There are many benefits for British expatriates to transfer their existing UK pension abroad using QROPS. These pensions are more flexible, often less tax is applied and the currency exchange often makes them ‘worth’ more. Even so, with regards to saving for the future and effectively putting your future into a ‘foreign pot’, are QROPS the best choice for everyone?
Initially introduced in 2006, QROPS are Qualifying Recognised Overseas Pension Schemes. These pensions are approved by HMRC and allow expatriates to transfer their pension funds abroad, usually tax-free – In effect; they allow former British citizens to take their pensions with them. This all seems like a very logical and profitable option. However, QROPS are not a ‘one size fits all’ resolution. There are advantages as well as disadvantages and that means they are not always the right solution for everyone.
The Effects of BREXIT
At the moment residents of the European Union are able to transfer multiple UK pensions into a QROPS tax free. It is also possible to transfer your pension savings to schemes outside the EU. However, this is currently subject to a 25% tax charge. After BREXIT kicks in it is quite probable that all transfers to QROPS will be subject to tax. For some, this could mean that transferring their savings could be an expensive move and so not the right move. Even so, once transferred your pension savings are exempt from UK income and gains taxes.
No Limits – No Penalties
A QROPS is exempt from income and gains taxes. Additionally, because your savings are no longer included in your Lifetime Pension Allowance they are exempt from the LTA taxes applied to withdrawals, which can be up to fifty-five percent. However, QROPS savings are taxable in the country of your residence, once you start to take payments and what taxes you pay depends on where you live.
Flexible Withdrawal Options
UK pensions are not as flexible as QROPS when it comes to withdrawing lump sums or regular incomes. QROPS gives you the flexibility to take a larger lump sum during early retirement and receive less regular income later on. Alternatively, you can simply take a lump sum and leave the rest for future generations. The disadvantage is, while flexible there is no guarantee on an income for life; as is the case in the UK.
Is a QROPS Right for You?
A lot depends upon how much your UK pension savings are worth as well as your plans for the future. Transferring your pension to a QROPS is complex simply because there are many options available and each country differs with regards to rules and regulations, particularly taxes – Indeed, because of the complexities there are many ways to tricked.
Saving for the future and so creating stability during your retirement is no small consideration. To discover whether QROPS is the right choice for you, and which country is the best place to transfer it is essential to get professional advice.