In the first three articles of this series we examined what QROPS is, how it could benefit some expats (and others) and briefly how the system works.
In the final analysis though, words can be confusing and there is no substitute for examples when it comes to showing how things work.
In all these articles we have made the point that you should not make decisions about what to do with your pension funds based upon advertisements and articles however well written and attractive they appear. You must get professional advice that is specific to your circumstances and only from a registered professional adviser. Please note that the examples below are illustrative and hypothetical – they may well not apply to your given circumstances.Example 1
An individual with a UK Personal Pension, aged 35, goes to live and work in Australia, ceasing to be UK tax resident on 15th October 2008. They commence the process of transferring their UK pension scheme to an Australian QROPS, which finally concludes in May 2009. On 6th April 2014 the scheme, effectively loses all obligations to HMRC and falls entirely under Australian pension legislation – i.e. all proceeds can be taken as cash lump sums, entirely tax free, albeit not until age 60. (Australian schemes are locked in until age 60)
In this scenario the major advantages to the expat are faster access to tax free sums but it should be noted that no cash is payable until age 60 – in the UK 25% would have been accessible 5 years earlier at the age of 55. These variations are why each case must be accessed individually. For many this Australian option is hugely advantageous – for others it could be interpreted as disadvantageous.
An individual with a UK Personal Pension, any age, goes to live and work in the USA, ceasing to be UK tax resident on 15th October 2008. The Internal Revenue Service in the USA will not permit a transfer to a US registered QROPS even though they exist and thus benefits will have to be taken in line with UK legislation and will therefore be taxable and involve receiving an income stream over many years before the total funds are utilised.
This means that a US resident expat doesn’t have much hope in terms of using ‘local’ QROPS but because QROPS can be taken to any country, even those resident in the US can benefit by using a QROPS in a 3rd country. See the discussion below.
An individual with a UK Personal Pension, aged 35, goes to live and work in Spain, ceasing to be UK tax resident on 15th October 2008. They commence the process of transferring their UK pension scheme to a Spanish QROPS, which finally concludes in May 2009. On 6th April 2014 the scheme, effectively loses all obligations to HMRC and falls entirely under Spanish pension legislation. The QROPS scheme they are in allows a 25% cash sum to be taken at 55 with the remainder payable as monthly income until death.
This example shows that moving jurisdiction alone does not give you a better deal. In this case there may be better Spanish QROPS schemes available but the one purchased appears to offer little if any advantage over the existing UK one. The message is that you MUST look closely at the details of your QROPS scheme wherever it is based.
To really benefit from a QROPS you may need to ‘think outside of the box’ and be prepared to look to countries other than that of your new home – in other words start shopping around under expert guidance.
Let’s illustrate this with another example.
An individual with a UK Personal Pension aged 50 and living in the UK in 2010, moves to Spain. He commences the process of transferring his UK pension scheme to a New Zealand registered QROPS. By 2015 the NZ QROPS ceases to have any reporting requirements to HMRC in the UK. The individual at the age of 55 has not been a UK tax resident for five years and the entire pension fund can be accessible in cash lump sums, in 2015 or 2016 entirely free of UK and NZ tax.
In all the cases above the pension holders would have benefited from moving to a selected New Zealand based scheme irrespective of where they lived – apart from the UK.
Selecting an appropriate QROPS in the right country is imperative. Remember that not all QROPS in a given country offer the same benefits/restrictions but you are not restricted to shopping in any one country. Some QROPS in certain countries will only be open to tax residents of that country, but many are not.
So, if you’d like to avoid paying a lot of your pension fund savings to the taxman, and avoid having a faceless bureaucrat tell you what you can and cannot do with your funds, it’s time to contact a professional advisor and get looking around!
For advice, please use our QROPS UK pension transfer enquiry form.