There are several key advantages to transferring your pension to a QROPS among them the flexibility, tax benefits, and the ability to draw from your fund in the local currency where you are living abroad.
You can transfer your pension to a number of different countries, including Australia. Last year (2015) the government made changes to UK pension legislation which affected a transfer to Australia under the QROPS legislation.
For this reason, if you are thinking of moving your pension to Australia to take advantage of the QROPS rules it is important to take specialist advice.
The overseas scheme you want to transfer your pension savings to must be a ‘qualifying recognised overseas pension scheme’ that is included on the list of schemes approved by HMRC. If it is not approved, your UK pension scheme may refuse to make the transfer, or you’ll have to pay at least 40 per cent tax on the transfer.
The government will only approve schemes run along similar lines to the UK, which is why last year (2015) it reduced the number of Australian funds on its approval list to one (although subsequently the number of Australian QROPS has increased to above 350), a move which affected a number of QROPS schemes in other jurisdictions.
The QROPS legislation won’t allow transfers into overseas schemes that allow under-55s to take some of their funds early. However, overseas pension schemes are unlikely to change their rules to accommodate the UK requirements because this would not be an advantage to their own residents. This is one reason as to why hundreds of overseas pension schemes were eliminated from the government’s official list.
Which schemes are eligible?
Under the QROPS rules you can transfer private sector final salary and company pension schemes, and any personal pension that you have. However, you are not allowed to transfer the UK state pension, any scheme that you have already started to draw on which is paying you an annuity, or schemes run by the NHS, for teachers, the civil service, armed forces or police and firefighters.
You won’t be able to transfer your pension to a QROPS if you are under the age of 55. Bear in mind that any funds you keep in the UK may be affected by changes in legislation or actuarial calculations – for example if benefits are reduced in a review of the scheme rules. So if you are planning to leave your pension in a UK based scheme until you are ready to make a QROPS transfer, check that no changes are imminent to the way benefits are accrued within it or paid out.
While you are waiting to make a transfer you will also be affected by currency exchange and possible administration fees – especially if you have a number of different pension funds in existence.
If you are under 55
If you can’t transfer your UK pension funds directly to Australia, because you are under 55, have a pension balance in excess of the non-concessional contribution cap for superannuation, or you are over 65 and don’t meet the Work Test, it is important you get professional advice on these funds.
If you are unable to transfer your funds currently, bdhSterling can advise you:
- Where to hold your pension funds (either in the UK, Offshore)
- How to invest the proceeds (i.e. in a multi-currency portfolio that matches your attitude to risk and return)
- The best strategy for a QROPS transfer
If schemes are not approved
The UK government has a country-by-country list of QROPS pension schemes and says it is the responsibility of the individual to check whether they will have to pay tax on the transfer of their pension savings.
The government says it will usually pursue any UK tax charges (plus interest for late payment) arising from transfers to overseas entities that don’t meet the requirements even
when they appear on this list. This includes where taxpayers are overseas. HMRC will also charge penalties in appropriate cases.
HMRC says: “Tax relief is given on pensions to encourage saving to provide benefits in later life. Accessing benefits (directly or indirectly) before age 55 will result in a liability to UK tax charges in all but the most exceptional circumstances. You should seek suitable professional advice including from a regulated financial adviser.”
Taking QROPS advice
For this reason, it is essential to take advice on how best to make the QROPS transfer, when to do it, how your personal circumstances will be affected by taxation issues, and what to do with your funds if they can’t be transferred straight away. If you would like more information about transferring a pension to Australia or into a QROPS, contact bdhSterling for advice from experienced pensions advisers.