Making the right pension transfer decision Clearing away confusion between QROPS, SIPPs, and QNUPS Over 30 years experience providing independent pension advice to expatriates and people working abroad
Making the right pension transfer decision Contents Overview page 2 At a glance benefits: QROPS, SIPPs, QNUPS page 3 QROPS page 4 SIPPs page 6 QNUPS page 8 How PIC can help page 10 Common questions about QROPS, SIPPs, QNUPS page 11 The small print This guide is for general information purposes and does not constitute comprehensive advice on pensions or pension transfers. Before making any pension or pension transfer decision or purchasing any pension related product you should seek professional advice. 1 The information in this guide was published in June 2013.
Ensure more of your pension fund and income goes to your loved ones when you pass away Careful pension planning could allow you to pass on all your pension income to your spouse and up to 100% of your pension fund to your children. As well as improving your legacy, transferring your benefits to a QROPS, SIPP, or QNUPS can bring the convenience of combining all your pensions in one pot, and may increase your pension income. Many UK pension holders transfer their benefits to a QROPS but this is not the only option. Depending on your individual circumstances and your future plans, you may wish to consider a QROPS, a SIPP, or a QNUPS. This guide summarises the benefits of each pension scheme as well as some of the conditions. We recommend you talk to an experienced financial adviser before you transfer your pension. You may even be better off leaving your pension where it is. QROPS Qualifying Recognised Overseas Pension Scheme SIPP Self-Invested Pension Plan QNUPS Qualifying Non-UK Pension Scheme Who can benefit from a pension transfer? It is worth seeking professional advice about pension transfer options if any of the following apply to you: You would like to pass on more of your pension income and funds to your family You would like to consolidate your pensions into one scheme You are planning to live abroad You have been living abroad for at least 5 tax years and don t intend to return to the UK You would like to supplement your UK pension fund with an overseas pension scheme You are working abroad temporarily and likely to return to the UK to live You are a non-uk citizen with a UK pension scheme and planning to return home or live in another country You are living overseas and would like to contribute to a pension scheme 2
Benefits at a glance: QROPS, SIPPs, QNUPS We explain each pension scheme in the following pages. The main benefits are summarised here for your convenience: QROPS SIPPs QNUPS No requirement to pay UK inheritance tax on pension fund Applicable after 5 years non-residence to UK If you haven t taken benefits already and die before age 75; otherwise 55% tax Provided contributions are reasonable No widow s pension restriction on pension income Consolidate UK pensions No requirement to pay UK tax on pension income x Maximum annual/lifetime contribution (tax year 2013 / 2014) 50,000 / 1.5M 50,000 / 1.5M unlimited / unlimited* Tax relief on contributions For contributions before age 75 x Tax-free lump sum Up to 30% Up to 25% Up to 30% No requirement to purchase annuity If you draw income by age 75 Choice of currencies x Greater control over retirement age, access to funds age 55** Choice of pension scheme providers in different countries (jurisdictions) x UK only Must be UK non-resident for minimum 5 years to qualify for benefits x x 3 * The level of contribution allowed in some countries may differ ** The minimum pension age in some countries may differ
QROPS: pass on your pension income to your spouse and remaining funds to your children QROPS are for the transfer of UK pensions A Qualifying Recognised Overseas Pension Scheme (QROPS) is, as the name suggests, an overseas pension scheme. A QROPS allows your spouse to receive the whole of your pension income on your death, and to pass on your remaining pension fund to your children - free of UK inheritance tax. Furthermore, you can enjoy the convenience of consolidating all your pensions in one scheme, with the potential to increase your pension income. If you are planning to live abroad, or you have been a UK non-resident for five tax years, you can transfer your company or personal pension to a QROPS. There are many QROPS schemes to choose from and in a range of countries or jurisdictions. You do not have to opt for a QROPS solution in the country you live and, for your added protection, all QROPS schemes are approved by HM Revenue and Customs in the UK. Key benefits of QROPS No requirement to pay UK inheritance tax on your remaining pension funds on your death Your spouse can take your full pension income as a drawdown Consolidate your UK pensions No requirement to pay UK income tax on your pension income Tax-free lump sum of up to 30% No requirement to purchase an annuity Greater investment freedom and choice of currencies Greater control over your retirement age Eligibility There is no minimum amount for the benefits you can transfer although some sums may not be cost effective. You can transfer a UK company pension or private pension but not a state pension. You should be planning to live outside the UK for a minimum of five years or have done so already. Things to consider A QROPS is generally more expensive than a SIPP. If you subsequently return to the UK to live after opening a QROPS, you will be subject to UK pension regulations and tax once again. The level of income tax and inheritance tax, and any lump sum restrictions, in the country you are resident. It is a straightforward process to transfer your pension benefits to a QROPS. 4
Case study: QROPS Talk to us Click here to request a FREE pension transfer analysis without obligation Tom is a 57 year old pilot with a major airline, he is a British national who has spent the last 8 years living and working in Dubai. Tom has four adult children, is divorced and currently lives with his partner who is significantly younger and a non-uk domicile. Tom plans to take early retirement but does not wish to return to the UK. He plans to spend another 3 years in Dubai before moving to a pre-owned property in Spain and this is where he will live in retirement in order to be nearer his children and grandchildren. Tom has a five figure pension available from his existing UK pension scheme which has a minimum retirement age of 65. A QROPS has been recommended for Tom as: He will retire and remain offshore He wants to retire immediately but his UK pension scheme which has a minimum retirement age of 65 QROPS will allow Tom to retire now as he is older than 55 He has completed five consecutive tax years offshore when they key benefits of QROPS are available The UK does not have a double tax treaty with Dubai so any income drawn from a UK pension while resident there would be taxable in the UK His current UK pension scheme only allows a spouse to be named as beneficiary and so his partner would not be entitled to any benefits A QROPS will allow Tom to name his partner, children and/or grandchildren as beneficiaries If Tom dies while still resident offshore then a QROPS would allow his entire fund to be passed to his partner or named beneficiaries free of tax charges at source 5 A QROPS will allow tom to withdraw up to 30% of his find value as a pension commencement lump sum on retirement
SIPP: a flexible UK pension scheme that lets you leave more to your loved ones If you are working abroad and likely to return to live in the UK, a SIPP may be the right choice for you A Self-Invested Pension Plan (SIPP) is a UK pension scheme which lets you save for retirement tax efficiently. A SIPP will allow your spouse to receive the whole of your pension income on your death, and you can pass on a greater proportion of your remaining pension funds to your children than with, say, a final salary scheme. As with QROPS, you can enjoy the convenience of consolidating all your pensions in one scheme, and you have the potential to increase your pension income. If you are resident abroad and think you will return to live in the UK, or you are working overseas temporarily, a SIPP may be a better option than a QROPS. There is a wide range of SIPPs to choose from and you can make contributions by lump sum or by monthly payments. Key benefits of SIPPs Your spouse can take your full pension income as a drawdown No requirement to pay UK inheritance tax on your pension fund if you haven t taken any benefits and die before age 75 otherwise leave 45% of your fund to your children Consolidate your UK pensions Tax-free lump sum of up to 25% No requirement to purchase an annuity Save for retirement tax efficiently Greater investment freedom Eligibility You are a UK resident or domicile and are working overseas temporarily. You are resident abroad and you think you will return to live in the UK. You are a UK resident with no intention of moving overseas. Things to consider There is a 0% or 55% tax on any lump sum paid to your beneficiaries on your death, depending on whether you ve already taken benefits, or not, from your SIPP. Income from a SIPP may be subject to UK tax if there is no double taxation agreement between where you live abroad and the UK. Charges are usually fixed amounts although some SIPPs charge a percentage of your fund value. Greater control over your retirement age 6
Case study: SIPP Talk to us Click here to request a FREE pension transfer analysis without obligation Emma is a 37 year old marketing executive; she is married with one young child and has recently moved to Germany for work. Her current contract lasts for 3 years but she hopes to extend this if her family settle and her husband finds work. She has built up a small final salary pension and a larger defined contribution pension from previous employment in the UK. She is keen to consolidate her pension benefits and ensure that her husband and child are provided for in the event of her death. A SIPP has been recommended for Emma as: She is 18 years younger than the minimum retirement age of 55 She is unsure whether she will retire and remain offshore She has not yet completed five consecutive tax years offshore when the key benefits of QROPS are available A SIPP will allow her to consolidate her existing benefits A SIPP will allow her beneficiaries to receive 100% of her fund value if she were to die before taking benefits A SIPP is considerably more cost effective than QROPS and affords her all the same benefits of QROPS at her stage of life 7
QNUPS: contribute to a pension fund without limits and free from UK inheritance tax Open a QNUPS wherever you live A Qualified Non-UK Pension Scheme (QNUPS) allows you to build a pension fund outside of the UK without any limits on contributions. The pension scheme offers flexibility in terms of the type of investment you can include in your fund and on your death you can leave all funds to your family free of UK inheritance tax. You can contribute to a QNUPS without having to earn employment income and at any age. Even in retirement. Contributions need to be made with the intention of providing a retirement income, so they need to be in keeping with your financial circumstances. Benefits from QNUPS can be enjoyed wherever you decide to live and you can have both a QNUPS and a QROPS. Key benefits of QNUPS No requirement to pay UK inheritance tax on funds within a QNUPS No limit on size of contributions or total fund size No maximum age for investing No income or capital gains taxes on growth within the fund in most countries Greater investment flexibility than standard UK pension schemes and QROPS, including commercial and residential property, shares, stock options, art, fine wine, antiques, cash Tax-free lump sum up to 30% on retirement (age 55 onwards) Choice of currencies Eligibility Open to any nationality wherever you live and wherever you are domicile. Things to consider You must open a QNUPS with the clear intention of providing a retirement income and not for inheritance tax planning purposes. The level of contributions you make should reflect this. Assets within a QNUPS grow free from tax although there is no tax relief on contributions. In some countries the level of contribution allowed may differ so it is important to consider local rules when choosing the jurisdiction of your QNUPS product. You must draw an income or purchase an annuity by age 75. Draw loans up to 25% of your fund value and repay them under commercial terms useful if you want to reduce tax liability on income you draw 8
Case study: QNUPS Talk to us Click here to request a FREE pension transfer analysis without obligation Alan is a 49 year old oil worker who has worked offshore for 22 years and currently lives in Angola. He has a small pension in the UK which will provide around 4,000 per annum from age 60. Alan earns a salary of $250,000 per annum and has property and savings in excess of $6 million. Alan plans to retire back in the UK where he has a home and two children at University. Alan expects that he will need an income of approximately 60,000 per annum in retirement and hopes to leave his assets to his children on his death. A QNUPS has been recommended for Alan as: He has a genuine need for additional pension provision He is not entitled to tax relief on contributions to a UK registered pension scheme or a pension scheme in his country of residence QNUPS would allow Alan to make cash or in-specie contributions from his personal assets which could be used to provide the additional pension income he requires Alan could make a contribution to a QNUPS over and above the UK Lifetime Allowance (LTA) without incurring a tax charge Any assets transferred to a QNUPS would be exempt from UK inheritance tax (IHT) from the date of transfer Assets transferred to QNUPS would fall outside Alan s estate for IHT purposes and would therefore reduce his overall IHT liability, 9 On Alan s death his entire QNUPS fund could be passed to his children free of tax even if he was resident in the UK at the time.
Why we re qualified to advise you on pension transfer When it comes to pensions, we understand how tax relief and liabilities work on a domestic and an international level throughout Europe For over 30 years we have specialised in giving independent advice to expatriates and people who work abroad. Our senior consultants can advise you on whether a QROPS, SIPP, or QNUPS will suit your particular circumstances and future plans. With a detailed understanding of how tax relief and liabilities work on a domestic and an international level, we can help you to select the most suitable pension product for your needs, in the most suitable jurisdiction. A well regulated jurisdiction which will minimise your tax liability and keep your funds safe. Just as importantly, our experienced consultants will take time to explain the benefits and drawbacks of options we discuss with you, so that you can make an informed choice. And with offices throughout Europe, we can meet you face to face. Arrange a FREE pension transfer analysis today without obligation Click here to send us an enquiry Call: +32 (0) 2 535 74 57 Email: pensiontransfer@pic-europe.com Conversations will be in complete confidentiality. 10
Answers to common questions about QROPS, SIPPs, QNUPS QROPS 11 Can UK residents apply for a QROPS? Yes, if you intend to leave the UK within the next 12 months. Is there a minimum amount for transferring to a QROPS? No. Although it may not be costeffective for some sums. Can I transfer multiple UK pension schemes into a single QROPS? Yes. Can I pass on the whole of my pension income to my spouse on my death? Yes. Can the remains of my pension fund be given to my children without incurring UK inheritance tax? Yes. Providing you have been nonresident to the UK for 5 years or more. Can I still buy an annuity after I transfer my pension to a QROPS? Yes, if you wish. Can I transfer to a QROPS if I am already drawing an income from my pension scheme? No. Can I transfer to a QROPS if I have bought an annuity? No. You must transfer your pension before you buy an annuity. Can I transfer my state pension to a QROPS? No. You can transfer company pensions and private pensions only. Does my QROPS need to be in the country I am living in? No. You can transfer your pension to a QROPS in another country (jurisdiction). Choose a jurisdiction that is wellregulated and will minimise your tax liabilities. How long does it take to transfer a pension to a QROPS? Most transfers take between four to eight weeks in our experience. Can I definitely take a tax-free lump sum from my pension? No. You may or may not be liable to tax depending on the country you live in and the jurisdiction (country) in which your pension is held. We recommend you speak to a financial adviser who is experienced in these matters. Can I transfer the protected rights part of my pension fund to a QROPS? Yes, as long as your QROPS provider accepts them. We recommend you check first. Protected rights refers to the money that would have gone into your State Second Pension (previously called SERPS).
SIPPs Who is eligible? You need to be UK resident and less than 75 years of age. Can I transfer my existing pension to a SIPP? Yes, in general, although some types of pensions are excluded. Can I transfer multiple UK pension schemes into a single SIPP? Yes. Is there a minimum amount for contributions to a SIPP? Yes, although these vary according to provider. There is usually a minimum for lump sum contributions and for monthly contributions. Can I pass on the whole of my pension income to my spouse on my death? Yes. Can my employer make contributions to a SIPP? Yes, if you are UK resident and qualify for UK tax relief. Can the remains of my pension fund be given to my children without incurring UK inheritance tax? Yes. If you haven t taken any benefits already and you die before age 75. Otherwise 55% inheritance tax is payable. QNUPS What assets can be transferred to a QNUPS? Commercial and residential property, shares, stock options, art, fine wine, antiques, cash, and more. Can I pass on the whole of my pension income to my spouse on my death? Yes. Can the remains of my pension fund be given to my children without incurring UK inheritance tax? Yes. Providing your contributions were made with the intention of providing a retirement income. Can I nominate who will inherit my QNUPS funds when I die? Yes. Does my QNUPS need to be in the country I am living in? No. You can open a QNUPS in another country (jurisdiction). Choose a jurisdiction that is well-regulated and will minimise your tax liabilities. How often can I make contributions to my QNUPS? Most QNUPS allow lump sum payments at any time and regular payments monthly or annually. Check with the provider first. When do I need to draw an income or purchase an annuity from a QNUPS? Anytime between age 55 and 75 although local rules may stipulate a later age than 55. You can continue to contribute at any age. Can my employer make contributions to my QNUPS? Yes, if you are non-uk resident and local rules in the country you live allow it. What are the annual and lifetime allowances for contributions to UK pension funds? 50,000 and 1.5M respectively for the tax year 2013/2014. Are QNUPS available worldwide? Yes, although conditions vary depending on your personal circumstances and location. 12
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