In the first article in this short series, we outlined a little of the background to the UK government’s decision to permit pension fund transfers out of the UK to overseas arrangements in certain circumstances. We also had a brief look at what exactly a QROPS was.
In this article we will look briefly at why an expat may choose to move their funds out of the UK into a QROPS.
Protect your interests!
There is no apology here for stating again that if you’re considering what to do with your pension funds then you MUST consult a qualified and registered expert. Any article of this nature must of necessity be summarised and non-specific. Your circumstances will be individual to you, so do not make decisions based exclusively upon this article or any of a similar nature.QROPS as 'Final Disengagement'
Although not exactly a financial or logistical justification, many expats feel more comfortable with their financial affairs fully consolidated into one place and preferably their new home country. If one is fully integrated into the employment, taxation and social schemes of the country you’re living in, then there is a certain logic and rationale behind pulling your pension over into that country as well.
This can also make tax and social security reporting easier. It is a fact that in many countries people receiving benefits from an overseas pension can confuse local tax and social security reporting systems. Some overseas accountants can look at a UK pensions benefit statement with an expression on their face clearly readable as «what on earth am I meant to do with this?»
Of course you’re not likely to want to move your pension fund just to make life easier for your accountant at some time in the future, but it is worth remembering also that their fees to you will be related to the complexity of your affairs.
Making Sense of Currencies
Another big advantage of moving funds to a QROPS is that it can insulate you from negative currency shifts. As an example, over a roughly five-year period from 2003, Sterling has declined in value against the Euro by around 17-18%. This means that any UK expat in the Euro zone obtaining their pension income in Sterling has found that it is buying them nearly 20% fewer euros than it was a few years ago.
If your pension funds are invested in your new country then your growth and income will be generated in the local currency. This could insulate you somewhat from these currency variations.
Remember though that this is a double-edged sword. Currency swings can work in your favour if Sterling increases in strength. In addition, some negative movements in currency against you can be more than offset if your fund performance in the UK is consistently stronger than that of local funds in your new country. Inevitably there is an element of gambling when one starts to think about currency fluctuations and comparing fund performances is never easy even within a country – trying to asses performance between funds in different countries is VERY complicated so be sure to take expert advice.
Accessing Funds
In the first article of this series we highlighted that the UK is one of those countries that has very strict rules and regulations relating to accessing your pension funds for purposes other than the drawing-down your pension at retirement age.
Some other countries are less strict in this respect. Some, for example, offer the possibility to access and utilise almost the entire fund prior to retirement age providing certain conditions are met.
If you have money tied up that you wish to have more flexible access to in future, then transferring into a QROPS may give you more freedom. You will need to check the details of your local schemes and national laws to be sure of this beforehand.
The legislation also gives you freedom to move the funds wherever you choose. If you are living in say Spain and find that Spanish pension funds are too limited for your needs, you could transfer the funds to any other country which provides pension offerings and QROPS that are more to your requirements. If you living in Spain, you could move your funds to a QROPS in say New Zealand. This is perfectly permissible under the scheme.
Taxation & Death
Not exactly a cheerful heading! Even so, these are things one has to think about.
Depending upon your personal circumstances, it may be that there are very good tax and death related reasons for opting to move your funds to a QROPS and give yourself a greater degree of freedom over the utilisation of the funds.
In the UK, it may be possible to take up to 25% of your non-state pension savings tax-free at the age of 50 – this will rise to age 55 from 2010. This means that allowing for certain variables, there is a fair chance that you’ll need to live to the age of 75 or 80 to get the remaining 75% paid to you in monthly pension income.
When thinking about this, one has to keep in mind that the official figures for 2001 show that the average age at death of a male in England and Wales was 73.
On that basis, it is a sad fact that for many males there is the reality that they are never going to be able to get out of the scheme what they’ve paid into it over many years. Of course this again is a complex area and, for example many pension schemes will continue to pay some benefits to a surviving spouse. Some may pay amounts to surviving children if under 18.
Nevertheless, it is perfectly possible that if both parties die at a slightly earlier age then monies they’ve worked hard to save over years into their pension scheme will effectively be ‘lost’.
This is not the case with some QROPS where the funds are protected and inheritable by surviving children.
Furthermore, some QROPS will have significant tax-free advantages to you via lump-sum payments.
It may well be, depending upon your personal circumstances, that it will be financially advantageous for you to move your pension fund into a QROPS that offers easier access and tax-free withdrawals plus the transfer of balances to your family in the event of your death.
This may or may not be a good idea depending upon your situation, but if the funds are left in a UK scheme then you will not have the freedom to assess your situation and take the decision that is right for you and your family.
Next Steps
Inevitably where money is concerned, moving your funds from the UK into a QROPS isn’t just a question of a quick phone call. There will be form filling and delays and there are certain ‘qualification’ issues to be aware of. In the next article in this series we will look at the principles of eligibility, how to go about applying for the move, and some of the qualifying issues.
For advice, please use our QROPS UK pension transfer enquiry form.