There are potentially some considerable advantages to moving UK pensions overseas, as moving your pension scheme to another jurisdiction can mean that your pension is subject to rules that are far more favourable than those that apply in the UK.
This is evidenced by the fact that since QROPS were introduced in 2006, over £450 million has been transferred into QROPS from the UK. The clear advantages offered by transfer to a QROPS can be summarised below:
A QROPS scheme does not have to be based in the same country as an individual’s tax jurisdiction and therefore can be based in a country, such as Guernsey or the Isle of Man, where funds can grow virtually tax free but at the same time an individual can take income and be subject to income tax rates applicable to the country they are resident in.
Unlike the vast majority of UK pension schemes, a QROPS can be denominated in a range of currencies, and therefore it is far easier to reduce the level of currency risk within a QROPS.
In addition unlike many other adviser companies we are able to offer a fully bespoke investment service within your portfolio and are therefore able to arrange the investment of your pension fund so as it can be individually tailored to your needs.
We are also able to change your investments at any time to adapt to changing circumstances and changing market conditions.
Leaving your full fund to your family
Unlike in the UK a QROPS fund can be passed on in full without any tax charge to a beneficiary of your choosing upon death. This is a major advantage of a QROPS over a UK scheme, where the tax charge can be as much as 82% of the value of the fund, and therefore a QROPS is significantly better in terms of being able to pass on your pension fund to your loved ones in the event of your death.
No annuity or ASP purchase
In the UK an individual must either buy an annuity or Alternatively Secured Pension (ASP) upon their death. Both have significant disadvantages:
An annuity is very inflexible in that you are not able to vary the amount of income you take once you have chosen it. In addition annuity rates are currently very low as they are based upon interest rates, which are currently very low, and life expectancy, which is currently far higher than say 20 years ago.
Finally upon death the value of the fund cannot be passed on to your loved ones.
The major disadvantage of ASP is that upon death if you pass on the value of your fund it is potentially subject to an 82% tax charge.
None of the above restrictions apply under a QROPS.
Funds already in income drawdown
It is possible to transfer any pension arrangement into a QROPS as long as an annuity has not already been purchased.
Therefore if you have already entered into income drawdown, otherwise known as Unsecured Pension (USP) there are some major potential advantages to transferring to a QROPS:
Firstly income taken will be subject to tax in the country you are resident in, rather than the UK.
Secondly USP can currently only be taken up to age 75 in the UK, at which point if you want to continue with income drawdown it must become Alternatively Secured Pension (ASP), which is far less attractive.
Finally upon death there is a 55% tax charge on death, whereas under QROPS there is no tax charge, and the full value of your fund can be passed on.