Wednesday, 10 December 2014

Is QROPS really the right choice for my UK pension?



As you are probably aware there have been a lot of changes to the UK pensions legislation throughout 2014-2015. The proposed changes to UK pensions and changes already made, such as removing the requirement to buy an annuity and the removal of the 55% "death tax", means that QROPS (Qualifying recognized overseas pension scheme) could have lost some of their appeal for clients compared to a UK based pension such as a SIPP (Self invested personal pension).

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A QROPS and a SIPP are very similar, even more so than ever, however, for people residing outside the UK, in particular those intending not to return and expats with large (£1m +) UK pensions, a QROPS can still offer some advantages over a SIPP.

Below are the key questions that a client should consider when discussing their UK pensions and particularly when deciding between QROPS and SIPPs. It should help you to understand the key differences in a simple format.

As always, pensions are a very complex area and before you make a decision about any financial product you should seek independent advice. Ideally try to find an adviser who is FCA regulated in the UK and actually able to recommend a SIPP.


QROPS vs SIPP: The basics



QROPS vs SIPP: Income options

* this will change significantly from April 2015 with the full pension pot allowed to be taken at retirement age, however the tax free portion allowed to be taken will remain the same as the 'before retirement' information above.


QROPS vs SIPP: What happens when you die

* It should be noted that after the age of 75 tax may still apply at death depending on other circumstances


So ....... QROPS or SIPP??

Due to the announced UK pension reforms and existing UK pension changes, the differences between QROPS and SIPPS are now much smaller thus making the decision between a QROPS and a SIPP even more difficult. If you are not resident in the UK you have probably considered a QROPS but beware of the quality of advice you are geting while offshore. Remember that not all financial advisers are qualified or able to recommend a SIPP and will try to push a QROPS on the client whether suitable or not.

If you intend to stay offshore and never return to the UK it may be that a QROPS is still the best choice and especially if there is a risk that your pension may exceed the lifetime allowance before your retirement date as there are still big tax differences for large pensions (over GBP 1 million) which brings several other considerations into play. When leaving your fund in the UK you are also more at risk of future legislation changes.

As always, if you need to speak with a qualified, regulated adviser to get independent advice on your circumstances then you can contact me via andrew.holmes@chasebuchanan.com

Have a great day, Andrew Lumley-Holmes.

4 comments:

  1. I have been speaking with an adviser about moving my final salary pension scheme into a QROPS. The transfer value seems very generous. Do you think this is a sensible idea?

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  2. Without a lot more information I really can't say. The things to consider in your circumstances are:
    - Where will you retire - UK or abroad?
    - Strength of the final salary scheme
    - Transfer value comparative to existing benefits
    - Income requirements / dependents / personal situation
    - Matching Yield (This will show you what growth would need to be achieved on the QROPS investments to match what will be provided by your final salary scheme and is a key consideration). If your adviser has not prepared one then get one done ASAP. If a matching yield has not been prepared its normally a reliable sign that the adviser may not understand what they are doing. A matching yield is required in the UK for every final salary transfer, however, for some reason not required for a QROPS transfer.

    As always, if you need any help then let me know.

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  3. I moved my UK pension into a QROPS in 2010. Since then i have had lots of problems with the pension. I have had funds that have been suspended inside my pension that now means over 300k of my money is not available to me and the fee's are draining the remaining pension money out of the pot quickly. I need to do something, would moving my pension out of the QROPS be an option?

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  4. Hi,

    From what you have said I assume you have the pension money invested into a life assurance bond underneath the pension trustees. Due to the surrender penalties you have on the bond and the fact you have suspended funds inside i think it would be very difficult to do much with the pension at the current time, however, i would be happy to discuss further. You may be best to focus on the quality of the remaining assets within the QROPS to try and drive some returns until the suspended funds become resolved. You can contact me on andrew.holmes@finsbury-group.com and we can discuss in more detail.

    ReplyDelete