want to move my pension abroad using a QROPS transfer?
If you anticipate that you will not return to the UK in the medium to long term, then it may be in your financial interest to make a pension transfer to a QROPS. If this is the case, then you need to know:
- The scheme must be approved by HMRC
- Certain types of public and government schemes won’t allow members to make a QROPS transfer
- If you have an occupational or private UK pension, you could move the pension fund offshore giving greater flexibility, the opportunity for growth and potential tax advantages.
Why should I make the transfer?
There are a number of reasons for transferring. You could benefit from having greater flexibility and investment choice, and will avoid paying unnecessary tax, or being taxed twice.
You will have more control over the choice of investments within your fund, and more options over how and when you take your income.
Then there is the security of knowing that you will be receiving income in the currency where you live, so you don’t need to worry about fluctuations in the value of your income based on the strength or weakness of sterling against the currency where you are living.
If you have a number of pension schemes and you consolidate them into a single QROPS transfer, then you also have the convenience of knowing that you only have one pension fund to keep track of, and that all your pension assets are in one place.
In order to make an informed decision, it is important to take specialist advice from an expert who can give guidance on the important decisions around the available QROPS and the QROPS rules.
An adviser can help you choose where you want to draw your pension. Not all countries and schemes offer consumer protection that is comparable to that which is available in the UK, yet you obviously will want to be sure that your pension will be there when you need it. So, an important consideration is whether the country in which you plan to live or are living has consumer protection legislation which is fair, secure and robust.
By taking advice from a specialist you can select the right scheme and plan how you will take your income in order to reduce your tax liability and make the most of the flexibility of a QROPS.
Making a transfer using a QROPS, and deciding when and how to transfer a pension overseas, is a very important issue which will affect your retirement income for the rest of your life, so make sure you take advice before proceeding. If you have any questions for the specialist advisors at bdhSterling, don’t hesitate to get in touch.