Getting the most out of your UK Pension

In the March 2017 UK Budget, Chancellor of the Exchequer Philip Hammond revealed plans to impose a 25% tax charge on overseas transfers in certain circumstances. This move is the latest in a long string of changes that have left the body of legislation regulating pensions extremely complex. This area of financial planning requires expert advice that is right up to date.

Anyone that has contributed to a pension scheme in the UK may have the right to transfer their pension benefits into a private pension written in Trust with themselves and their dependants as beneficiaries.

It is important to understand that this right does not just apply to British citizens, but to anyone that has accrued pension rights in a UK scheme. Therefore the right to transfer would apply to any foreign nationals that have ever worked in UK and been a member of a UK pension scheme.

We at Wealth Management Group (Global) strongly recommend anyone that is considering transferring pensions rights to take detailed expert financial advice before contemplating whether to take action. This is also our advice even for people who are simply not sure whether they have the right to transfer a UK pension pot – and if so what are their options. UK pensions legislation is notoriously complex and has been constantly evolving over the past decade. In some cases Her Majesty’s Revenue & Customs (HMRC) insists that any recommendation to transfer is accurately assessed and signed off by a properly regulated adviser in the UK. We entirely support this sensible provision and we work with first class UK-regulated advisers where appropriate. This is to ensure that the advice given is fully compliant with UK regulations governing pensions transfers.

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Two common types of UK Pensions Transfers

  1. i) QROPS – Qualifying Recognised Overseas Pensions Schemes

Since the introduction of QROPS in 2006 they have become an important financial planning tool for anyone with accrued rights in UK pension schemes that plans to live overseas. When used appropriately a QROPS can confer multiple benefits to the international investor, a summary of which are shown below.

Often a QROPS is appropriate for an investor that intends to live for the majority of the foreseeable future outside the UK. * Specific advice must always be sought before proceeding with pension transfers.

Here is a useful link to the UK Government website explaining more about Recognised Overseas Pensions:

  1. ii) SIPPS – Self-Invested Personal Pension Schemes

These are HMRC approved UK pension schemes that allow investors to have access to the full range of investment assets allowed within a personalised pension plan. The investor has access to assets such as cash, bonds, shares, managed funds and other specialist funds.

Often a SIPPS is appropriate for an investor that intends to live for the majority of the foreseeable future in the UK. * Specific advice must always be sought before proceeding with pension transfers.

Some Benefits of QROPS

Since the majority of our clients at Wealth Management Group (Global) are expatriates or international investors we will examine here only the benefits of QROPS. Please contact us to explore whether A QROPS or a SIPPS may be appropriate in your specific circumstances.

Here are some major benefits of QROPS:

  • A powerful Estate Planning Tool.
    A principle benefit of a QROPS is the fact that it is written within a TRUST that can have beneficiaries named such as the owner and the next of kin. In this way a pension can continue to generate income for spouse and dependants long after the death of the pension member. This benefit alone can be of immense value to the family.
  • Inheritance Tax savings
    In these days of high property prices, more and more people are finding that Inheritance Tax will be due on their estate after their death. The Trust structure of a QROPS offers valuable tax planning benefits to the investor’s family.
  • Substantial tax-free initial lump sum.
    Whilst the primary purpose of a pension is to provide income in retirement, a substantial lump sum is often required when making the transition into retirement. A QROPS offers this option.
  • Protection from changing rules regarding the Lifetime Allowance
    For larger pension pots that are approaching (or exceed) the Lifetime Allowance, it is beneficial to have the fund tested at the time of the transfers. This may well shelter assets that might otherwise have been taxed.
  • Income Tax benefits
    Income from a QROPS is taxed in the country where the QROPS is domiciled. This can often confer significant income tax advantages. * Specific advice must always be sought before proceeding with pension transfers.
  • Investment Freedom
    Once a pension fund has been transferred to a QROPS, the investor then has complete control and immense freedom to invest in a vast array of investment assets. Whilst this can provide an excellent opportunity to have the pension managed in accordance with the investor’s specific wishes it can also bring with it an important risk. The investor should assess whether he truly understands the responsibility of managing his pension funds and in most cases we would strongly recommend a selection of top-class managed assets designed to produce steady growth.
  • Consolidation of historic pension rights
    It is not unusual for our clients to have accumulated pension rights from 2, 3, 4 or even more previous employers in the UK. This can make keeping track of one’s pension rights quite tricky.
    In addition to that, many previous employers might have merged with other companies or even gone bankrupt. Keeping track of benefits under these circumstances becomes even more complicated.
    Furthermore, many pension providers have merged, changed their name or ceased to exist over the decades.
    The task of keeping up to date with multiple schemes, from multiple previous employers managed by multiple pension providers is hugely complicated. This is compounded when all of the above may have changed multiple times. How do you keep track under these circumstances?
    Imagine now for a moment that the spouse of the deceased pension member is attempting to unravel these pension rights, decades after the employment took place and often from a different country of residence.
    Imagine too that if the pension holder has re-married then perhaps the new spouse is not even aware of any previous employment history. Under these circumstances it becomes nigh impossible to establish what rights exist let alone establish a claim to those rights.
    We have first hand experience of some complicated cases taking a year or more to sort out, even with the benefit of the pension member being alive and involved. In order to avoid sometimes hugely complicated paper trails we always advise expatriates to consider whether their pension rights are clear and in order, so that their loved ones can be protected. Our experience can help investors through this maze.
  • Enhanced Spouse’s pension
    Once a QROPS has been established and is being used to provide income, then it is possible for the surviving spouse to continue to receive the same income even after the member’s death. This is far preferable than the norm with UK pensions that often provide a spouse’s pension of just 50% of the member’s pension.
    Similarly, the assets within the Trust can pass down through the generations to children and grandchildren instead of ceasing on death as would often be the case with a UK pension.
  • Preferable Income tax position on death
    Once a QROPS has been established for a number of years then the assets effectively fall outside of the scope of the UK taxation system. This can confer substantial benefits to a surviving spouse when compared to an immediate income tax charge if the arrangement had remained within the UK.

Although the above is a compelling list of benefits it is by no means exhaustive. There are indeed additional benefits that may accrue in certain specific cases but space constraints here make a complete list unnecessary. As stated above, in each and every case where a client is considering a pension transfer it is essential to take detailed advice first.

The Procedure for establishing a QROPS

  • Step 1A detailed discussion including a full “fact-find”.
    This is best conducted face-to-face but if necessary it can be done through a combination of Skype calls, telephone calls, e-mails and courier packages.
  • Step 2Completion of one or more LOA’s (Letters of Authority)
    A Letter of Authority is simply an instruction to the member’s previous pension Administrators to release certain details of pension entitlements, including an estimated “Transfer Value”.
  • Step 3Detailed Analysis
    Once we are in receipt of all of the information in relation to current entitlements we will then explore whether transferring the pension rights is suitable or not.
    Of course every person’s situation is unique so there are a range of possible options to consider at this stage.
  • Step 4Recommendation
    Once we have considered the current entitlements and considered the client’s aims, objectives, preferences, expectations regarding future residence etc, then we will present our recommendations in writing in the form of a suitability report. Where appropriate (such as in the case of transfers out of UK defined benefits pension schemes) these recommendations will be made in conjunction with, and signed off by a suitably regulated UK-based pensions specialist.
  • Step 5Paperwork
    Assuming the recommendations meet with the client’s approval then we will arrange all paperwork to cover:
    i) Instructing the transfer(s) from the previous pensions Trustees
    ii) Complying with the necessary reporting to HMRC, the UK Tax Authority
    iii) The establishment of the QROPS Trust with the new Trustees
    iv) Implementation of a suitable investment strategy in conjunction with the Trustees
  • Step 6Delivery of documentation
  • Step 7Ongoing service and liaison with Trustees if required
    It is always worth remembering that some of the decisions taken with respect to a QROPS transfer can be changed later, whereas other cannot be reversed. For example once the transfer has been made out of the original pension scheme it is unlikely that it can be reversed but on the other hand it is entirely possible to change the QROPS Trustees and the investment strategy and the investment adviser at a later date.

Pensions Healthcheck and Pensions Review Service

We realize that pension planning is not only complex but it is sometimes a topic that leaves people feeling somewhat intimidated and perhaps ill-prepared to make important decisions. Everyone agrees that a comfortable retirement requires careful planning but there are often some pretty big unknowns that make careful planning rather tricky.

Consider the following questions:

What current assets do I have?
What current pension entitlements do I have?
When should I retire?
How much income will I require at that time?

How much capital will I require at that time?
Is my current employer likely to help me?
Do I have capital to invest?
How much can I save regularly?
Should property be considered as my “pension”?
Am I likely to inherit?

In order to assist our clients to contemplate these important considerations, the consequences of which can be life-changing we offer the following elements to our Pensions Healthcheck and Pensions Review Service:

  1. Detailed Personalised Pension Fact Find & Review
  2. Historic Pensions Rights Search Service
  3. Review and Assessment of Pension Rights accrued under UK State Pension

Pension Planning is a complex subject and at least once in one’s life it is wise to take a cold hard look at what the future might look like. We are experienced in this field and happy to help.

Book your free consultation now