IOMA Pensions has welcomed recent legislative changes to the Isle of Man’s pension system and said it will put the jurisdiction “at least on a par with Guernsey”.
The new legislation, which was approved by Tynwald, the Manx government, on 22 October, has created a new type of pension plan which does not provide tax relief for contributions but retains tax exemption on investment growth. It also provides tax exemption on pension income in retirement.
Boal & Co has already made use of the changes to launch a QROPS which will allow clients to take a lump sum of up to, and in some cases more than, 75% of the value of their pension pot.
IOMA, which launched a Guernsey-based QROPS called the Lifestyle Pension in July this year, said the changes will put the Isle of Man “on a par, at the very least, with jurisdictions such as Guernsey operating in the multi-billion pound QROPS industry.”
IOMA director Mike Batey said: “The changes do two important things. First, they provide local IFAs with more choice as to how to structure pension provision for their clients, essentially providing the option as to whether the pension member is taxed whilst contributing or taxed whilst taking the income.
“Second, is the advent of the long-awaited competitive positioning for the Isle of Man in the international QROPS market, currently dominated by Guernsey. Generally, the framework for pension planning in the Isle of Man is excellent but the tax treatment for certain types of scheme has been something of a hindrance up until now. With these changes, I feel confident that the Isle of Man can finally establish itself as the premier jurisdiction for pensions, now that there is a suite of retirement benefit solutions that is second-to-none in the global market. ”
The company added it is finalising a new suite of products which take into account the legislative amendments and hopes to launch them this autumn.
For expert QROPS advice go to http://www.qrops-advisers.com or call 01664 444625
http://www.international-adviser.com/article/manx-pension-changes-put-island-at-least-on-a-par-with-guernsey-says-ioma
Showing posts with label QROPS Adviser Notes: QROPS News. Show all posts
Showing posts with label QROPS Adviser Notes: QROPS News. Show all posts
Thursday, 3 February 2011
Friday, 23 April 2010
QROPS News:HMRC has finally approved the first Maltese Qualifying Recognised Pension Scheme (QROPS).
The Melita International Retirement Scheme is to be administered by Malta-based -Custom House Global Funds Services, the global funds specialist, and will be marketed by Panthera, according to a statement released by Panthera this afternoon.
As previously reported by International Adviser, a number of Maltese companies have been eagerly awaiting the chance to offer and administer QROPS, which enable UK expatriates to transfer their UK pensions abroad in a way that can be tax advantageous.
HMRC recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. That development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) were eligible for QROPS status. However, until now none had received the UK authority's approval.
http://www.international-adviser.com/article/hmrc-registers-first-maltese-qrops
As previously reported by International Adviser, a number of Maltese companies have been eagerly awaiting the chance to offer and administer QROPS, which enable UK expatriates to transfer their UK pensions abroad in a way that can be tax advantageous.
HMRC recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. That development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) were eligible for QROPS status. However, until now none had received the UK authority's approval.
http://www.international-adviser.com/article/hmrc-registers-first-maltese-qrops
Tuesday, 20 April 2010
QROPS Advice: Guernsey moves closer to QROPS code of conduct
A code of conduct for QROPS providers in Guernsey is one step closer with the sub-committee’s first meeting set for tomorrow.
The sub-committee has been formed by the Guernsey Association of Pension Providers (GAPP) and contains a cross-section of QROPS providers from the jurisdiction. Its aim will be to establish a voluntary code of conduct, with additional input from tax and legal professionals, which will be displayed on the GAPP website along with a list of members aligned to those codes.
Members of GAPP will then be able to refer to their adherence to these codes in their own marketing material and provide additional comfort and assurance to clients and introducers.
Roger Berry, managing director of Concept Group and also chair of the sub-committee, said a code could be established as soon as one month from now.
“GAPP has been working on this for some time, and things are coming along quite nicely,” said Berry.
“I would hope within a month or so we should have something out there which is going to be helpful to not only the providers here, to ensure we are singing from the same hymn sheet, but also the users, intermediaries and members of these schemes.”
Furthermore, Berry said while the code would initially be voluntary there is a possibility in the future it could have some regulatory support.
“Most if not all the providers in Guernsey are now represented on the sub-committee so it has a huge amount of clout and the regulator and the tax office deal with this committee as well,” added
Berry.
“My hope is if we demonstrate to our local government that we are serious and we get this off the ground it is highly likely there may be some time found by the regulatory side and we might get some support from them. It may ultimately end up in something more formal.”
http://www.international-adviser.com/article/guernsey-moves-closer-to-qrops-code-of-conduct?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=152272-IA+19+April+10
The sub-committee has been formed by the Guernsey Association of Pension Providers (GAPP) and contains a cross-section of QROPS providers from the jurisdiction. Its aim will be to establish a voluntary code of conduct, with additional input from tax and legal professionals, which will be displayed on the GAPP website along with a list of members aligned to those codes.
Members of GAPP will then be able to refer to their adherence to these codes in their own marketing material and provide additional comfort and assurance to clients and introducers.
Roger Berry, managing director of Concept Group and also chair of the sub-committee, said a code could be established as soon as one month from now.
“GAPP has been working on this for some time, and things are coming along quite nicely,” said Berry.
“I would hope within a month or so we should have something out there which is going to be helpful to not only the providers here, to ensure we are singing from the same hymn sheet, but also the users, intermediaries and members of these schemes.”
Furthermore, Berry said while the code would initially be voluntary there is a possibility in the future it could have some regulatory support.
“Most if not all the providers in Guernsey are now represented on the sub-committee so it has a huge amount of clout and the regulator and the tax office deal with this committee as well,” added
Berry.
“My hope is if we demonstrate to our local government that we are serious and we get this off the ground it is highly likely there may be some time found by the regulatory side and we might get some support from them. It may ultimately end up in something more formal.”
http://www.international-adviser.com/article/guernsey-moves-closer-to-qrops-code-of-conduct?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=152272-IA+19+April+10
Saturday, 10 April 2010
QROPS Advice: Full QROPS encashment still taking place
Intermediary firm Windsor Pensions has said it will accommodate British expats wishing to fully encash their pensions immediately upon leaving the country, despite this conflicting with UK regulations.
In particular, the firm said certain New Zealand-based QROPS schemes are willing to allow the practice. According to HMRC, QROPS must be treated exactly like domestic pensions for five years after the holder has left the UK, otherwise they will be liable to tax charges of up to 55%.
Steve Pimlott, an intermediary at Windsor Pensions, said: “Strictly speaking it is against the rules [to take full immediate encashment] but there are some schemes that will allow it. Most schemes which will allow this are based in New Zealand. We have used them, but I cannot go into details of the specific schemes.”
Windsor’s business largely comes from clients and IFAs based outside the UK and the company will not share its commission with UK intermediaries.
The claims by Windsor follow a report by IA in January that concerns had been raised by HMRC about the conduct of schemes in New Zealand.
Axa Life head of pensions and savings policy Steve Folkard offered a word of warning for those considering undertaking full immediate encashment.
“Potentially HMRC could try to recover the tax charge from the client, although this will depend on what jurisdiction they are in and whether there are any double tax treaties in place and so on – this aspect is complex and clients should seek professional advice,” he said.
In addition, Pimlott mentioned two Latvian-based schemes that have attracted some client money. One is the Wenns International Pension Scheme, which has proven particularly popular with ex-military personnel.
“The Latvian schemes are much more rigid in their rules – Wenns International is typically used by ex-servicemen – they have a lot of good packages, as well as the pension transfers for ex-servicemen,” he added.
http://www.international-adviser.com/article/full-qrops-encashment-still-taking-place?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=151491-IA+09+April+10
In particular, the firm said certain New Zealand-based QROPS schemes are willing to allow the practice. According to HMRC, QROPS must be treated exactly like domestic pensions for five years after the holder has left the UK, otherwise they will be liable to tax charges of up to 55%.
Steve Pimlott, an intermediary at Windsor Pensions, said: “Strictly speaking it is against the rules [to take full immediate encashment] but there are some schemes that will allow it. Most schemes which will allow this are based in New Zealand. We have used them, but I cannot go into details of the specific schemes.”
Windsor’s business largely comes from clients and IFAs based outside the UK and the company will not share its commission with UK intermediaries.
The claims by Windsor follow a report by IA in January that concerns had been raised by HMRC about the conduct of schemes in New Zealand.
Axa Life head of pensions and savings policy Steve Folkard offered a word of warning for those considering undertaking full immediate encashment.
“Potentially HMRC could try to recover the tax charge from the client, although this will depend on what jurisdiction they are in and whether there are any double tax treaties in place and so on – this aspect is complex and clients should seek professional advice,” he said.
In addition, Pimlott mentioned two Latvian-based schemes that have attracted some client money. One is the Wenns International Pension Scheme, which has proven particularly popular with ex-military personnel.
“The Latvian schemes are much more rigid in their rules – Wenns International is typically used by ex-servicemen – they have a lot of good packages, as well as the pension transfers for ex-servicemen,” he added.
http://www.international-adviser.com/article/full-qrops-encashment-still-taking-place?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=151491-IA+09+April+10
Tuesday, 30 March 2010
QROPS Advice: QROPS or QNUPS?
WHAT IS A QNUPS?
• A QNUPS is a Qualifying Non UK Pension Scheme
• Not to be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).
• Came into force on 15th February 2010 by HMRC.
• Generating opportunities for British expatriates concerning tax efficiency of local taxes and inheritance tax (IHT).
Who would consider a QNUPS?
• UK Expatriates or soon to be Expatriated
• UK Expatriates with existing QROPS schemes.
• Expats who my wish to return to the UK in the future.
• The high net worth UK resident or domiciled individuals with maximised income tax relievable pension contributions.
Benefits of QNUPS?
Retired British Expats Can Benefit From;
• UK inheritance tax and local succession taxes will not be payable from the QNUPS fund upon death.
• QNUPS will avoids local succession law, enabling you control who inherits what and how much. Thus removing the need for PETS (Potentially Exempt Transfers) as part of Inheritance Tax Planning.
• Income can be taken from age 55 (after 6th April 2010)
• Income can be deferred until age 75.
• No need to have any employment income to make contributions.
• Ability to continue investing even after age 80 even though you have been retired for many years giving rise to substantial tax advantages.
• Ability to take a lump sum as you would with any other pension scheme.
• There are no limits on contributions to the fund, nor fund size.
• Income is taken from the fund as drawn, leaving the remaining assets invested with an opportunity to grow in value tax free.
• Investment flexibility, with investments in stocks, bonds, alternative investments, deposits, real estate, private equity, options and life policies. Due to the non reporting freedom the fund manager in essence has the ability to invest in an even wider range of assets in comparison to QROPS, including; art, wine, boats aircraft and even residential property.
• Take income and benefits in currency of your choice reducing currency risk
• Trustee has no reporting requirements or obligations to HMRC on all assets transferred in outside of authorised UK pension Schemes
Disadvantages Of QNUPS
• You don’t receive any tax relief on the amount you invest.
What Opportunities Does QNUPS Offer to High Earners as UK Residents or Domiciles?
The introduction of the highest rate of income tax of fifty percent has meant that Higher Earners (UK Resident or Domiciled) will be experiencing restrictions on the levels of tax relief they can gain via pension contributions. As UK Residents or Domiciled individuals they will have the ability to contribute to a QNUPS and capitalise on all its benefits.
What’s the difference between QNUPS and QROPS?
• A QNUPS has no Double Taxation Agreement between the UK and the country where the QNUPS is therefore it has no reporting requirements or obligations to HMRC.
• A QNUPS is a Qualifying Non UK Pension Scheme
• A QROPS as per of the Double Taxation Agreements in place are required to report to HMRC for the first 5 years.
• Existing QROPS can be transferred into a QNUPS as an more tax effective wrapper.
In essence A QROPS can be definition as a QNUPS and a QNUPS can be (but need not be) a QROPS
HMRC are looking very closely at non-UK domiciles (recent case of Gaines-Cooper http://talkqrops.blogspot.com/2010/02/qrops-advice-qrops-newsgaines-cooper.html ) and you could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death. QNUPS helps with this issue as it makes your assets exempt from IHT UK domiciled or not even if you have returned to the UK.
QNUPS Jurisdictions
• Guernsey
• New Zealand
• Hong Kong
Others likely to join
• Isle of Man
• Gibraltar
• Malta
Where can I get QNUPS Advice?
Email your enquiry to qrops@aifsg.com or call 0044 1664 444625. For further information go to www.qnupsadvice.com. QNUPS Advice is provided by Argent International Financial Services Group. International is a highly respected financial services group of companies, specializes in comprehensive and independent financial advisory, wealth management, company and trust administration services to private, corporate and institutional investors. For over 22 years we have assisted investors to enhance their financial position and make the most of the opportunities available in the global financial market. For details of all our services including QROPS and QNUPS go to http://www.aifsg.com
• A QNUPS is a Qualifying Non UK Pension Scheme
• Not to be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).
• Came into force on 15th February 2010 by HMRC.
• Generating opportunities for British expatriates concerning tax efficiency of local taxes and inheritance tax (IHT).
Who would consider a QNUPS?
• UK Expatriates or soon to be Expatriated
• UK Expatriates with existing QROPS schemes.
• Expats who my wish to return to the UK in the future.
• The high net worth UK resident or domiciled individuals with maximised income tax relievable pension contributions.
Benefits of QNUPS?
Retired British Expats Can Benefit From;
• UK inheritance tax and local succession taxes will not be payable from the QNUPS fund upon death.
• QNUPS will avoids local succession law, enabling you control who inherits what and how much. Thus removing the need for PETS (Potentially Exempt Transfers) as part of Inheritance Tax Planning.
• Income can be taken from age 55 (after 6th April 2010)
• Income can be deferred until age 75.
• No need to have any employment income to make contributions.
• Ability to continue investing even after age 80 even though you have been retired for many years giving rise to substantial tax advantages.
• Ability to take a lump sum as you would with any other pension scheme.
• There are no limits on contributions to the fund, nor fund size.
• Income is taken from the fund as drawn, leaving the remaining assets invested with an opportunity to grow in value tax free.
• Investment flexibility, with investments in stocks, bonds, alternative investments, deposits, real estate, private equity, options and life policies. Due to the non reporting freedom the fund manager in essence has the ability to invest in an even wider range of assets in comparison to QROPS, including; art, wine, boats aircraft and even residential property.
• Take income and benefits in currency of your choice reducing currency risk
• Trustee has no reporting requirements or obligations to HMRC on all assets transferred in outside of authorised UK pension Schemes
Disadvantages Of QNUPS
• You don’t receive any tax relief on the amount you invest.
What Opportunities Does QNUPS Offer to High Earners as UK Residents or Domiciles?
The introduction of the highest rate of income tax of fifty percent has meant that Higher Earners (UK Resident or Domiciled) will be experiencing restrictions on the levels of tax relief they can gain via pension contributions. As UK Residents or Domiciled individuals they will have the ability to contribute to a QNUPS and capitalise on all its benefits.
What’s the difference between QNUPS and QROPS?
• A QNUPS has no Double Taxation Agreement between the UK and the country where the QNUPS is therefore it has no reporting requirements or obligations to HMRC.
• A QNUPS is a Qualifying Non UK Pension Scheme
• A QROPS as per of the Double Taxation Agreements in place are required to report to HMRC for the first 5 years.
• Existing QROPS can be transferred into a QNUPS as an more tax effective wrapper.
In essence A QROPS can be definition as a QNUPS and a QNUPS can be (but need not be) a QROPS
HMRC are looking very closely at non-UK domiciles (recent case of Gaines-Cooper http://talkqrops.blogspot.com/2010/02/qrops-advice-qrops-newsgaines-cooper.html ) and you could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death. QNUPS helps with this issue as it makes your assets exempt from IHT UK domiciled or not even if you have returned to the UK.
QNUPS Jurisdictions
• Guernsey
• New Zealand
• Hong Kong
Others likely to join
• Isle of Man
• Gibraltar
• Malta
Where can I get QNUPS Advice?
Email your enquiry to qrops@aifsg.com or call 0044 1664 444625. For further information go to www.qnupsadvice.com. QNUPS Advice is provided by Argent International Financial Services Group. International is a highly respected financial services group of companies, specializes in comprehensive and independent financial advisory, wealth management, company and trust administration services to private, corporate and institutional investors. For over 22 years we have assisted investors to enhance their financial position and make the most of the opportunities available in the global financial market. For details of all our services including QROPS and QNUPS go to http://www.aifsg.com
QROPS Advice: Which Jurisdiction ticks all the boxes.
With a number of jurisdictions now offering QROPS, David Piesing from Praxis Fiduciaries and Stephen Ward of Premier Pension Solutions assess the relative benefits and which one comes out on top.
It seems like an eternity since QROPS became available back in April 2006. Four years on prospective client now have plenty of schemes and jurisdictions from which to choose.
The choice for most people is from schemes operating in jurisdictions which are open to both residents and non-residents.
The main markets for QROPS transfers are:
Guernsey
Isle of Man
Gibraltar
New Zealand
Malta will soon come on stream as well. We have not included Hong Kong as there are only 10 active schemes on the HMRC list and those are mainly occupational ones.
Here we assess these main jurisdictions and consider:
benefit flexibility for members who have been non-UK resident for at least five complete tax years;
investment flexibility;
taxation;
costs;
ease of transfer in and out.
Benefits for life
The key advantage of a QROPS when compared with a UK scheme is not having to buy an annuity by age 75. The jurisdictions on our list allow the fund on death to pass to nominated beneficiaries with no UK inheritance tax (IHT) liability.
Maximising benefit flexibility may require an onward transfer to a non-QROPS mirror scheme. This is possible without tax implications if the QROPS is non-investment regulated.
Most Guernsey QROPS have confirmed non-investment regulated status. Gibraltar, the Isle of Man and New Zealand QROPS, as well as those from Malta, generally meet this condition. Guernsey QROPS may allow access before age 50 (55 from 6 April, 2010) as a loan of up to 25% of the fund. Trustees can allow flexibility through a temporary annuity. Full commutation remains possible where the fund is small.
New Zealand schemes are not subject to the 70% income for life rule because of how they navigate the HMRC QROPS conditions. This allows capital payments from the fund. The lump sum from Isle of Man schemes is up to 30% of the fund. Guernsey (currently restricted to 25%) is expected to match this figure soon. Maltese schemes restrict lump sums to 25%, as do Gibraltar's.
Investment path
All jurisdictions offer investment flexibility. Member directed investment is generally avoided as schemes might otherwise be considered investment regulated with indefinite reporting to HMRC. Some schemes have allowed investment in residential property yet surprisingly still claim they are not investment regulated with no tax charge arising.
For the majority, traditional forms of investment are sufficient. More exotic choices are best delivered in a non-QROPS, such as a Qualifying Non-UK Pension Scheme (QNUPS), having received a transfer value from a QROPS without triggering an unauthorised payments charge after completion of the five-year non-residency period by the scheme member.
Taxation issues
The fund accumulates free of tax (except tax deducted at source on some dividend income) in all countries on our list except New Zealand. Fund taxation rules in New Zealand are complex, and are made on a comparative-value basis or assuming a 5% pa 'fair return', with the calculation of asset valuations required in NZ$. But the government is expected to announce it is exempting pension funds.
Isle of Man schemes deduct local tax on pension income, typically at 18%. This creates issues unless the Isle of Man has a double taxation treaty with the country where the member is resident. For example, a Spanish resident can neither offset nor reclaim Isle of Man tax deducted. On death, it applies a 7.5% IHT charge with a £100,000 cap.
The cost of QROPS
There is great variation between schemes and jurisdictions, and between providers within jurisdictions. However, there are two main models:
A packaged QROPS product with a menu of preapproved investment funds and management houses.
These are available in Guernsey, Isle of Man and New Zealand. Some claim to be fee-free. This is achieved through retrocession commissions which are at best only partially disclosed. In a new era of transparency and commission disclosure, it is hard to see how these schemes will be able to be marketed as such in their current form.
A transparent one-off setup fee and an annual fee, sometimes accompanied by a service-driven fee menu. This is found in all jurisdictions except New Zealand.
Some Isle of Man schemes can appear to be slightly cheaper than Guernsey ones, but the menu approach requires careful comparison. Some Gibraltar schemes seem comparatively expensive but volumes are currently small. Maltese schemes are expected to be priced at Guernsey levels. In New Zealand, where the fund remains in place for the longer term, scheme pricing can involve an annual charge of around 1.65% but no setup charge.
Ease of transfer
A look at both directions of transfer is important because personal circumstances can change. UK schemes give members the right to transfer, while overseas schemes do not. The transfer experience can vary from simple to horrific, although whether that is down to the jurisdiction or the provider is arguable. UK schemes can be freely transferred to any overseas scheme which is registered with HMRC as a QROPS.
QROPS providers in all countries generally deal well with the transfer process, which takes anything from a few weeks to several months. Transfers out of QROPS can be expensive. Some schemes apply seemingly punitive exit fees even though their service may have fallen short.
In addition, some QROPS do not state at outset a freedom to transfer out to QROPS in other jurisdictions, even where such transfers are expressly permitted by local law and by the tax authority of the existing scheme, and the new scheme is able to acceptthe transfer.
Conclusion
So which is the best jurisdiction for QROPS? Gibraltar is regarded as expensive, while the jury on Malta – a brand new entrant to the market – is still out, though it has considerable potential and an excellent double tax treaty network.
New Zealand has the most flexible benefit regime, but distance complicates the transfer process and the fund is taxed in a way which includes exposure to currency risk. The Isle of Man can be relatively low cost, but has an irritating exposure to local taxation which has deterred many potential users.
Guernsey ticks all the right boxes, and has sought HMRC input and guidance to prevent potential abuse by its sizeable community of QROPS providers. Ongoing dialogue with HMRC has benefited its status as arguably the world's leading QROPS jurisdiction.
It seems like an eternity since QROPS became available back in April 2006. Four years on prospective client now have plenty of schemes and jurisdictions from which to choose.
The choice for most people is from schemes operating in jurisdictions which are open to both residents and non-residents.
The main markets for QROPS transfers are:
Guernsey
Isle of Man
Gibraltar
New Zealand
Malta will soon come on stream as well. We have not included Hong Kong as there are only 10 active schemes on the HMRC list and those are mainly occupational ones.
Here we assess these main jurisdictions and consider:
benefit flexibility for members who have been non-UK resident for at least five complete tax years;
investment flexibility;
taxation;
costs;
ease of transfer in and out.
Benefits for life
The key advantage of a QROPS when compared with a UK scheme is not having to buy an annuity by age 75. The jurisdictions on our list allow the fund on death to pass to nominated beneficiaries with no UK inheritance tax (IHT) liability.
Maximising benefit flexibility may require an onward transfer to a non-QROPS mirror scheme. This is possible without tax implications if the QROPS is non-investment regulated.
Most Guernsey QROPS have confirmed non-investment regulated status. Gibraltar, the Isle of Man and New Zealand QROPS, as well as those from Malta, generally meet this condition. Guernsey QROPS may allow access before age 50 (55 from 6 April, 2010) as a loan of up to 25% of the fund. Trustees can allow flexibility through a temporary annuity. Full commutation remains possible where the fund is small.
New Zealand schemes are not subject to the 70% income for life rule because of how they navigate the HMRC QROPS conditions. This allows capital payments from the fund. The lump sum from Isle of Man schemes is up to 30% of the fund. Guernsey (currently restricted to 25%) is expected to match this figure soon. Maltese schemes restrict lump sums to 25%, as do Gibraltar's.
Investment path
All jurisdictions offer investment flexibility. Member directed investment is generally avoided as schemes might otherwise be considered investment regulated with indefinite reporting to HMRC. Some schemes have allowed investment in residential property yet surprisingly still claim they are not investment regulated with no tax charge arising.
For the majority, traditional forms of investment are sufficient. More exotic choices are best delivered in a non-QROPS, such as a Qualifying Non-UK Pension Scheme (QNUPS), having received a transfer value from a QROPS without triggering an unauthorised payments charge after completion of the five-year non-residency period by the scheme member.
Taxation issues
The fund accumulates free of tax (except tax deducted at source on some dividend income) in all countries on our list except New Zealand. Fund taxation rules in New Zealand are complex, and are made on a comparative-value basis or assuming a 5% pa 'fair return', with the calculation of asset valuations required in NZ$. But the government is expected to announce it is exempting pension funds.
Isle of Man schemes deduct local tax on pension income, typically at 18%. This creates issues unless the Isle of Man has a double taxation treaty with the country where the member is resident. For example, a Spanish resident can neither offset nor reclaim Isle of Man tax deducted. On death, it applies a 7.5% IHT charge with a £100,000 cap.
The cost of QROPS
There is great variation between schemes and jurisdictions, and between providers within jurisdictions. However, there are two main models:
A packaged QROPS product with a menu of preapproved investment funds and management houses.
These are available in Guernsey, Isle of Man and New Zealand. Some claim to be fee-free. This is achieved through retrocession commissions which are at best only partially disclosed. In a new era of transparency and commission disclosure, it is hard to see how these schemes will be able to be marketed as such in their current form.
A transparent one-off setup fee and an annual fee, sometimes accompanied by a service-driven fee menu. This is found in all jurisdictions except New Zealand.
Some Isle of Man schemes can appear to be slightly cheaper than Guernsey ones, but the menu approach requires careful comparison. Some Gibraltar schemes seem comparatively expensive but volumes are currently small. Maltese schemes are expected to be priced at Guernsey levels. In New Zealand, where the fund remains in place for the longer term, scheme pricing can involve an annual charge of around 1.65% but no setup charge.
Ease of transfer
A look at both directions of transfer is important because personal circumstances can change. UK schemes give members the right to transfer, while overseas schemes do not. The transfer experience can vary from simple to horrific, although whether that is down to the jurisdiction or the provider is arguable. UK schemes can be freely transferred to any overseas scheme which is registered with HMRC as a QROPS.
QROPS providers in all countries generally deal well with the transfer process, which takes anything from a few weeks to several months. Transfers out of QROPS can be expensive. Some schemes apply seemingly punitive exit fees even though their service may have fallen short.
In addition, some QROPS do not state at outset a freedom to transfer out to QROPS in other jurisdictions, even where such transfers are expressly permitted by local law and by the tax authority of the existing scheme, and the new scheme is able to acceptthe transfer.
Conclusion
So which is the best jurisdiction for QROPS? Gibraltar is regarded as expensive, while the jury on Malta – a brand new entrant to the market – is still out, though it has considerable potential and an excellent double tax treaty network.
New Zealand has the most flexible benefit regime, but distance complicates the transfer process and the fund is taxed in a way which includes exposure to currency risk. The Isle of Man can be relatively low cost, but has an irritating exposure to local taxation which has deterred many potential users.
Guernsey ticks all the right boxes, and has sought HMRC input and guidance to prevent potential abuse by its sizeable community of QROPS providers. Ongoing dialogue with HMRC has benefited its status as arguably the world's leading QROPS jurisdiction.
Friday, 26 March 2010
QROPS Advice: Expats Pension Defeat Highlight Importance of Advice
The defeat for the UK state pensioners in the European Court of Human Rights has highlighted the importance of getting sound financial advice when moving between jurisdictions.
The pensioners had their pensions frozen when they moved abroad and they have not been raised in line with increases for their counterparts in the UK. Financial advice may have averted this situation say advisers such as Blacktower Financial Management’s John Westwood.
“It again emphasises the fact that if people are going to leave the UK they do absolutely need to sit down and take some proper advice, preferably before they leave the UK, on their future and intended retirement planning,” said Westwood.
“So often these things are left and are not properly addressed until it is too late and what we are seeing now is expatriates living throughout Europe who are suffering badly because of sterling versus euro conversion rates. We are seeing hardship and unfortunately this only re-emphasises the point that anyone planning to move abroad must and should seek solid and quality financial advice before they make any decision.”
AES International’s Sam Instone echoes Westwood’s concerns and says although this will not put people off moving abroad in retirement, as this is invariably a lifestyle choice, consumers need to fully understand the different options available to them in different countries.
“People need to understand what benefits they are effectively giving up when they move abroad and how they will be treated by the UK government’s pension and benefit laws in different countries,” said Instone.
“Unfortunately people time and again underestimate how much they will need in their retirement and will often end up, despite starting off living the lifestyle they desire, in fairly dire straits. This is particularly the case when proper financial advice is not taken.”
Westwood also doubts whether this ruling will make people reconsider moving abroad as the decision is usually influenced by other factors rather than just for financial motives.
“I do not think people will reconsider. The decision to move abroad is based on a number of factors and it is not just “how big is my pension going to be” there is a whole catalogue of lifestyle issues that are being considered, including family and of course employment issues,” added Westwood.
“It depends on how the retiree views their time horizons – if they view the move abroad as a permanent move as long-term lifestyle option then they should consider the feasibility of removing the pension fund into an international contract, allowing more flexibility and the ability to match currencies versus income and mitigate certain unwanted taxes as well - for example, a QROPS or that type of plan.”
The pensioners had their pensions frozen when they moved abroad and they have not been raised in line with increases for their counterparts in the UK. Financial advice may have averted this situation say advisers such as Blacktower Financial Management’s John Westwood.
“It again emphasises the fact that if people are going to leave the UK they do absolutely need to sit down and take some proper advice, preferably before they leave the UK, on their future and intended retirement planning,” said Westwood.
“So often these things are left and are not properly addressed until it is too late and what we are seeing now is expatriates living throughout Europe who are suffering badly because of sterling versus euro conversion rates. We are seeing hardship and unfortunately this only re-emphasises the point that anyone planning to move abroad must and should seek solid and quality financial advice before they make any decision.”
AES International’s Sam Instone echoes Westwood’s concerns and says although this will not put people off moving abroad in retirement, as this is invariably a lifestyle choice, consumers need to fully understand the different options available to them in different countries.
“People need to understand what benefits they are effectively giving up when they move abroad and how they will be treated by the UK government’s pension and benefit laws in different countries,” said Instone.
“Unfortunately people time and again underestimate how much they will need in their retirement and will often end up, despite starting off living the lifestyle they desire, in fairly dire straits. This is particularly the case when proper financial advice is not taken.”
Westwood also doubts whether this ruling will make people reconsider moving abroad as the decision is usually influenced by other factors rather than just for financial motives.
“I do not think people will reconsider. The decision to move abroad is based on a number of factors and it is not just “how big is my pension going to be” there is a whole catalogue of lifestyle issues that are being considered, including family and of course employment issues,” added Westwood.
“It depends on how the retiree views their time horizons – if they view the move abroad as a permanent move as long-term lifestyle option then they should consider the feasibility of removing the pension fund into an international contract, allowing more flexibility and the ability to match currencies versus income and mitigate certain unwanted taxes as well - for example, a QROPS or that type of plan.”
QROPS Advice: 4 Million Expats to return to UK
Almost 4million Brits living abroad are planning a mass return to home shores after seeing their savings and income stripped by the plunging values of the pound and their property.
The dramatic slump has slashed their income by a third and has turned Brits into the paupers of Europe.
Fears over job security and falling property prices are also giving expats second thoughts, according to research from foreign exchange specialist Moneycorp.
Some 845,000 Brits living in Spain and France have suffered an 8 per cent drop in house prices in the year to August 2009 alone. This wiped €30,000 off the average property on the Costa del Sol.
Enlarge
Sterling has slumped from over €1.50 to £1 in January 2007 to close to parity, taking a terrible toll on the estimated 5.5million British expats, and particularly the 1.1million pensioners living abroad. Moneycorp research shows that 70 per cent of all expats are now considering returning to the UK.
A retired couple living in Spain, for example, both drawing a full state pension of £95.25 per week, will have seen their combined monthly income - on their pension alone - drop by €396 over three years, from €1,263 to €867.
The warning signs that hundreds of thousands of Brits may be ready to return to the UK started when the credit crunch began in 2008. That year, the number of expats returning home jumped by a fifth on the previous 12 months.
The number of British homeowners downsizing or selling up and sending money back to the UK doubled last year, foreign currency specialist HiFX reports.
It has seen an 180 per cent increase in the number of euro to sterling transactions and an 11 per cent increase in the number of U.S. dollar to sterling transactions in the past six months, compared to last year. More people over 65 than any other age group are repatriating.
More...
• Retirement dream shattered for British OAPs in Australia after court bid for pension hikes is lost
• Hundreds of British expats stage march in Malaga over plans to demolish 'illegal' holiday homes
• Homes abroad: News and advice
• What next for the pound?
Mark Bodega from HiFX says: 'The pound's fall to historic lows in recent months has meant the cost of living or running a holiday home on the continent has risen to unaffordable levels for many people.'
A weak property market is also proving to be a nightmare for many of the estimated 1.5million Brits who own homes abroad. Many are being forced to sell their property at a loss, particularly in countries like Spain.
The weak pound has proved a blessing for those who receive an income in euros, for example from renting a property. Sterling's slump means they will get far more pounds for their euros.
Brennon Nicholas, managing director at estate agency Cluttons Spain says: 'We have seen an increase in the number of people coming to us who are struggling because their pensions and savings do not stretch as far as they used to. They're selling up because of the favourable exchange rate but the market is extremely tough and there is a lack of buyers.'
Pensioners abroad have arguably been hit the hardest as they rely most heavily on their savings and pensions built up in the UK. They've been hit by a declining pound and falling interest rates.
One in five expats claims a sterling pension, with more than a quarter of Brits living in Spain (28 per cent) and a third of British expats in Germany relying on this as their core source of income, according to Moneycorp.
More than half a million pensioners living in Commonwealth countries such as Australia, Canada and New Zealand suffer a further blow because their state pensions don't rise each year in line with inflation.
Only those living in the European Economic Area and countries with reciprocal agreements in place with the UK, such as the U.S. and Jamaica, are protected against inflation. Yesterday, these pensioners lost their fight in the European Court of Human Rights to prove this pension freeze violates anti-discrimination rules.
Tim Finch, head of migration at think tank the Institute for Public Policy Research says: 'The weakness of the pound will mean more people will lose jobs and find it harder to live overseas and come home. This is likely to be a growing trend over the next few years.
'Generally, the big wave of lifestyle emigration where people got their place in the sun for a better life was a reflection of the boom years when you had high house prices and decent pensions.'
"When moving to a foreign country which has a different currency it is very important to consider moving one's savings into the base currency of their new country of residence. This is ensure that income and expenses are in the same currency in order to mitigate the effect of exchange rates, which for British expatriates holding sterling and currently residing in the Euro zone is very marked as their income has reduced significantly given the devaluation of the pound. A QROPS enables British expatriates to move their sterling based pensions outside of the UK and hold the underlying investments in the same currency as that of their new country of residence. This helps mitigate the impact of foreign exchange rates on income and the real value of one's pension."
The dramatic slump has slashed their income by a third and has turned Brits into the paupers of Europe.
Fears over job security and falling property prices are also giving expats second thoughts, according to research from foreign exchange specialist Moneycorp.
Some 845,000 Brits living in Spain and France have suffered an 8 per cent drop in house prices in the year to August 2009 alone. This wiped €30,000 off the average property on the Costa del Sol.
Enlarge
Sterling has slumped from over €1.50 to £1 in January 2007 to close to parity, taking a terrible toll on the estimated 5.5million British expats, and particularly the 1.1million pensioners living abroad. Moneycorp research shows that 70 per cent of all expats are now considering returning to the UK.
A retired couple living in Spain, for example, both drawing a full state pension of £95.25 per week, will have seen their combined monthly income - on their pension alone - drop by €396 over three years, from €1,263 to €867.
The warning signs that hundreds of thousands of Brits may be ready to return to the UK started when the credit crunch began in 2008. That year, the number of expats returning home jumped by a fifth on the previous 12 months.
The number of British homeowners downsizing or selling up and sending money back to the UK doubled last year, foreign currency specialist HiFX reports.
It has seen an 180 per cent increase in the number of euro to sterling transactions and an 11 per cent increase in the number of U.S. dollar to sterling transactions in the past six months, compared to last year. More people over 65 than any other age group are repatriating.
More...
• Retirement dream shattered for British OAPs in Australia after court bid for pension hikes is lost
• Hundreds of British expats stage march in Malaga over plans to demolish 'illegal' holiday homes
• Homes abroad: News and advice
• What next for the pound?
Mark Bodega from HiFX says: 'The pound's fall to historic lows in recent months has meant the cost of living or running a holiday home on the continent has risen to unaffordable levels for many people.'
A weak property market is also proving to be a nightmare for many of the estimated 1.5million Brits who own homes abroad. Many are being forced to sell their property at a loss, particularly in countries like Spain.
The weak pound has proved a blessing for those who receive an income in euros, for example from renting a property. Sterling's slump means they will get far more pounds for their euros.
Brennon Nicholas, managing director at estate agency Cluttons Spain says: 'We have seen an increase in the number of people coming to us who are struggling because their pensions and savings do not stretch as far as they used to. They're selling up because of the favourable exchange rate but the market is extremely tough and there is a lack of buyers.'
Pensioners abroad have arguably been hit the hardest as they rely most heavily on their savings and pensions built up in the UK. They've been hit by a declining pound and falling interest rates.
One in five expats claims a sterling pension, with more than a quarter of Brits living in Spain (28 per cent) and a third of British expats in Germany relying on this as their core source of income, according to Moneycorp.
More than half a million pensioners living in Commonwealth countries such as Australia, Canada and New Zealand suffer a further blow because their state pensions don't rise each year in line with inflation.
Only those living in the European Economic Area and countries with reciprocal agreements in place with the UK, such as the U.S. and Jamaica, are protected against inflation. Yesterday, these pensioners lost their fight in the European Court of Human Rights to prove this pension freeze violates anti-discrimination rules.
Tim Finch, head of migration at think tank the Institute for Public Policy Research says: 'The weakness of the pound will mean more people will lose jobs and find it harder to live overseas and come home. This is likely to be a growing trend over the next few years.
'Generally, the big wave of lifestyle emigration where people got their place in the sun for a better life was a reflection of the boom years when you had high house prices and decent pensions.'
"When moving to a foreign country which has a different currency it is very important to consider moving one's savings into the base currency of their new country of residence. This is ensure that income and expenses are in the same currency in order to mitigate the effect of exchange rates, which for British expatriates holding sterling and currently residing in the Euro zone is very marked as their income has reduced significantly given the devaluation of the pound. A QROPS enables British expatriates to move their sterling based pensions outside of the UK and hold the underlying investments in the same currency as that of their new country of residence. This helps mitigate the impact of foreign exchange rates on income and the real value of one's pension."
Friday, 5 March 2010
Qrops Advice: Malta’s regulator approves two pension schemes
Malta’s regulator has approved two pension schemes, according to a notice on its website. It was not immediately clear whether these schemes are poised to receive approval for transfers of UK pensions.
HM Revenue & Customs recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. As reported by International Adviser, that development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) are eligible for QROPS status.
However, no Malta companies as yet feature on HMRC's list of Qualifying Recognised Overseas Pension Schemes (QROPS), which was last updated on 22 February.
According to the MFSA, the two schemes it has approved are MCT Malta Private Retirement Scheme in St Julians, and Melita International Retirement Scheme Trust of Sliema, an arm of Dublin-based Custom House Group. Custom House is understood to have approved pension administration operations in Malta.
Sandro Bartoli, managing director of Sliema-based Quest Investment Services, a Maltese advisory firm affiliated with Sparkasse Bank, said the announcement of the two schemes’ approval is being welcomed by IFAs and others on the island. He believes Malta’s membership in the EU will be an important selling point.
Qrops Advice on www.qrops-advisers.com or call 0044 (0)1664 444625
http://www.international-adviser.com/article/maltas-regulator-approves-two-pension-schemes?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=147972-IA+05+Mar+10
HM Revenue & Customs recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. As reported by International Adviser, that development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) are eligible for QROPS status.
However, no Malta companies as yet feature on HMRC's list of Qualifying Recognised Overseas Pension Schemes (QROPS), which was last updated on 22 February.
According to the MFSA, the two schemes it has approved are MCT Malta Private Retirement Scheme in St Julians, and Melita International Retirement Scheme Trust of Sliema, an arm of Dublin-based Custom House Group. Custom House is understood to have approved pension administration operations in Malta.
Sandro Bartoli, managing director of Sliema-based Quest Investment Services, a Maltese advisory firm affiliated with Sparkasse Bank, said the announcement of the two schemes’ approval is being welcomed by IFAs and others on the island. He believes Malta’s membership in the EU will be an important selling point.
Qrops Advice on www.qrops-advisers.com or call 0044 (0)1664 444625
http://www.international-adviser.com/article/maltas-regulator-approves-two-pension-schemes?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=147972-IA+05+Mar+10
Friday, 19 February 2010
QROPS Advice: QROPS NEWS:Gaines-Cooper case could prompt migration to QROPS
The collapse of the Robert Gaines-Cooper case could see high net worth individuals flock to Qualifying Recognised Overseas Pension Schemes (QROPS) in a bid to dodge the taxman.
"Multi-millionaire entrepreneur and Seycelles resident Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in England because the country had remained "the centre of gravity of his life and interests", the Court of Appeal ruled in a landmark case this week.
AdvertisementThe decision is being described as the "thin edge of the wedge" for HNW individuals, but they could help protect themselves from HMRC's ire by moving pension assets out of Britain using QROPS.
"UK pensions can be neatly moved to a QROPS scheme and in addition to the many benefits people have over remaining in the UK scheme, for those who have moved abroad there is now the added advantage that it moves a major asset out of the UK," Tim Parkes, director of Carey Pensions and Benefits, says.
Advisers have seen a sharp uptake in interest in QROPS in light of the Gaines-Cooper case.
But specialist QROPS advisers are warning people to beware overseas advisers who make undeliverable promises.
Geraint Davies, managing director of Montfort International, who helped draft guidance on QROPS with the Personal Finance Society (PFS) says: "The facts are you do not have to be a non-UK resident for five years to access QROPS but you do to permanently remove any of the restrictions which exist under UK tax legislation."
"Even then individuals will be subject to the tax regime of the territory of residence and all other areas in which the person has lived."
In addition, he says QROPS are only tax-neutral where the country of residence has been checked by the recommending adviser and there are no tax liabilities levied on unrealised gains or distributions out of the scheme.
"The issue is there is too much advice on QROPS coming from providers and advisers have little experience dealing with the tax regimes of other countries. Plus some unscrupulous overseas advisers are making substantiated claims."
FSA guidelines on QROPS states: "Any adviser who fails to take into account all current material personal circumstances and future plans is failing to treat the customer fairly."
Author: Laura Miller
http://www.ifaonline.co.uk/international-investment/news/1592723/gaines-cooper-prompt-migration-qrops
"Multi-millionaire entrepreneur and Seycelles resident Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in England because the country had remained "the centre of gravity of his life and interests", the Court of Appeal ruled in a landmark case this week.
AdvertisementThe decision is being described as the "thin edge of the wedge" for HNW individuals, but they could help protect themselves from HMRC's ire by moving pension assets out of Britain using QROPS.
"UK pensions can be neatly moved to a QROPS scheme and in addition to the many benefits people have over remaining in the UK scheme, for those who have moved abroad there is now the added advantage that it moves a major asset out of the UK," Tim Parkes, director of Carey Pensions and Benefits, says.
Advisers have seen a sharp uptake in interest in QROPS in light of the Gaines-Cooper case.
But specialist QROPS advisers are warning people to beware overseas advisers who make undeliverable promises.
Geraint Davies, managing director of Montfort International, who helped draft guidance on QROPS with the Personal Finance Society (PFS) says: "The facts are you do not have to be a non-UK resident for five years to access QROPS but you do to permanently remove any of the restrictions which exist under UK tax legislation."
"Even then individuals will be subject to the tax regime of the territory of residence and all other areas in which the person has lived."
In addition, he says QROPS are only tax-neutral where the country of residence has been checked by the recommending adviser and there are no tax liabilities levied on unrealised gains or distributions out of the scheme.
"The issue is there is too much advice on QROPS coming from providers and advisers have little experience dealing with the tax regimes of other countries. Plus some unscrupulous overseas advisers are making substantiated claims."
FSA guidelines on QROPS states: "Any adviser who fails to take into account all current material personal circumstances and future plans is failing to treat the customer fairly."
Author: Laura Miller
http://www.ifaonline.co.uk/international-investment/news/1592723/gaines-cooper-prompt-migration-qrops
Tuesday, 16 February 2010
QROPS Advice: Concerns over NZ's QROPS status quelled
Fears New Zealand may follow Singapore in having its QROPS status removed have been quashed after an agreement was reached between HM Revenue & Customs and the country’s government actuary, according to an industry source.
International Adviser reported last month there were growing fears New Zealand could be stripped of its QROPS status because of concerns over some of its registered schemes.
According to Stephen Ward, managing director of pension transfer experts, Premier Pension Solutions SL, the concerns related to a tax break applicable to employer contributions into a scheme known as Kiwisavers.
Ward says he and a number of other advisers flagged the issue to New Zealand’s Government Actuary and, after discussions with HMRC, the problem has been resolved and members of the scheme informed.
While HMRC would not confirm details on the case in its most recent list of QROPS, published on 8 February this year, the New Zealand Kiwisavers scheme continues to appear.
However, it should be noted HMRC states on the list that ‘publication should not be seen as confirmation by HMRC it has verified all the information supplied by the scheme in its application’.
Ward said: “There has been a lot of misinformed speculation about New Zealand as a QROPS jurisdiction.
“We were involved in alerting the New Zealand authorities of this minor Kiwisavers tax issue and are delighted with the outcome and that any possible uncertainty surrounding using New Zealand schemes has now been clarified once and for all.”
International Adviser reported last month there were growing fears New Zealand could be stripped of its QROPS status because of concerns over some of its registered schemes.
According to Stephen Ward, managing director of pension transfer experts, Premier Pension Solutions SL, the concerns related to a tax break applicable to employer contributions into a scheme known as Kiwisavers.
Ward says he and a number of other advisers flagged the issue to New Zealand’s Government Actuary and, after discussions with HMRC, the problem has been resolved and members of the scheme informed.
While HMRC would not confirm details on the case in its most recent list of QROPS, published on 8 February this year, the New Zealand Kiwisavers scheme continues to appear.
However, it should be noted HMRC states on the list that ‘publication should not be seen as confirmation by HMRC it has verified all the information supplied by the scheme in its application’.
Ward said: “There has been a lot of misinformed speculation about New Zealand as a QROPS jurisdiction.
“We were involved in alerting the New Zealand authorities of this minor Kiwisavers tax issue and are delighted with the outcome and that any possible uncertainty surrounding using New Zealand schemes has now been clarified once and for all.”
Thursday, 11 February 2010
QROPS and Pensions: Retiring Abroad
Deposits, bonds, shares and investment returns - all these will boost your pension plan during your retirement as a British expat.
Rising numbers of people now spend a quarter or even more than a third of their lives in retirement, enjoying what is – quite literally – the holiday of a lifetime.
However, just like any other holiday, you need adequate funds to make the most of it. As the novelist Somerset Maugham observed: “Money is like a sixth sense; without it, you cannot make full use of the other five.”
Planning ahead and seeking specialist advice sooner rather than later will make it much easier for you to achieve your retirement objectives.
For example, the sooner you start to save and invest for retirement, the better the chances are that you will accumulate the large sums of capital needed to provide an adequate income in today’s economic environment of low interest rates.
What’s inside the wrapper?
There is no particular magic to the word pensions - whether they are QROPS, SIPPs or any other sort of retirement savings – they are only a tax-efficient wrapper to hold assets which can deliver income, capital growth or a mixture of both. So, it is vital to consider carefully, in conjunction with your financial adviser, the different risk and reward characteristics of various assets or means of storing wealth.
No single answer will be right for everybody because individual and family circumstances vary so widely, but it is worth considering investment returns from the main asset classes in the past when deciding which components should play some part in your pension portfolio.
For most people, the appropriate advice will be to hold a mixture of different assets, with the proportions varying on the individual or family requirement for security, income or growth and how long they can afford to remain invested.
Deposits: low-risk, low-income
There is no need to take any short-term risk to enjoy the tax advantages of pensions; you can hold all of your contributions in cash deposits. However, while that might be a reasonable, cautious strategy in the final year or two before you intend to retire and draw benefits – because it will protect you from stock market setbacks - it would be wrong to imagine that this option is risk-free.
The explanation is that inflation tends to erode the real value or purchasing power of money over time. Even with today’s low levels of inflation, this is worth considering because, when planning retirement, you may want to protect the purchasing power of your pension decades into the future.
Banks and building societies promise to return your capital in nominal or face value terms; they do not promise to preserve its real value or purchasing power.
Perhaps unsurprisingly, low-risk deposits have tended to provide lower returns than the other two main types of asset which can be held in British pensions.
Bonds: higher-risk, higher income
Large companies issue IOUs to investors called corporate bonds, which usually promise to pay a fixed rate of interest for a fixed period of time before repaying the original sum invested. Countries also issue bonds and those issued by the British Government are called gilt-edged stock or gilts.
Both types of bond usually pay higher interest than deposits but entail a higher degree of risk; for example, bonds are not covered by the £50,000 per person statutory safety net that protects deposits with banks and building societies registered with the Financial Services Compensation Scheme.
By contrast, no bond is any better than its guarantor or the company that issued the bond. As a general rule, the higher the yield – that is, the income paid by a bond expressed as a percentage of the price for which it can be bought – the higher the risk of the bond.
This could be a specific risk – for example, the risk that the bond issuer might default or fail to pay income and/or capital; or it could be market risk – for example, that inflation is expected to rise and erode the real returns from all fixed interest bonds.
Quantitative easing - an economic policy intended to prevent the recession turning into a slump in Britain and elsewhere - increases the risk of inflation, as that is what has happened on previous occasions when governments printed more money to solve current problems.
Shares: high risk in pursuit of high returns
Shares – also known as equities – are higher risk than deposits or bonds, because they make no promises about repaying investors’ capital or income and enjoy no statutory safety net. However, despite recent setbacks, shares have tended to provide higher returns than other asset classes over most periods of five years or more in the past.
That historical fact is set out in the table, Shares versus Bonds and Deposits. Barclays Capital – a subsidiary of the high street bank – measures returns from these different stores of wealth going back to 1899 and updates its analysis annually. Before going on to consider those statistics in detail, it is important to understand that the past is not a guide to the future. Share prices can go down and you may get back less than you invest.
Investment returns: how long have you got?
According to the Barclays Capital Equity Gilt Study 2009, shares broadly reflecting the composition of the London stock market delivered greater returns than bonds or deposits in about three quarters of all the periods of five consecutive years in that sample of more than a century. To be precise, shares beat deposits on 74 per cent of those five-year periods and beat bonds 75 per cent of the time.
However, it can be seen that if the period of investment was shortened to just two consecutive years, the probability of shares doing best fell to nearer two thirds. In other words, there was a one-in-three chance that bonds or deposits would do better. This demonstrates the risk that short-term setbacks can hit share prices and explains why many advisers say shares are only suitable for money you can afford to remain invested for at least five years.
Over longer periods of time, such as 10 consecutive years, the historical probability of shares doing best increased to 92 per cent relative to deposits and 81 per cent compared to bonds.
Diminishing risk by diversification
Many pension savers remain understandably wary of the risks entailed in bonds and shares, despite the fact that bonds generally pay higher interest than deposits today and that shares have tended to deliver higher total returns than either bonds or deposits over the medium to long term in the past.
One way to square that circle is to consider pooled funds which seek to diminish risk by diversification.
These include unit and investment trusts, open-ended investment companies (OEICs) and other managed funds which bring together individual investors’ money to spread these funds over large numbers of underlying shares, bonds and other assets. This should give investors exposure to income and growth from the underlying assets while setting out to reduce their exposure to setbacks or failure at any one company, country or sector of the stock market.
The value of expert advice
In addition to diminishing risk by diversification, pooled funds also enable individual investors to share the cost of professional fund management. In other words, dedicated staff spend their days trying to keep abreast of today’s fast-moving money markets to make the most of your investments while you get on with making a living or enjoying retirement.
However, with more than 2,000 pooled funds authorised to be marketed in the United Kingdom and many more overseas, it is difficult to know which ones to choose. Just as do-it-yourself investment will not suit everybody, with many people preferring to pay professional fund managers, it may make sense to pay a professional financial adviser to recommend appropriate funds – and to make sure your portfolio of pension investments remains appropriate to your changing needs in the years ahead.
Flexible strategies for the future
For the reasons set out earlier, there is no single portfolio that will suit everybody and no substitute for seeking fully authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
This will entail a fact find procedure, where the adviser will seek information about your attitudes to risk and reward as well as other factors such as your requirements for income, growth or a mixture of both.
This may seem a bit of a chore but should enable the adviser to recommend an appropriate asset allocation or financial strategy to suit you. You should not regard this as a decision to file and forget but as a strategy that should be reviewed regularly.
For the reasons set out in the final chapter, it makes sense to choose your financial adviser carefully and to keep in touch with him or her during your retirement.
There is no single portfolio that will suit everybody and no substitute for seeking fully-authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189808/QROPS-and-pensions-retiring-abroad.html
Rising numbers of people now spend a quarter or even more than a third of their lives in retirement, enjoying what is – quite literally – the holiday of a lifetime.
However, just like any other holiday, you need adequate funds to make the most of it. As the novelist Somerset Maugham observed: “Money is like a sixth sense; without it, you cannot make full use of the other five.”
Planning ahead and seeking specialist advice sooner rather than later will make it much easier for you to achieve your retirement objectives.
For example, the sooner you start to save and invest for retirement, the better the chances are that you will accumulate the large sums of capital needed to provide an adequate income in today’s economic environment of low interest rates.
What’s inside the wrapper?
There is no particular magic to the word pensions - whether they are QROPS, SIPPs or any other sort of retirement savings – they are only a tax-efficient wrapper to hold assets which can deliver income, capital growth or a mixture of both. So, it is vital to consider carefully, in conjunction with your financial adviser, the different risk and reward characteristics of various assets or means of storing wealth.
No single answer will be right for everybody because individual and family circumstances vary so widely, but it is worth considering investment returns from the main asset classes in the past when deciding which components should play some part in your pension portfolio.
For most people, the appropriate advice will be to hold a mixture of different assets, with the proportions varying on the individual or family requirement for security, income or growth and how long they can afford to remain invested.
Deposits: low-risk, low-income
There is no need to take any short-term risk to enjoy the tax advantages of pensions; you can hold all of your contributions in cash deposits. However, while that might be a reasonable, cautious strategy in the final year or two before you intend to retire and draw benefits – because it will protect you from stock market setbacks - it would be wrong to imagine that this option is risk-free.
The explanation is that inflation tends to erode the real value or purchasing power of money over time. Even with today’s low levels of inflation, this is worth considering because, when planning retirement, you may want to protect the purchasing power of your pension decades into the future.
Banks and building societies promise to return your capital in nominal or face value terms; they do not promise to preserve its real value or purchasing power.
Perhaps unsurprisingly, low-risk deposits have tended to provide lower returns than the other two main types of asset which can be held in British pensions.
Bonds: higher-risk, higher income
Large companies issue IOUs to investors called corporate bonds, which usually promise to pay a fixed rate of interest for a fixed period of time before repaying the original sum invested. Countries also issue bonds and those issued by the British Government are called gilt-edged stock or gilts.
Both types of bond usually pay higher interest than deposits but entail a higher degree of risk; for example, bonds are not covered by the £50,000 per person statutory safety net that protects deposits with banks and building societies registered with the Financial Services Compensation Scheme.
By contrast, no bond is any better than its guarantor or the company that issued the bond. As a general rule, the higher the yield – that is, the income paid by a bond expressed as a percentage of the price for which it can be bought – the higher the risk of the bond.
This could be a specific risk – for example, the risk that the bond issuer might default or fail to pay income and/or capital; or it could be market risk – for example, that inflation is expected to rise and erode the real returns from all fixed interest bonds.
Quantitative easing - an economic policy intended to prevent the recession turning into a slump in Britain and elsewhere - increases the risk of inflation, as that is what has happened on previous occasions when governments printed more money to solve current problems.
Shares: high risk in pursuit of high returns
Shares – also known as equities – are higher risk than deposits or bonds, because they make no promises about repaying investors’ capital or income and enjoy no statutory safety net. However, despite recent setbacks, shares have tended to provide higher returns than other asset classes over most periods of five years or more in the past.
That historical fact is set out in the table, Shares versus Bonds and Deposits. Barclays Capital – a subsidiary of the high street bank – measures returns from these different stores of wealth going back to 1899 and updates its analysis annually. Before going on to consider those statistics in detail, it is important to understand that the past is not a guide to the future. Share prices can go down and you may get back less than you invest.
Investment returns: how long have you got?
According to the Barclays Capital Equity Gilt Study 2009, shares broadly reflecting the composition of the London stock market delivered greater returns than bonds or deposits in about three quarters of all the periods of five consecutive years in that sample of more than a century. To be precise, shares beat deposits on 74 per cent of those five-year periods and beat bonds 75 per cent of the time.
However, it can be seen that if the period of investment was shortened to just two consecutive years, the probability of shares doing best fell to nearer two thirds. In other words, there was a one-in-three chance that bonds or deposits would do better. This demonstrates the risk that short-term setbacks can hit share prices and explains why many advisers say shares are only suitable for money you can afford to remain invested for at least five years.
Over longer periods of time, such as 10 consecutive years, the historical probability of shares doing best increased to 92 per cent relative to deposits and 81 per cent compared to bonds.
Diminishing risk by diversification
Many pension savers remain understandably wary of the risks entailed in bonds and shares, despite the fact that bonds generally pay higher interest than deposits today and that shares have tended to deliver higher total returns than either bonds or deposits over the medium to long term in the past.
One way to square that circle is to consider pooled funds which seek to diminish risk by diversification.
These include unit and investment trusts, open-ended investment companies (OEICs) and other managed funds which bring together individual investors’ money to spread these funds over large numbers of underlying shares, bonds and other assets. This should give investors exposure to income and growth from the underlying assets while setting out to reduce their exposure to setbacks or failure at any one company, country or sector of the stock market.
The value of expert advice
In addition to diminishing risk by diversification, pooled funds also enable individual investors to share the cost of professional fund management. In other words, dedicated staff spend their days trying to keep abreast of today’s fast-moving money markets to make the most of your investments while you get on with making a living or enjoying retirement.
However, with more than 2,000 pooled funds authorised to be marketed in the United Kingdom and many more overseas, it is difficult to know which ones to choose. Just as do-it-yourself investment will not suit everybody, with many people preferring to pay professional fund managers, it may make sense to pay a professional financial adviser to recommend appropriate funds – and to make sure your portfolio of pension investments remains appropriate to your changing needs in the years ahead.
Flexible strategies for the future
For the reasons set out earlier, there is no single portfolio that will suit everybody and no substitute for seeking fully authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
This will entail a fact find procedure, where the adviser will seek information about your attitudes to risk and reward as well as other factors such as your requirements for income, growth or a mixture of both.
This may seem a bit of a chore but should enable the adviser to recommend an appropriate asset allocation or financial strategy to suit you. You should not regard this as a decision to file and forget but as a strategy that should be reviewed regularly.
For the reasons set out in the final chapter, it makes sense to choose your financial adviser carefully and to keep in touch with him or her during your retirement.
There is no single portfolio that will suit everybody and no substitute for seeking fully-authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189808/QROPS-and-pensions-retiring-abroad.html
QROPS Cyprus
British expats could take their pension plans and enjoy a fantastic quality of life in by retiring in Cyprus.
Like Spain and France, Cyprus is proving a popular destination for Britons retiring overseas, not just because of its weather, low cost of living and membership of the European Union but because it has made its tax structure particularly generous to pensioners.
Each individual pensioner can choose whether to pay a flat rate of five per cent income tax on their worldwide income in excess of a small personal allowance, or to be allowed a larger allowance or tax-free band and then pay tiered rates of tax up to 30 per cent on income in excess of the threshold. There is no Inheritance Tax nor any Wealth Tax in Cyprus.
Under the terms of the UK/Cyprus Double Tax Treaty, all forms of British pension – including Government pensions such as the civil service and local authority schemes –can be paid without deduction of British tax to pensioners who are tax-resident in Cyprus.
Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189590/QROPS-and-pensions-Cyprus.html
Like Spain and France, Cyprus is proving a popular destination for Britons retiring overseas, not just because of its weather, low cost of living and membership of the European Union but because it has made its tax structure particularly generous to pensioners.
Each individual pensioner can choose whether to pay a flat rate of five per cent income tax on their worldwide income in excess of a small personal allowance, or to be allowed a larger allowance or tax-free band and then pay tiered rates of tax up to 30 per cent on income in excess of the threshold. There is no Inheritance Tax nor any Wealth Tax in Cyprus.
Under the terms of the UK/Cyprus Double Tax Treaty, all forms of British pension – including Government pensions such as the civil service and local authority schemes –can be paid without deduction of British tax to pensioners who are tax-resident in Cyprus.
Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189590/QROPS-and-pensions-Cyprus.html
QROPS France
British expats abroad find tax breaks in France can match or exceed those in the UK, after compulsory social charges are taken into account.
However, as in Spain, French fiscal law offers favourable treatment to people with annuities.
So, instead of paying income and social taxes - which can be as high as 51 per cent in total - pensioners can enjoy much lower effective rates of tax on annuity income, depending on their age.
For example, up to 70 per cent of the annuity income can be taken tax-free by annuitants who are 70 years or older; up to 60 per cent can be tax-free for those over 60 and up to 50 per cent can be tax-free for those who are 50 or older. Even annuitants who are aged less than 50 can take 30 per cent of their annuity income tax-free.
However, the complexity of French fiscal law makes it vital to take expert advice from professionals who are fully authorised in that country. For example, wealth tax remains an important consideration but the capitalised value of annuities may be exempt from French wealth tax, provided the fund was set up in the context of a professional – that is, paid – activity and the savings period lasted for more than 15 years.
Pensioners who wish to pass wealth to beneficiaries after their death should also seek professional advice on French Succession Tax.
There are too many important differences between this and Inheritance Tax to tackle here – but also valuable opportunities, such as the usufruct (called usufruit in French) to make tax-effective lifetime gifts, while retaining the right to remain in occupation or receive income.
HM Revenue and Customs (HMRC) renders such gifts with reservation ineffective for IHT avoidance purposes in Britain but they can continue to work in France, demonstrating the importance of people who retire overseas taking locally authorised advice.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189353/QROPS-and-pensions-France.html
However, as in Spain, French fiscal law offers favourable treatment to people with annuities.
So, instead of paying income and social taxes - which can be as high as 51 per cent in total - pensioners can enjoy much lower effective rates of tax on annuity income, depending on their age.
For example, up to 70 per cent of the annuity income can be taken tax-free by annuitants who are 70 years or older; up to 60 per cent can be tax-free for those over 60 and up to 50 per cent can be tax-free for those who are 50 or older. Even annuitants who are aged less than 50 can take 30 per cent of their annuity income tax-free.
However, the complexity of French fiscal law makes it vital to take expert advice from professionals who are fully authorised in that country. For example, wealth tax remains an important consideration but the capitalised value of annuities may be exempt from French wealth tax, provided the fund was set up in the context of a professional – that is, paid – activity and the savings period lasted for more than 15 years.
Pensioners who wish to pass wealth to beneficiaries after their death should also seek professional advice on French Succession Tax.
There are too many important differences between this and Inheritance Tax to tackle here – but also valuable opportunities, such as the usufruct (called usufruit in French) to make tax-effective lifetime gifts, while retaining the right to remain in occupation or receive income.
HM Revenue and Customs (HMRC) renders such gifts with reservation ineffective for IHT avoidance purposes in Britain but they can continue to work in France, demonstrating the importance of people who retire overseas taking locally authorised advice.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189353/QROPS-and-pensions-France.html
QROPS Spain
Brit expats love the better weather and a lower cost of living make Spain the most popular destination for British expats who retire abroad – and it can also provide a tax haven for the well-advised.
Most British pensions can be paid into Spanish bank accounts without deduction of British taxes after you have obtained a certificate to show that you are resident in Spain and paying tax there. This is called a certificado de residencia fiscal NEN – Espana Convenio.
However, British Government service pensions – including civil service and local authority schemes – are important exceptions to that rule; UK tax will always be payable, even after you are resident in Spain. This does not affect NHS pensions and may not include teachers, police and fire brigade pensions; once again, specialist advisers can provide guidance relevant to your individual needs.
International money transfers As a general rule, Spanish fiscal law provides a personal allowance of between 2,600 euro and 4,000 euro before income tax is applied at rates varying between 24 per cent and 43 per cent on income above the allowance. However, where a personal pension is used to buy a whole of life annuity – known as a renta vitalicia – then much lower rates of tax may apply.
Unfortunately, unless you are in QROPS, the annuity is limited to sterling; and so you are at risk of it losing its local purchasing power in future if the pound continues to lose value compared to the euro.
For example, someone aged between 60 and 65 years old who received 25,000 euro a year from an annuity might only pay 18 per cent tax on 24 per cent of the income.
That could produce a tax bill of just 1,080 euro or an effective tax rate of just 4.32 per cent. Once again, it is worth repeating that it is vital to seek fully authorised pensions advice to steer clear of the potential pitfalls and make the most of the legal opportunities overseas.
Other factors that might be considered include tax-efficient trusts and new opportunities created by the 100 per cent exemption of wealth tax in Spain since the start of 2008. However, it is important to note that wealth tax has not been abolished; the Spanish government could recommence these charges simply by reducing or eliminating the new exemption.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189169/QROPS-and-pensions-Spain.html
Most British pensions can be paid into Spanish bank accounts without deduction of British taxes after you have obtained a certificate to show that you are resident in Spain and paying tax there. This is called a certificado de residencia fiscal NEN – Espana Convenio.
However, British Government service pensions – including civil service and local authority schemes – are important exceptions to that rule; UK tax will always be payable, even after you are resident in Spain. This does not affect NHS pensions and may not include teachers, police and fire brigade pensions; once again, specialist advisers can provide guidance relevant to your individual needs.
International money transfers As a general rule, Spanish fiscal law provides a personal allowance of between 2,600 euro and 4,000 euro before income tax is applied at rates varying between 24 per cent and 43 per cent on income above the allowance. However, where a personal pension is used to buy a whole of life annuity – known as a renta vitalicia – then much lower rates of tax may apply.
Unfortunately, unless you are in QROPS, the annuity is limited to sterling; and so you are at risk of it losing its local purchasing power in future if the pound continues to lose value compared to the euro.
For example, someone aged between 60 and 65 years old who received 25,000 euro a year from an annuity might only pay 18 per cent tax on 24 per cent of the income.
That could produce a tax bill of just 1,080 euro or an effective tax rate of just 4.32 per cent. Once again, it is worth repeating that it is vital to seek fully authorised pensions advice to steer clear of the potential pitfalls and make the most of the legal opportunities overseas.
Other factors that might be considered include tax-efficient trusts and new opportunities created by the 100 per cent exemption of wealth tax in Spain since the start of 2008. However, it is important to note that wealth tax has not been abolished; the Spanish government could recommence these charges simply by reducing or eliminating the new exemption.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189169/QROPS-and-pensions-Spain.html
QROPS Advice: Advice for expats
British expats abroad can now get more control over their pensions plans, thanks to new rules that remove many restrictions for people who retire overseas.
They can pay lower tax on income drawn from a relatively new form of pension, avoid being forced to invest capital in an annuity which dies with the purchaser and pass their wealth to friends and family free of tax on death.
Needless to say, these important new opportunities are subject to extensive legislation, which will be discussed in detail later. However, the important point for now is that a Qualifying Recognised Overseas Pension Scheme (QROPS) can enable savers to enjoy the best of both worlds.
Portugal You can receive valuable tax reliefs while working and saving toward retirement in the United Kingdom, without needing to pay higher taxes when you draw benefits or submit to UK restrictions on how you invest and spend the fund.
What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?
As its name suggests, this is a form of pension based outside the UK which is recognised by the British authorities as being eligible to receive transfers from registered UK pension funds. Reputable advisers will only recommend transfers to countries which provide consumer protection equivalent or greater than the safeguards in the UK.
People who are living inside or outside the UK can transfer their deferred company and personal pensions to a QROPS. Any pension can be transferred as long as an annuity has not been purchased or, if it’s a final salary scheme, that the pension has not commenced.
Better still, where the pensioner has not been resident in the UK for five complete and consecutive fiscal years – and the tax rules determining residence will be examined in detail later in this guide – HMRC restrictions on how income and capital are spent no longer apply.
For example, as set out in Clause 2 Schedule 34 of the Finance Act 2004, there is no need to report what HMRC would regard as “unauthorised payments” and tax of up to 82 per cent that might be levied on such payments in the UK can be avoided. However, it is important to understand this does not mean trust busting is acceptable.
Who might benefit from considering a QROPS?
Anyone considering retiring overseas and becoming resident in a foreign jurisdiction or country for five years or more. The amount of tax you pay on income and capital received from your QROPS will be determined by the taxation of the country in which it is based and you are resident.
These laws or fiscal statutes vary from country to country but many are more favourable to pensioners than those in the UK.
For example, pensioners resident in Cyprus can opt to pay a fixed flat rate of five per cent tax on all income above a small tax-free band or personal allowance; alternatively, they can choose to receive a higher personal allowance and pay higher rates of income tax on any income in excess of the allowance.
The best option for you will depend on your personal circumstances and it makes sense to take professional advice which can take account of your individual needs and objectives.
British pensions that can be transferred to a QROPS include former employers’ occupational schemes (but not final salary or defined benefit schemes already in payment); Superannuation Schemes; Executive Pension Schemes; Self Invested Personal Pension Schemes (SIPPSs); Small Self Administered Schemes (SSASs); Section 226 Personal Pension Schemes; Section 32 Pension Transfers and Personal Pensions.
You cannot transfer British Government or State pensions to a QROPS.
Do I need to leave the UK forever to benefit from QROPS?
No. Rising numbers of people who decide to retire overseas – perhaps to enjoy better weather and a lower cost of living – can take advantage of a QROPS. You can continue to visit friends and family or return to Britain for any reason, provided you remain a non tax resident of the UK. So, you could return to the UK whenever you wish but the maximum length of time you can spend in Britain will be limited before UK taxes apply.
For example, you must beware of the six-month rule and the three-month average rule to avoid becoming resident in the UK again for tax purposes and losing the advantages of QROPS.
If you are present in the UK for 183 days or more in any tax year – which starts on April 6 and ends on April 5 – or you are present in the UK for an average of 91 days or more per annum, measured over up to four years, then you may become resident in the UK for tax purposes.
But be careful because, these days, rules are not the law. It is possible to remain a UK tax resident even if you spend less than 90 days in the UK, so it makes sense to take advice that is specific to your individual circumstances in this very tricky area.
Since April 6 2008, if an individual is present in the UK at midnight, that counts as one day’s residence. In practice, days of arrival in the UK are counted but days of departure are discounted. Where an individual arrives and departs on the same day, this will not count as a day’s residence for tax purposes.
Are QROPS suitable for everyone?
No. Most British pensioners retire as UK residents and so must pay UK tax. There is no statutory limit on the minimum value of pensions that can be transferred to a QROPS but only funds worth more than £100,000 are likely to generate sufficient tax savings to justify set-up costs, which vary between one per cent and five per cent of the fund transferred.
Pensioners who have plans or policies with Guaranteed Annuity Rates (GARs) higher than returns available today, may also find QROPS do not justify giving up their GARs. As mentioned earlier, Government pensions – excluding the National Health Service scheme - British State pensions and final salary or defined benefit pensions already in payment cannot be transferred to QROPS.
Why it makes sense to take specialist advice
Given the complexity and variety of different countries’ tax laws, this guide can only serve as a general introduction to the new opportunities created by QROPS. Specialist financial advisers, who are authorised in the UK and the country to which you intend to retire, can answer questions specific to your individual circumstances.
Remember that the fundamental purpose of a pension is to provide retirement income. So, it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital. For these reasons, it makes sense to consult fully-authorised, specialist advisers before making any decisions about QROPS.
But the first step for most people will be to build up the maximum pension they can within the UK’s tax rules, and this is the subject of the next chapter.
Remember that the fundamental purpose of a pension is to provide retirement income. So it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188812/QROPS-and-pensions-advice-for-expats.html
They can pay lower tax on income drawn from a relatively new form of pension, avoid being forced to invest capital in an annuity which dies with the purchaser and pass their wealth to friends and family free of tax on death.
Needless to say, these important new opportunities are subject to extensive legislation, which will be discussed in detail later. However, the important point for now is that a Qualifying Recognised Overseas Pension Scheme (QROPS) can enable savers to enjoy the best of both worlds.
Portugal You can receive valuable tax reliefs while working and saving toward retirement in the United Kingdom, without needing to pay higher taxes when you draw benefits or submit to UK restrictions on how you invest and spend the fund.
What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?
As its name suggests, this is a form of pension based outside the UK which is recognised by the British authorities as being eligible to receive transfers from registered UK pension funds. Reputable advisers will only recommend transfers to countries which provide consumer protection equivalent or greater than the safeguards in the UK.
People who are living inside or outside the UK can transfer their deferred company and personal pensions to a QROPS. Any pension can be transferred as long as an annuity has not been purchased or, if it’s a final salary scheme, that the pension has not commenced.
Better still, where the pensioner has not been resident in the UK for five complete and consecutive fiscal years – and the tax rules determining residence will be examined in detail later in this guide – HMRC restrictions on how income and capital are spent no longer apply.
For example, as set out in Clause 2 Schedule 34 of the Finance Act 2004, there is no need to report what HMRC would regard as “unauthorised payments” and tax of up to 82 per cent that might be levied on such payments in the UK can be avoided. However, it is important to understand this does not mean trust busting is acceptable.
Who might benefit from considering a QROPS?
Anyone considering retiring overseas and becoming resident in a foreign jurisdiction or country for five years or more. The amount of tax you pay on income and capital received from your QROPS will be determined by the taxation of the country in which it is based and you are resident.
These laws or fiscal statutes vary from country to country but many are more favourable to pensioners than those in the UK.
For example, pensioners resident in Cyprus can opt to pay a fixed flat rate of five per cent tax on all income above a small tax-free band or personal allowance; alternatively, they can choose to receive a higher personal allowance and pay higher rates of income tax on any income in excess of the allowance.
The best option for you will depend on your personal circumstances and it makes sense to take professional advice which can take account of your individual needs and objectives.
British pensions that can be transferred to a QROPS include former employers’ occupational schemes (but not final salary or defined benefit schemes already in payment); Superannuation Schemes; Executive Pension Schemes; Self Invested Personal Pension Schemes (SIPPSs); Small Self Administered Schemes (SSASs); Section 226 Personal Pension Schemes; Section 32 Pension Transfers and Personal Pensions.
You cannot transfer British Government or State pensions to a QROPS.
Do I need to leave the UK forever to benefit from QROPS?
No. Rising numbers of people who decide to retire overseas – perhaps to enjoy better weather and a lower cost of living – can take advantage of a QROPS. You can continue to visit friends and family or return to Britain for any reason, provided you remain a non tax resident of the UK. So, you could return to the UK whenever you wish but the maximum length of time you can spend in Britain will be limited before UK taxes apply.
For example, you must beware of the six-month rule and the three-month average rule to avoid becoming resident in the UK again for tax purposes and losing the advantages of QROPS.
If you are present in the UK for 183 days or more in any tax year – which starts on April 6 and ends on April 5 – or you are present in the UK for an average of 91 days or more per annum, measured over up to four years, then you may become resident in the UK for tax purposes.
But be careful because, these days, rules are not the law. It is possible to remain a UK tax resident even if you spend less than 90 days in the UK, so it makes sense to take advice that is specific to your individual circumstances in this very tricky area.
Since April 6 2008, if an individual is present in the UK at midnight, that counts as one day’s residence. In practice, days of arrival in the UK are counted but days of departure are discounted. Where an individual arrives and departs on the same day, this will not count as a day’s residence for tax purposes.
Are QROPS suitable for everyone?
No. Most British pensioners retire as UK residents and so must pay UK tax. There is no statutory limit on the minimum value of pensions that can be transferred to a QROPS but only funds worth more than £100,000 are likely to generate sufficient tax savings to justify set-up costs, which vary between one per cent and five per cent of the fund transferred.
Pensioners who have plans or policies with Guaranteed Annuity Rates (GARs) higher than returns available today, may also find QROPS do not justify giving up their GARs. As mentioned earlier, Government pensions – excluding the National Health Service scheme - British State pensions and final salary or defined benefit pensions already in payment cannot be transferred to QROPS.
Why it makes sense to take specialist advice
Given the complexity and variety of different countries’ tax laws, this guide can only serve as a general introduction to the new opportunities created by QROPS. Specialist financial advisers, who are authorised in the UK and the country to which you intend to retire, can answer questions specific to your individual circumstances.
Remember that the fundamental purpose of a pension is to provide retirement income. So, it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital. For these reasons, it makes sense to consult fully-authorised, specialist advisers before making any decisions about QROPS.
But the first step for most people will be to build up the maximum pension they can within the UK’s tax rules, and this is the subject of the next chapter.
Remember that the fundamental purpose of a pension is to provide retirement income. So it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188812/QROPS-and-pensions-advice-for-expats.html
QROPS Advice: Beware Global Grasp of IHT
Beware global grasp of IHT
IHT is assessed on the worldwide assets of people domiciled in the UK, including foreign countries where there are no or low death duties. You could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death.
For this reason, specialist advisers will often recommend that you consider selling your UK home and other British property when transferring to a QROPS. However, it will also be important to consider ways of preserving the real value or purchasing power of your pension overseas – before and after you draw benefits from your retirement fund - and these are the subjects of the next chapter.
Many countries overseas impose lower taxes on pensions than the United Kingdom and allow pensioners more choice about how they spend their savings. Quicker and cheaper international travel also makes it easier to consider retiring abroad while retaining the ability to return to the UK if you wish to do so.
QROPS enable pension savers who have left or intend to leave the UK and become non-resident in the UK for tax purposes, to enjoy the best of both worlds. They can take their retirement savings with them to a lower-tax jurisdiction and obtain greater freedom about how they spend or invest their savings than would be the case in the UK.
For example, after transferring to QROPS a pensioner who has been non-resident in the UK for at least five full tax years, could use their pension fund to buy residential property as an asset for their QROPS – and, it is worth pointing out, residential property is a form of asset which cannot usually be held within British pensions. You do not have to buy an annuity, you can have your fund in sterling or any currency and avoid up to 82 per cent tax against the fund imposed in the UK. The entire fund can be left tax-free to benefit your heirs.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188890/QROPS-and-pensions-before-you-go.html
IHT is assessed on the worldwide assets of people domiciled in the UK, including foreign countries where there are no or low death duties. You could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death.
For this reason, specialist advisers will often recommend that you consider selling your UK home and other British property when transferring to a QROPS. However, it will also be important to consider ways of preserving the real value or purchasing power of your pension overseas – before and after you draw benefits from your retirement fund - and these are the subjects of the next chapter.
Many countries overseas impose lower taxes on pensions than the United Kingdom and allow pensioners more choice about how they spend their savings. Quicker and cheaper international travel also makes it easier to consider retiring abroad while retaining the ability to return to the UK if you wish to do so.
QROPS enable pension savers who have left or intend to leave the UK and become non-resident in the UK for tax purposes, to enjoy the best of both worlds. They can take their retirement savings with them to a lower-tax jurisdiction and obtain greater freedom about how they spend or invest their savings than would be the case in the UK.
For example, after transferring to QROPS a pensioner who has been non-resident in the UK for at least five full tax years, could use their pension fund to buy residential property as an asset for their QROPS – and, it is worth pointing out, residential property is a form of asset which cannot usually be held within British pensions. You do not have to buy an annuity, you can have your fund in sterling or any currency and avoid up to 82 per cent tax against the fund imposed in the UK. The entire fund can be left tax-free to benefit your heirs.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7188890/QROPS-and-pensions-before-you-go.html
Tuesday, 9 February 2010
Why HMRC will not be happy bunnies this year
QROPS are very much in the news at the moment. Recent newspaper articles have screamed at readers “Take your money and run” (The Telegraph) and “Get your money out of Britain” (Sunday Times). Much to the annoyance of HMRC, it seems people are doing just that. Recently released figures showed there was a 154% increase in transfers to QROPS in the 2007/08 tax year compared to the year before, while
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive.
Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC
– quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive.
Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC
– quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
QROPS Advice: QROPS very much in the News
QROPS are very much in the news at the moment. Recent newspaper articles have screamed at readers “Take your money and run” (The Telegraph) and “Get your money out of Britain” (Sunday Times). Much to the annoyanceof HMRC, it seems people
are doing just that. Recently released figures showed there was a 154% increase
in transfers to QROPS in the 2007/08 tax year compared to the year before, while
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or
pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive. Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC – quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
are doing just that. Recently released figures showed there was a 154% increase
in transfers to QROPS in the 2007/08 tax year compared to the year before, while
uptake of new QROPS was said to have doubled in the last three months of 2009.
HMRC, which has already penalised pension rules abusers and closed down Singapore as a QROPS jurisdiction for misrepresentation, will not be amused by the headlines or
pleased by the growth of a market that diverts revenue from government coffers.
Regardless, for the right person in the right place QROPS are highly attractive. Since April 2006 it has been possible, providing you have been non-resident for five years, to:
■ receive your pension free of tax (dependent on where you transfer it to);
■ avoid purchasing annuities;
■ avoid an Alternatively Secured Pension at 75, resulting in losing 82% of fund in taxes on death;
■ unlimited fund size;
■ pass on to your beneficiaries the balance tax-free.
But to continue to enjoy such benefits, more respect needs to be given to HMRC – quite simply, do not abuse the rules and do not delay making a transfer. Pension legislation changes like the breeze, and all the current inflammatory press attention
could bring an ill wind sooner than you think.
QROPS Advice: Equity Trust challenges QROPS decision
Equity Trust, trustee of the Panthera ROSIIP pension fund, is taking the UK tax authority to court to challenge the removal of Singapore’s QROPS status in May 2008.
The trust company, which established Panthera in a joint venture with Credit Suisse subsidiary Clariden Leu, said it has tried to come to a mutual agree-ment with HMRC over the future status of the scheme but has so far failed. In a letter to policyholders dated 20 January, Equity Trust said it issued a letter to HMRC under the ‘Pre action Protocol’ within the Civil Procedure Rules in December but received
no response. It has subsequently made an application to the UK’s High Court for ROSIIP to be restored to QROPS status.
The letter from Equity Trust director Fredrik van Tuyll also said ROSIIP had always been managed within QROPS legislation. The reasons for the decision to bar Singapore have never been fully explained due to the Revenue’s silence on the matter. Industry
sources suggested at the time the problem could lie with Singapore’s taxation of pensions, rather than a single scheme’s actions.
BY SIMON DANAHER
The trust company, which established Panthera in a joint venture with Credit Suisse subsidiary Clariden Leu, said it has tried to come to a mutual agree-ment with HMRC over the future status of the scheme but has so far failed. In a letter to policyholders dated 20 January, Equity Trust said it issued a letter to HMRC under the ‘Pre action Protocol’ within the Civil Procedure Rules in December but received
no response. It has subsequently made an application to the UK’s High Court for ROSIIP to be restored to QROPS status.
The letter from Equity Trust director Fredrik van Tuyll also said ROSIIP had always been managed within QROPS legislation. The reasons for the decision to bar Singapore have never been fully explained due to the Revenue’s silence on the matter. Industry
sources suggested at the time the problem could lie with Singapore’s taxation of pensions, rather than a single scheme’s actions.
BY SIMON DANAHER
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