Pension Transfers

A QNUPS (Qualifying Non-UK Pension Scheme) is a pension transfer scheme that allows individuals to transfer UK-based assets into an overseas-based scheme, which incurs a preferential tax rate. The requirements for such a pension transfer scheme to be defined as a QNUPS are similar to those of QROPS, but choosing which one is appropriate depends largely upon individual financial circumstances and the country in which one is domiciled and or resident.

With a QNUPS, the maximum age limitation for investment is removed, as well as the maximum contribution limits, meaning that should they choose to a client can continue to contribute to the fund even after retirement, thus maintaining the standard of living that they want.  It also allows for continued contribution even after a lump sum has been paid out, as opposed to the QROPS, which pays income directly after the lump sum has been deducted.

Unlike a UK pension scheme in which there must be a link to earned income, QNUPS have no such restrictions. All types of investable wealth, from cash investments to property, as well as antiques and fine art can be included within the scheme (subject to Trustee’s approval). Individuals wishing to place Buy-to-Let properties into their retirement plans may find a QNUPS suitable.

Tax efficiency is one of the great benefits of a QNUPS, as it offers protection from UK IHT.  There are no reporting requirements to HMRC, and at death no liability to UK Inheritance Tax, regardless of your domicile. This means that funds can be used during the lifetime of the fund holder, and the remaining balance can be passed on to their chosen beneficiaries upon death. At present UK IHT are at levels up to 55%, so it is crucial to choose a pension transfer arrangement that takes this into consideration, and minimise its impact. One of our team of professionals will help you choose the right option.

A QROPS (Qualifying Recognised Overseas Pension Scheme) is an HMRC recognised pension transfer scheme that meets the same requirements and criterion as a UK pension.  Provided that the overseas scheme is registered with HMRC (Recognised), most UK pensions can be easily transferred into a QROPS.

In today’s business world, the instance of a person working at a single company for their entire professional life has become a rarity. Therefore, it is common for clients to have more than one pension plan in place, often one from each of the various companies at which they have been employed. A QROPS allows you to round up these separate funds and place them all together into a single, more efficient arrangement. This not only provides the benefit of simplified record keeping, but can also greatly reduce the costs of administration incurred by having multiple accounts.

Utilising a QROPS can be advantageous for many reasons, including:

  • Reduction of income tax
  • After 5 tax years of non-UK residence, the UK payment rules no longer apply, which allows the remainder of your fund to pass along to your beneficiaries upon death without any UK income or IHT being due.
  • Removal of the obligation to purchase an annuity
  • Funds enrolled in a QROPS can remain invested as long as the client wishes, as there is no requirement to purchase an annuity.
  • Greater flexibility in investments
  • A QROPS gives you the power to choose from a much wider selection of investment vehicles than a standard UK registered pension. While UK pensions are almost always denominated in sterling, a QROPS allows you to invest in assets denominated in many various currencies, and receive payments in the local currency- thereby eliminating exchange rate fluctuation risk as well as currency conversion charges.
  • Pension Commencement Lump Sum up to 25%
  • Consolidate multiple existing plans

Pension transfer and planning is an important, involving process. We are here to help to simplify it, and make your money work for you.

Most UK pension schemes place a limit of 25% on the lump sum that can be taken on retirement. A QROPS is no different and still allows Pension Commencement Lump Sum (PCLS) of 25%, and dependent upon the growth of the fund as well as local pension rules; many other options for even larger pay-outs.  While providing an income is the purpose of a pension, a QROPS allows for much greater control and choice in how and when that income is administered.

A Self Invested Personal Pension (SIPP) is a pension scheme that allows individuals to make their own decisions about what to invest in. It is recognised by and registered with the HMRC, and was designed to offer the ever-increasingly important feature of choice to those who wish to make the most out their pensions.

The SIPP works as a “tax wrapper”- providing for 20% tax relief on contributions into the pension. It works the same in terms of tax benefits and contribution levels as a Personal Pension and/or Stakeholder Pension. Up to 100 percent of your income can be funneled into the scheme (up to £40,000) while you are still working, and up to £3,600 for non-income. There is a much greater range in flexibility as opposed to Personal Pension Plans however, as SIPP’s allow for the inclusion of equities, property, and a wide range of other assets.

A SIPP allows individuals that have several smaller pensions to consolidate their assets into a single pot. This of course provides several advantages, not the least of which- knowing where your money is and keeping it together. Another attractive feature is the power to choose how you take your retirement benefits. With a SIPP you are not required to purchase an annuity, but can choose to take income drawdown at retirement instead.

Of course the trade off for choice and greater possible growth are greater responsibility for the outcome of possible loss. An informed decision is often the difference between growth and stagnation.  Let us assist in you in taking control of your pension, and see if a pension transfer to a SIPP is right for you.

Along with QROPS, there is another acronym that has been on the minds of current and future expats- and that is EURBS. It stands for European Union Retirement Benefits Scheme- and for anyone who has left or is planning to leave an EU country in which they have built up pension rights, it can also stand as a bulwark against the rising tide of ever-increasing taxes. Essentially, EURBS is the European equivalent of the QROPS.

Gone are the days in which people start working at a company in their youth, work there for their entire lives, and retire on a final salary or defined benefit pension in the same town where they started. Nowadays, people have the opportunity to move freely around the world, as well as the option to live and work in the climes and countries of their choosing. EURBS makes it possible for people to process a pension transfer into any of several jurisdictions within Europe, allowing one to choose based upon what is advantages as opposed to having the decision being made by the circumstance of geographical location. This ability to choose can be the difference between you getting to keep a major portion of the pension that you have worked so hard for, and having to pay it back into the system in the form of tax.

As to which country to choose- at the moment, Malta is a very popular choice amongst expatriates. It has 57 Double Tax Treaties (DTT’s) with other countries. What this means to you is that if the country you decide to reside in shares a DTT with Malta, your pension will be paid gross- with no withholding tax imposed by the Maltese authorities.

If you are an individual who has built up pension rights of 50,000 or more, a EURBS pension transfer may be a suitable solution to uplift your savings to a more favourable jurisdiction, and gain control of your investments.

 

 The EURBS allows for freedom of movement as well as

- Open to people of any nationality

- Greater flexibility in terms of investment options

- Larger Lump Sum at the outset of 30%

- Possibility to reduce or remove IHT; meaning you can pass on the benefits to your family or whomever you have named as beneficiary

- Tax efficiency

 

 If you are already living abroad or plan to move within the next 12 months, you may be eligible to take advantage of the power and flexibility of a EURBS. There is nothing to gain by waiting- let us help you make the right decision, and make the most of what is already yours.

Jargon everything you need to know about getting the most out of your UK pension.

 

A

Annuity
Fixed income for life paid regardless of how long annuitant lives. There are many variants and options to this but generally if the annuitant dies early they prove to be bad value. Paid from a Final Salary Scheme and depending on the scheme rules as spouse may receive 50 or 66% of the annuity.

Annuity Rates
Determines the level of income paid and is also dependant on age, health and fluctuates according to gilt yields and interest rates.

Allocation Rates
Generally investment companies holding SIPPs or old personal pensions may take an upfront charge on the underlying funds using an allocation rate, for instance a 98% allocation rate means if a 100GBP was the premium 98% would actually be invested.

AVC’s
Additional voluntary contributions are made to top up an existing UK Company Pension Scheme.

A-Day
Came into force 6 April 2006 and radically changed UK pension rules allowing 100% of earnings to be saved, contributions to a personal pension whilst also being employed and a member of a company pension scheme whilst also introducing a lifetime limit on the amount available in a pension fund from UK taxed relived contributions. Was called Pensions Simplification.

Annual Allowance
The Annual Allowance for the tax year 2013/2014 is £50,000. It takes into account all gross contributions paid by an individual and employer to any registered pension scheme. In the case of final salary schemes, ‘contribution’ is defined as the increase in the value of benefits for active members.

If the total contributions add up to more than the Annual Allowance, then a tax charge is paid above the Annual Allowance. The Annual Allowance will not apply in the tax year in which you die or if you take your benefits on the grounds of serious ill health.

B

Basic State Pension
The basic state pension is paid to men at 65 and it was paid to women at 60 but since April 2010 has been gradually increased so that it too will reach 65, by November 2018. Then, both men and women will see their SPA rise gradually to 66 by April 2020. It is based on the number of contribution years on national insurance contributions.

Benefit Crystallisation Event
Any event that results in the payment of an authorised benefit from a Registered UK Pension Scheme. Whenever benefits are taken, either on death or retirement or a transfer to a qualifying recognised overseas pension scheme, it must be checked that the individual’s Lifetime Allowance has not been exceeded.

BR19
Department of Work & Pensions form required to be completed in order to obtain a forecast of possible State pension benefits. http://www.direct.gov.uk/pdfs/state-pension-statement.pdf

Beneficiary
Individual or individuals who will benefit from the death of a pension member. Depending on the type of scheme an income may be payable or a lump sum of the remaining fund may be paid but this could be subject to a Lump Sum Death Benefit charge of 55% if paid from a UK defined contribution scheme or Personal Pension/SIPP and the member was taking benefits.

C

Cash Lump Sum/Computation
An option to take part of the value of a pension fund as a lump sum but will result in a lower pension income. If taken when UK resident then limited to 25% of the fund and generally free of UK income tax.

Company Pension Scheme
Run by an individual’s employer and can either be defined benefit or defined contribution.

CETV
Cash Equivalent Transfer Value-A member of a defined benefit scheme that has more than 12 months to go before attaining the scheme’s normal retirement age can take a cash equivalent transfer value (CETV) to another registered UK pension or QROPS. A CETV statement reflects the capital value of the pension benefits (i.e. income and/or potential lump sum) that have been accrued to date, or which are in payment. The CETV of final salary schemes rarely reflects the true value of the accumulated pension rights especially if in deficit as the transfer value may be reduced to reflect the underfunding position.

With a money purchase arrangement the CETV is the transfer value of the funds that have accrued to date.

COMPS Contracted Out Money Purchase Scheme
It was possible prior to 6 April 2012 to contract out of the state additional pension by receiving rebates from the government and invest them yourself and hope that the fund would grow. It is not now possible to contract out via COMPS.

CIMPS
Contracted in Money Purchase Scheme- a money purchase scheme that allows the individual to also remain in the additional State Scheme.

Concurrency
From 2006 principle allowing someone to pay into more than one pension scheme at the same time.

Critical Yield
This is the rate of return required by your chosen investment fund/s to provide and maintain an income at least equal to that which could be provided if an annuity had been purchased at outset instead.

D

Deferred Pension
Benefit awarded to a defined benefit member who leaves services early.

Defined Benefits
An employer scheme where benefits are defined at outset i.e.: 1/60 for each year of services.

Defined Contribution
Pension income depends on what is paid into fund and also the investment performance.

Dependent
Financially dependent on the member or a child who has not reached the age of 23

Dependant’s income
The income paid to your dependant when you die.

Deferred Annuity
An annuity which commences at a future date.

Deferred Pension
Entitlement to payment in the future i.e.: early leaver but can be anyone whose retirement has been postponed.

Deferred Retirement
Late retirement after normal retirement age

Dynamism
Inflation proofing and pension adjusted for RPI/increases

E

Early Retirement
Taking benefits before normal retirement date i.e.: ill health.

Enhanced Protection
Pension benefits built up before 6/4/2006 and possible to avoid the Lifetime Allowance Charge. No further contributions are allowed.

Escalation
Pensions in payment or preserved benefits increase by a fixed percentage or may be RPI.

F

Financial adviser
A financial specialist who can help you make a decision about the best financial solution for you. Some advisers can only advise on one company’s products, others can advise on a range of companies’ products. Independent financial advisers can advise you on the products offered by all companies. Advisers have to tell you what product range they cover before they offer you any advice.

Fixed Protection
Protection available against lifetime allowance charge for those individuals with pension funds of more than 1.5M after 6/4/2012

Final Salary
Pension linked to an individual’s final salary- i.e.: 1/60 for each year of service.

Flexible Drawdown
Introduced in 2011 a pension fund in excess of the fund required to support a GBP20,000 pension p.a is allowed to be taken as a lump sum.

Frozen Benefits
Pension benefits that are deferred but also do not increase in value.

Funding
Provision for future benefit liabilities to defined benefit schemes.

G

GAD
Government Actuary’s Department-set rates for annuity income

Government Actuary’s Department (GAD) maximum
This is the maximum amount of income allowed under Government rules. It’s a specified percentage of the GAD limit. The GAD maximum amounts allowed under HMRC rules may change.

Guaranteed Payments
Payments normally part of an annuity which is guaranteed to be paid for a set period.

H

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I

Income Drawdown
Action of taking income from pension fund whilst also leaving fund invested to grow. Can take income of between 0 -120% of GAD but will also depend on risk profile.

Inflation
Increase in prices and standard of living which can clearly effect the purchasing power of retirees income.

J

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K

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L

Lifetime allowance
Limit of total pension fund allowed before extra tax charges apply-currently a limit of 1.5M.

M

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N

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O

OMO – Open Market Option
Allows individual to shop around and source best annuity rate available.

P

Pension Earmarking
Part of a divorce settlement where spouses share paid when member draws benefit

Personal pension
This is a pension plan you personally hold and invest in. With a personal pension, you pay a regular amount (usually every month) or a lump sum to the pension provide, who invests it as requested, on your behalf. Your employer may also pay into your personal pension.

Protected rights (PR)
Protected rights refers to the money built up with rebate payments from the Government when a person has contracted out of the State Second Pension.

Note: From 6 April 2012 the Government stopped the ability to contract out for defined contribution schemes, and the restrictions on how Protected Rights can be used have been removed.

Q

QROPS – Qualifying Recognized Overseas Pension Scheme
HMRC recognized overseas scheme that members can transfer UK pension schemes to in order to provide certain benefits in jurisdiction where they reside.

R

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S

Salary Sacrifice
Reduction in salary which is used by employer to fund pension.

SASS – Small Self Administered Scheme
Normally for a maximum of 12 members and offers greater investment benefits.

SIPP – Self Invested Personal Pension
Gives greater investment freedom.

Stakeholder
Low cost personal pension that meets certain criteria with regard charges and fees.

State pension
The State Pension is paid by the Government and is made up of two parts, the ‘Basic State Pension’ and the ‘Additional’ or ‘State Second Pension’. Nearly everyone can expect to get a Basic State Pension when they reach state pension age. The State Second Pension is the additional pension that the Government provides on top of the Basic State Pension. Prior to April 2002, the Additional Pension was called the State Earnings-Related Pension Scheme (SERPS). Before 6 April 2012 the Government used to allow people to opt out of the State Second Pension. This was known as ‘contracting out’. By contracting out the Government paid some of a person’s National Insurance contributions into a personal or occupational pension plan. It is still currently possible to be contracted out by being a member of a contracted out salary related occupational pension scheme.

T

Tax
Free cash sum-only applies to Uk residents and known as Pension Commencement Lump Sum-max of 25% may be taken free of income tax in UK.

Trivility
Available when pension funds are very small and can be taken as a lump sum after income tax paid. Must be aged over 60 and current limit set at £18,000.

U

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V

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W

Winding up
Scheme terminates and pension usually transferred to personal pension or into Pension Protection Fund.

X

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Y

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Z

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