QROPS: More seek bridge over Brexit uncertainty

This summer’s Brexit vote — with Britain leaving the EU — continues to produce waves of speculation, as investors and financial experts try and determine what comes next. The truth is that no one knows for sure. Qualifying Recognized Overseas Pension Schemes (QROPS), therefore, become a logical solution for expats in the U.S. looking to safeguard their hard-earned retirement funds.

And those speculating a retirement move from Britain to another EU country — before things get too complex — are likely to speed up the timeline and investigate QROPS as well.

Factors at play

Pension deficits already exists; and now, with Brexit a reality, they aren’t likely to improve. It seems British employers may be forced to make some harsh changes to stay afloat.

A drop in the pound means a higher cost of living for British residents, a drop in liquidity for pension schemes with reduced gilt yields, and reduced value in invested sectors — and more expats transferring pensions out of the UK as a result.

QROPS investors are simply better equipped to weather this volatility by taking control of their pensions.

Benefits abound

As we’ve previously stated, QROPS operates under agreements with individual jurisdictions, such as Malta. So they will be upheld after the UK’s formal exit in about two years. This alone is a comfort for those with retirement accounts in the UK.

Other reasons QROPS provide a safe exit, financially:

• Investors can leave 100 percent of their QROPS funds to their heirs after they have lived outside of the UK for five years.
• QROPS savers can sidestep UK income tax or death charges, which can be close to 50 percent.
• Exchange-rate curveballs are avoided, as QROPS investors can choose how they want to be paid, and aren’t locked into one particular form of currency.

If you and your financial advisor decide that a QROPS transfer is the best investment tool for you, don’t be tempted to wait and see if the UK pension deficit improves, even if retirement is a long way off. Take control of your future retirement now.

The likelihood of UK pension funding is getting dimmer; investigate the advantages of a QROPS transfer with a registered financial advisor today.

Alconbury Trust LLC is a Registered Investment Advisor in the State of Florida and Texas – USA.

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Brexit’s impact on QROPS transfers

Anyone who tells you that they know for certain how Brexit — Britain’s vote to exit the Eurozone — will impact pensions and Qualifying Recognized Overseas Pension Schemes (QROPS) is lying. Much is still unknown; reactions Friday included the pound going into freefall against the dollar and 10-year UK government borrowing costs sinking below 1 percent for the first time ever.

Now-resigned UK Prime Minister David Cameron will leave his post by October. Then — no longer part of the union — the UK will renegotiate its trade, business and political arrangements — a complicated process which could take up to two years.

Expats in Europe and British expats living elsewhere have questions, but there are no quick answers.

Sources of concern

Expats in Europe are concerned not only about their pensions and how they will be paid, but also about taxes and levies on those payments. With the UK no longer a member of the European Union (EU), it’s an unfamiliar playing field.

QROPS transfers for British expats living in other countries fall under Her Majesty’s Revenue & Customs (HMRC), not the EU. Therefore, it needs to qualify under HMRC rules. According to Alan Kentish, interim chief executive of STM Group, UK citizens will still be able to transfer their pensions to Europe via a QROPS.

Don’t forget, also, that expats are long-term investors; some still have property and savings in the UK, as well. So it isn’t just pension transfers that are a worry for them. The long-term impact on asset prices in the UK from property to shares will take time to become apparent.

Defined-Benefit (DB) schemes could also come under pressure, however, due to lower economic growth in the UK that stems from the overall uncertainty. With lower economic growth potentially reducing equity returns, an argument to transfer out of DB schemes could certainly be made.

So while Britain’s invocation of the Lisbon Treaty’s Article 50 is sorted out — the formal, two-year process for Brexit to be official — it should not take long to get a better understanding of the impact that Brexit will have on UK-based pensions.

In the meantime, keep your panic at bay and keep your portfolios liquid and flexible, and count on Alconbury Trust to keep you informed.

Alconbury Trust LLC is a Registered Investment Advisor in the State of Florida and Texas – USA.

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What Is A QROPS Scheme?

What is a Qualifying Recognized Overseas Pension Scheme? It includes a pension scheme overseas which meets specific requirements established by HMRC, or Her Majesty’s Revenue & Customs. A QROPS may obtain transfers of Pension Benefits in the UK without having to incur an unauthorized payment, as well as scheme sanction fee. This program launched on April 6th, 2006 due to the European Union human rights legislation regarding a movement for freedom of capital.

The Qualifying Recognized Overseas Pension Scheme may be suitable for citizens of the United Kingdome who’ve left to permanently emigrate and who have intensions of retiring abroad having built a UK pension fund up. Alternatively, an individual born outside of the UK having built benefits up in a Her Majesty’s Revenue & Customs-approved United Kingdom pension scheme may move a pension offshore if they have a desire to retire out of the UK. United Kingdom state pensions can’t be transferred, yet defined contribution, SSAS, and defined benefit schemes may be transferred abroad.

The Qualifying Recognized Overseas Pension Scheme doesn’t need to be set up within the country in which you retire, instead you may move the pension to a tax efficient jurisdiction then have it paid inside the country you choose.

Pension rule one within section 165 will provide that no pension payment might be made prior to the date on which the member attain usual minimal pension age, unless the condition was immediately met prior to the member becoming entitled to the pension underneath the scheme.

To become a Qualifying Recognized Overseas Pension Scheme, a pension scheme has to apply to and become approved by Her Majesty’s Revenue and Customs. A QROPS list which have consented to get their names published is obtainable on the HMRC site and regularly gets an update.

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Find pension contact details

The UK’s Department for Work and Pensions (DWP) has launched a new pension tracing website to help savers track down lost or forgotten retirement pots. Use this service to find contact details for:

• your own workplace or personal pension scheme
• someone else’s scheme if you have their permission

This service can help you find a lost pension.You need the name of an employer or a pension provider to use the service. The service won’t tell you whether you have a pension, or what its value is.

Find Contact Details

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What are the benefits of QROPS?

Succession Planning

Pension funds can be passed down to family members free of UK Inheritance Tax (IHT) and scheme charges on death at any age.

If a member dies whilst being a member of a QROPS (and after being non- resident for 5 complete tax years) then no UK scheme charges are reportable to HMRC.

As from April 2015 the 55% tax charge on death has been removed from UK schemes on death prior to age 75 but there will still be a tax charge on death after age 75.

Income and withdrawals

Income payments can be paid gross or with a low rate of withholding tax from some QROPS.

Where a lower tax rate applies in the new country of residence or in the absence of a suitable double taxation agreement with that country, remaining in a UK pension fund may not be suitable.

Withdrawals from a QROPS may be taxed at a lower rate than from a UK pension. Withdrawals can be declared in a variety of ways, dependent upon the jurisdiction of the QROPS. For example, withdrawals declared as annuity payments may be taxed at lower rates than income withdrawals in many EU countries.

Income from a UK pension scheme normally has a 20% tax deducted at source even if a member is non resident. It may not always be possible to have income paid gross from a UK pension, and when it is possible it can be administratively onerous.

Access

The lump sum and income distribution will depend on the relationship between local rules and HMRC QROPS rules. Where the QROPS is not regulated, or is not based in the EU (plus some exempt countries), 70% of the fund currently has to be designated to provide an income.

Other Benefits

1. There is no requirement to buy an annuity from a QROPS at any time.
2. There are no income restrictions on protected rights funds in a QROPS.
3. A QROPS can enable a client to diversify currency away from GBP.
4. Multiple pensions can be consolidated into one QROPS.

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UK Pension Review, QROPS, LTA Limits

How often do you review your pension?

Financial experts have likened reviewing your pension pots to going to the dentist. Both are annual necessities, but are also tasks that resident Brits and expats alike often procrastinate until they are faced with a problem. Even if you’ve recently had a UK pension review and all of your schemes are performing on target, savvy financiers know that it is important to continually redefine savings objectives and alter investment strategies accordingly. The local and global economic climate is constantly changing. Seeking advice from a professional in any of the following scenarios enables you to get the most out of your money and comfortably maintain your lifestyle during retirement years.

New Legislation

On April 6, 2016 the UK’s Lifetime Allowance (LTA) decreases from £1.25 million to £1 million. If you are nearing the £1 million LTA limits, a pension review may be a good idea.

Occupational Changes

The Telegraph reports that the average Briton will change employers six times during their career, whether in the same industry or a different one entirely. Each new job typically means automatic enrollment in a new pension scheme. Reviewing your all of your pensions and consolidating smaller funds into a single pot not only makes them easier to manage, but could also yield more money. Older pensions may not be as lucrative and competitive as modern schemes. They may also have steep management charges. Each pension should be reviewed individually, however, as transferring certain types of occupation pensions could forfeit guaranteed annuity rates. There may also be exit fees.

Life Events

Occupational changes aren’t the only life events that warrant a UK pension review. At Alconbury Trust, we recommend a consultation:

• Before a divorce
• When moving out of the country
• Upon receiving death benefits
• As you approach retirement age

Each of these happenings has a significant impact on your finances. You may need to adjust the risk level of your pension, transfer assets to an offshore account or change your investment strategy altogether.

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Government review of state pension age

Work until you’re 75 or even 81 under Government review of state pension age

Possible age hike comes as minister hints at pensions tax raid on middle-class savers
March 2016 – By Steven Swinford, Deputy Political Editor http://www.telegraph.co.uk/

Millions of people could be forced to work until they are 75, the Government has hinted as details of a review into the state pension age were published.
Ministers have announced a radical review of the pensions regime amid concerns that he current system is not “affordable in the long-term”.

The review will be chaired by Sir John Cridland, the former head of the Low Pay Commission, and will assess whether the current pensions system is “affordable in the long-term”.

HOW MUCH YOU CAN PAY INTO YOUR PENSION

• Your contribution limits for the tax year 2015/16
• You can contribute as much as you earn in a year, up to £40,000 a year
• You can also use HMRC’s “carry forward rules” to use the past three year’s pension contribution limits – if you haven’t already
• nce you start drawing from your pension your annual limit reduced to £10,000
• he lifetime pension limit is reducing from £1.25m to £1m next year

Read more on Government review of state pension age

 

 

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