by Muzammil Bashir
When a UK citizen decides to move abroad, he or she has the choice to either continue holding a personal pension fund that is based in the UK, or to transfer the balance to a pension fund in the new country of residence. The latter choice gives more flexibility in terms of investments. If the former choice is made, however, the party will be required to use the bulk of it to purchase an annuity (use an annuity calculator to calculate your annuity) when retirement time comes.
Contacting the appropriate pension provider is the initial step in transferring the pension abroad. Caution should be exercised, however, because the tax benefits are not likely to be greater in another country, and the administration of UK pension funds tends to be better also, so it is important to investigate these issues ahead of time.Another consideration is the fact that most companies insist upon paying the pension in sterling, into an account in the UK. The recipient must make arrangements for transfer. There are a limited number of larger funds that might be willing to send a cheque abroad. However, the payments will most likely always be in sterling. This will cause the pension to fluctuate in exchange rates. These exchange rates, however, can work in the pension holder’s favour. UK nationals who retired to South Africa as recently as 10 years ago are now experiencing a rise in their pensions due to the weakening of the rand. UK nationals tend to be well protected because of the strength of the sterling.
If one wishes to transfer the entire fund to a private pension scheme in the country of relocation, this would remove the currency risk. However, it is advisable to seek the counsel of a specialist, due to the fact that complications can occur, and sometimes this move can place the recipient at a tax disadvantage. It all depends on the circumstances surrounding the transaction, such as the country where the funds are to be transferred, and other issues.
When the HMRC receives an application to transfer benefits from a UK scheme overseas, it must refer to the appropriate overseas scheme on a specially-prepared list that the HMRC provides. If it is a scheme that is included on the list, the transfer can transpire. Should the overseas scheme not be on the list, one can apply for HMRC approval. The transfer can proceed only if approval is granted.
If benefits are a Guaranteed Minimum Pension or a contracted out benefit, the UK scheme must get written confirmation from the member that he or she understands that the overseas scheme might not provide the same range of security or priority for the contracted out benefit. He or she must also take reasonable steps to understand that where the overseas scheme is an occupation scheme, the member has entered the relevant employment. The member must also take reasonable steps to understand that he or she has received some type of statement from the overseas scheme that shows the benefits that are to be awarded in exchange for the payment that is being transferred.
A QROPS anti-avoidance measure was introduced to the Finance Bill in 2011, in which a new clause that was introduced to deter individuals from taking advantage of the treaty regarding double taxation between other territories and the UK. This action meant that if a person who resides in the UK transfers his or her pension abroad for the express purpose of gaining a tax advantage, the HMRC has the right to attach an additional charge to guarantee anti-avoidance. This measure went into place for all overseas pension transfers that were made either on or after the 6th of April, 2011.
The best thing that one can do when considering transferring a pension abroad, is to consult with a specially trained and licensed financial advisor. The party seeking assistance should request a full transfer value analysis, which is a calculation that allows members to compare the benefits inherent in leaving the pension in place in the UK and accepting pay-outs to a UK bank in sterling. It should be noted that private pension schemes cannot match the benefits that are provided by an employer and that a transfer should only be considered when the member has left his or her employer.