Untitled Document

QROPS Benefits

Advantages of Qualifying Recognised Overseas Pensions

One certainty about QROPS is that they have been hugely oversold. A lot of this is to do with “benefits” being suggested that either do not exist, are out of date, or are will not be relevant for years to come.

We often see lists such as “the 10 benefits of QROPS”. This is some achievement, as in our opinion there are only 2 benefits that are truly unique to QROPS (and one of them is rarely mentioned).

The most “classic” benefit often highlighted is “extra investment flexibility”. What this really means in practice is “the QROPS will accept investments that would fail most UK pension providers due diligence criteria”. Seeing anything like this should raise alarm bells.

Potential benefits of QROPS compared with Defined Contribution UK Pension Plans

Defined Contribution plans include Personal Pensions / SIPP / Group Personal Pensions, SSAS, Executive Pensions and Section 32 Buy Outs).

There are 2 areas where a transfer to a QROPS could be beneficial:

Income Tax

It may be possible that a lower overall rate of income tax could be payable from a QROPS. This could be the case in instances whereby:

  • The country of residence has no double tax treaty with the UK i.e. United Arab Emirates.
  • A double tax treaty exists with the UK, but private pensions are not covered by the treaty i.e. Thailand.
  • No tax is payable on overseas pensions when received in the country of residence i.e. Malaysia.
  • Overseas pensions received are subject to tax, but local pensions are not i.e. Australia.

We can help you identify whether a tax advantage may exist for any individual.

Lifetime Allowance Charge (LTA)

The total value that all an individual’s UK pensions can grow to is £1.25million ( £1million from 6th April 2016), without any tax being due on withdrawals.

If the LTA is exceeded before the pension(s) are “crystallised”, withdrawals above the LTA taken as income have an excess tax charge of 25, and those taken as a lump sum 55%.

There are a number of ways a pension can be “crystallised” or “protected” against the LTA, and one of these is by making a transfer to a QROPS. All future growth after the transfer is excluded from future calculations.

If you have a large fund (even if already crystallised in the UK), then we help you identify whether you have an LTA problem now or possibly in the future, and is so what options exist.

Additional potential benefits compared with UK Defined Benefit Schemes (DB):

The 3 potential benefits listed below are not unique to QROPS, as the same (or better) could be achieved within some UK Defined Contribution Pensions, and at a lower cost.

Currency

Most DB schemes will be linked to the British Pound. Fluctuations in exchange rates can affect the “real value” of income locally. Outside of a DB scheme, currency options can normally be tailored to mitigate against this risk.

Death Benefits

DB schemes generally offer little ability to pass a pension to the next generation. Pensions normally stop when the surviving spouse dies, or on the death of the member if no spouse exists. Dependants pensions can be payable but only normally to children up to the ages of 18-23.

Flexibility

DB schemes provide a guaranteed income which increases annually in retirement. This may not fit everybody’s lifestyle income plan, either in isolation or when taking other assets into account. Some QROPS are less flexible than UK Defined Contribution Schemes.

Summary

The benefits of QROPS that are highlighted are often misleading or not relevant at this particular time. If you are in a DC Scheme, the 2 potential benefits are tax (age 55 at the earliest) and the LTA.

For DB schemes there are more potential benefits, albeit not exclusive to QROPS. Transfers from DB Schemes come at greater risk however, and the UK Government has thankfully restricted advice to FCA Regulated (transfer value exceeding £30,000). There are still however ways firms look to get around this, and please see our FCA Advice section.

An initial discussion can help us ascertain whether any of these benefits would be appropriate to your circumstances, and whether any further consideration is needed.

For more information on QROPS please contact Cradle using the form below.

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2015 Fund Awards -
“QROPS Advisor of the Year - UK”

Cradle Overseas Pensions Ltd is authorised and regulated by the Financial Conduct Authority. FCA number 626364. Registered office: 2 Petty Lane, Derry Hill, Calne, Wiltshire, SN11 9QY. Registered in England and Wales, Company number: 7273148.

The guidance provided within this website is subject to the UK regulatory regime.


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