Sunday, 29 June 2014

All about QROPS

One of the things I get asked about many times is QROPS (Qualified Recognised Overseas Pension Schemes). I will summarise how these work below:

QROPS are tax-effective pensions for British expats or international workers with UK pension rights who have decided to live away from the UK permanently or those looking at their retirement options should they move abroad.
QROPS are often called ‘offshore’ pensions because the providers work from financial centres outside the UK, as opposed to ‘onshore’ pensions which are UK based.

Lump sum flexibility

Most UK pensions limit the cash lump sum available to 25% of any pension fund value, but many QROPS can stretch that to 30%, providing the scheme keeps 70% of the original transfer pot to provide a retirement income.

Income flexibility

UK pension providers use GAD tables to calculate the amount available. GAD is short for the British government actuary’s department, who are the team of boffins who work out payment rates.
The amount of drawdown or income paid depends on personal factors, like life expectancy, financial goals and investment performance. This is calculated by the trustees running the schemes. The calculation used is determined by the laws and rules in that jurisdiction.
For example, Isle of Man QROPS pay the equivalent of around 155% of UK GAD,, but Malta QROPS and New Zealand QROPS set levels similar to UK GAD.

Estate and succession planning

Any funds left in a QROPS on the death of the investor can be passed on tax-free to the beneficiaries of the estate, providing they live outside the UK.

Income tax on payments

If you live in the same country where your QROPS is based, payments will be taxed according to local rules.
If you live in a separate country to where your QROPS is based, tax depends on whether the country where you live and the country where your QROPS sits has a tax treaty.
If they do, there may be some tax breaks available to you.

Beating exchange rate fluctuations

A UK pension can only pay out in Sterling, regardless of the currency of the country where you live, so you face complicated timing issues to make the best of ever changing currency rates.
However, a QROPS can invest and pay out in most currencies, reducing exchange rate fluctuations and avoiding the hassle of timing transfers to get the best rate.

Investment selection and management

QROPS offer a range of options to suit your investment preferences and attitude to risk – from self-managed funds to managed investments.
The range of investments is much broader than in an onshore pension, offering more currencies, commodities, offshore bonds and access to international markets.

Portability and convenience

QROPS are designed to cater for expats and international workers with a mobile, international lifestyle.
You can base a QROPS in one country and move between others without affecting the underlying investments.

For more information relating to your circumstances contact me below.

Have a great day,

Andrew Lumley-Holmes

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