EXPAT PENSION ADVICE
Although you may be enjoying a high salary as an expat, in many countries a pension scheme is not a statutory requirement. As a result, it will be important to ensure you have a robust pension plan in place.
It’s also worth noting that expat employment situations are often changeable, and in the future you may face a relocation, return to the UK or other circumstances out of your control. Even if you have a pension scheme with your employer, any changes to your role can result in your pension being affected, which can be a complex situation to manage whilst overseas.
Thankfully there are a range of specific expat pensions designed to help expatriates have more control and flexibility of their retirement planning. These schemes are notably different from UK private pension schemes. An expat pension often has no minimum age to draw income and entire asset withdrawals in cash is also an option.
TRANSFERRING A UK PENSION
Until 2006 if you lived in the UK with a UK pension, and moved abroad, your options to ‘port’ that scheme into an expat pension was virtually impossible. Typically, if you became an expatriate, your pension schemes would have been frozen, meaning no more contributions were possible.
In April 2006, the UK Government introduced new legislation, to help British expats have more control over their pensions when moving overseas. This legislation introduced an expat pension option known as QROPS, or Qualifying Recognised Overseas Pension Scheme.
A QROPS allows you to move your UK pension into a permitted overseas scheme, allowing for greater investment freedom and an opportunity to minimise your tax liability, depending on your own circumstances. Moving your pension into a QROPS is an important decision and it’s advisable to consider your options and seek advice from an expat pension expert.
Your UK pension is likely to fall into one of two types:
- Defined contribution scheme – a pension pot based on how much is paid in;
- Defined benefit scheme – which provides a guaranteed pension on retirement.
If you have a defined benefit pension scheme or ‘safeguarded rights’ worth more than £30,000, you are required by law to seek financial advice from a qualified adviser before transferring to a QROPS.
PENSION PLANNING WHEN MOVING OVERSEAS PERMANENTLY
If you are moving away from the UK permanently, transferring your pension into an international pension scheme may be suitable. In some cases, a QROPS will help you avoid some of the restrictions associated with living overseas and maintaining a UK pension. Typically, the most useful benefit when switching to an international pension plan is increased tax benefits, as you only pay the tax, if any, applicable in your chosen country of residence.
QROPS AND TAX PLANNING
If a QROPS is suitable for you it may help improve your tax planning opportunities.
Due to the structure of many UK schemes, pensions are often only used as part of the retirement planning process. A QROPS can offer greater investment freedom and an opportunity to minimise your tax liability, depending on your own circumstances. Generally, some of the benefits of a QROPS pension include:
- Tax-free lump sum of up to 30%
- The ability to have your income taxed in your country of residence, which may have lower tax rates
- Potential to pay no Income Tax charge in the event of death
- Access to a large range of global investment funds
- Ability to consolidate multiple historic pensions
- No charge on lifetime allowance; the amount you can save tax-free into your pension
- The ability to leave your pension to a beneficiary of your choice
- Access to pension benefits from age 55 without penalty
- Payments in any major currency, thereby eliminating the impact of exchange rates
While these obvious benefits may make the decision to switch to a QROPS scheme seem an easy one, it’s important to seek expert pension advice. A specialist can help you analyse your situation and determine if it is in your best interests to move your expat pension to a QROPS.
You should also bear in mind that QROPS rules changed in 2017, introducing a 25% transfer tax charge unless you and the new scheme are in the same jurisdiction or, your employer is multi-national and already takes part in the QROPS scheme to which you are transferring. Setting up a QROPS also triggers an automatic 10-year reporting requirement to the UK tax authorities.
It’s vital to work with a registered QROPS provider and get the right advice before transferring an expat pension so that you fully understand all of the implications.
WORKING WITH THE FRY GROUP
Dealing with expat pensions can be a complex process, especially if you are trying to relocate your career, family and life overseas. Our team of financial planners have many years of experience in dealing with expat pensions, tax and retirement.
To discuss your plans in more detail please contact your nearest office.