As a result of the Emergency Budget, on the 22nd June 2010, the UK Treasury published a consultation document with the proposals for the abolition of compulsory annuities and the new drawdown rules (effective from 2011/12 onwards).
These proposals are very interesting for those people looking to transfer their UK pensions to QROPS (Qualifying Recognized Overseas Pension Schemes).
The new proposals look to remove the requirement to purchase an annuity from a UK scheme, abolish ASP (Alternatively Secure Pension) and introduce two types of drawdown – all affective from 6th April 2011.
All these changes add additional considerations for potential QROPS transfers.
As with all changes to UK pension legislation, QROPS trustees have to be aware because their schemes have to follow the UK rules, and report any payments made to the member, for the first 5 complete UK tax years of a member’s overseas tax residency (known as the QROPS reporting period). Generally speaking, the methods and amounts that can be paid from a QROPS, within the reporting period, have to be broadly in line with what UK schemes permit.
The consultation paper asks for views from the industry (and interested parties). These views will be expressed until 10 September 2010.
Global QROPS Ltd will explain ‘Capped’ and ‘Flexible’ drawdown in later news items.
In the meantime, the pension commencement lump sum will still be tax free, with pensions in payment taxed as income (from UK schemes) – this has not changed in the proposals – and benefits will still be tested against the Lifetime Allowance at the normal Benefit Crystallization Events (BCE’s), such as on transfer to QROPS.