Lifetime Allowance Changes

Lifetime Allowance Changes impact on UK and QROPS Pensions

Previously, the UK’s Lifetime Allowance was set at £1.25m and, in April 6, 2016, the UK Government is set to lower the amount to £1m.

The decision to do so will most likely bring a host of changes. The transformation affects lifetime earners amassing more than £1m in their pension over the course of their career. Pension schemes are tested at certain points during the life of the pension (BCE) and any excess over the LTA results in additional tax charges.

According to The Telegraph, “Last week chief executives of some of Britain’s biggest financial institutions condemned the move to a £1m ceiling as a step too far. They called for the lifetime limit to be scrapped all together, arguing that it will damage aspirations and discourage long-term investing.”

How does the LTA affect my pension?

Pension Schemes could exceed the £1m limit as follows:

1. Defined contribution – also known as Money Purchase Schemes:

Private pensions including pensions that received employer contributions also come under the LTA limit. The limit will include any associated growth. All pension schemes have to be aggregated when performing the LTA calculation.

1. Defined Benefit Pensions or Final Salary schemes – These schemes have a cash value which is based on salary and not contributions plus investment growth. The amount has to be multiplied by a factor of 20 in order to calculate the capital equivalent value. Tax free lump sums are also included in the LTA calculation.

What is Lifetime Allowance Testing?

Events, known as benefits crystallization events (BCE), trigger a testing of LTA. While all events are detailed here, the primary events are:

1. When any income or a lump sum is taken from a Member’s pension upon reaching the age of retirement (55).
2. When members turn seventy-five years of age all pension funds not previously accessed, as well as those pension funds in drawn down, will undergo testing.
3. Death before the age seventy-five, this is also a Benefit Crystallization Event which will trigger LTA testing, affecting payments to beneficiaries.
4. Benefit Crystallization Event also occurs when Members choose to transfer funds from their pension into a QROPS. This is tested at time of transfer only – once in a QROPS no further LTA testing will occur.

How much Tax will I pay?

If a member exceeds the LTA, how the excess is paid will determine the LTA tax, for example, if they choose to take a lump sum, they will be subject to a 55% tax on the excess above the LTA.

If the member decides to take a pension income, they will be subject to a 25% tax charge on the excess above the LTA. However, if this was a transfer to a QROPS, members will only see a 25% tax on funds exceeding the LTA. Again, once the pension is transferred to a QROPS, it will no longer be tested against the LTA.

About Lifetime Allowance Protection

Individual protection may be available to you if your pension savings exceeds the lifetime allowance. Use this application for protection of your lifetime allowance. To be considered for protection, submission of your form must occur on or before April 5, 2017. Alternatively, the use of a QROPS could be a solution as once the pension is transferred, no further testing will occur.

Taking Immediate Precautions

With all the talk taking place in various media outlets like The Telegraph, for example, regarding Lifetime Allowance, it’s critical to put your financial picture into perspective. Is it time for you to get advice and make changes to your pension schemes?

Please contact us today with your questions about LTA. Alconbury Trust is a Registered Investment Advisor registered in Fl and TX. Alconbury Trust LLC is not an attorney or tax specialist. For information only and not a solicitation of sale.

The post Lifetime Allowance Changes appeared first on Alconbury Trust.

from Alconbury Trust http://www.alconburytrust.com/lifetime-allowance-changes/

Understanding Qualifying Recognized Overseas Pension Schemes

Understanding Qualifying Recognized Overseas Pension Schemes (QROPS) Pensions are a valuable part of financial planning and planning for your retirement.  It’s important for everyone to understand their complexities later on in life when these incomes become reality. The benefits of a QROPS could make a big difference to you and your family or to your beneficiaries if you are no longer living in the UK and you left your pension behind.

Should I consider a QROPS? (Qualifying Recognized Overseas Pension Schemes)

Since launching in 2006, QROPS, also referred to as Qualifying Recognized Pension Schemes, have grown in popularity. They are an overseas pension recognized by HMRC, which continues to see growth amongst those considering overseas moves, as well as other expatriates. QROPS has undergone changes as annual growth for demand endures, which appears set to continue during 2016 while the market continues maturing, and the tremendous benefits become more evident to people.

Here are some of the benefits:

1. Up to a 30% lump sum tax-free withdrawal from age 55.

2. The LTA (Lifetime Allowance) has dropped considerably since 2013-14 where the LTA was £1.5 million. For the tax year 2016-17 onwards, the LTA will be £1 million.

Once the LTA figure has been breached, a tax of 55% will be charged on the excess growth surplus at the next BCE (Benefit Crystallization Event). This is a point in the future which is triggered by a change in the pension status.  QROPS can be used as part of your Lifetime Allowance mitigation plans.

Therefore, it’s recommended that you test for LTA now.

3. Qualified Recognized Pension Schemes are taxed within the country that you reside.

1. Transferring to QROPS allows you to elect a beneficiary for your final salary payments.
2. A diversified investment portfolio can be created and managed more effectively.

What’s Next for Expats?

Many future retirees have plans to move overseas, so, it is critical to plan now. If you are considering transferring your pension to a QROPS, you need to ask the following questions:

• Does the QROPS meet the qualifying conditions of the ROPS (Recognized Overseas Pension Schemes)?
• Does it meet the age test minimum requirements (age 55)?
• Will it appear on the QROPS public lists?

Unless citizens are experiencing severe health conditions, they must be at least 55 years old to take benefits from a QROPS. The HMRC (HM Revenue & Customs) wants these questions answered to confirm those under the age of 55 are not withdrawing benefits in countries where their scheme was established, or the scheme’s rules will prevent this from happening where UK tax relief was already paid.

The best way for you to determine if a QROPS is a good option for you, explore the pension options, and determine the pros and cons.

 

The post Understanding Qualifying Recognized Overseas Pension Schemes appeared first on Alconbury Trust.

from Alconbury Trust http://www.alconburytrust.com/understanding-qualifying-recognized-overseas-pension-schemes-qrops/