It’s only really in the last two years that US residents holding British pensions have been able to benefit from transferring their scheme into a Qualifying Recognised Overseas Pensions Scheme (QROPS).
Although HMRC have always approved the use of QROPS by those residing Stateside, and for providers to operate within the country, the IRS don’t share the same view.
A QROPS is similar in set-up to a SiPP, it provides the saver with more flexibility and control over their funds, but unlike a SiPP, QROPS are of course held in funds based overseas, and are only available to expatriates who plan to retire abroad.
New Opportunity
For those residing in the US, the opportunity to benefit from a QROPS has only recently come to light. When QROPS were introduced in 2006, it was impossible for a UK pension fund to be transferred into a 401K or similar US model. Although the UK recognises the USA as a suitable jurisdiction for pension transfer, the IRS restrict transfers as US federal law simply doesn’t recognise the schemes. In truth, those on Capitol Hill actually view the UK’s pension market as disparate and overly generous. As a result, they refuse to allow any scheme from the UK into their own system.
For those concerned by the idea of leaving their pension in the UK and open to currency fluctuations, new legislation resulting in a rapid retirement age increase, and higher taxation on drawdown, this came as somewhat of a blow.
Malta
However, the key to the solution comes in the guise of Malta. While Britain of course does have a double taxation treaty in place with the US, it sadly doesn’t qualify UK pensions as a recognised product in the States. However, Maltese-based pensions – according to their double taxation treaty – are very much welcomed. This means that a UK pension can be transferred into a scheme run in Malta – of which there are quite a variety – and can then be drawn in the US in dollars, in a bank account based there, with a 30% lump sum tax-free and a 2.5% tax rate on the remainder.
As well as these perks, there is also the aforementioned flexibility on offer, which essentially means that the saver remains in control of their own investment appetite and strategy. If investing a large proportion of the funds is of appeal, this can be specified. If investing is seen as being surplus to requirements, again, these schemes exist.
Closer
QROPS were originally created by HMRC to help the growing number of British expats across the world be closer to their money and benefit from the often more attractive tax codes within their jurisdiction. With a modern design tailored to cater for the modern saver, QROPS have emerged as an integral part of retirement planning abroad, and this – now more than ever – includes the US.
While most expatriates with UK-based pensions would be able to find some benefit from a pension transfer, there are cases where the schemes are perhaps best kept where they are, this depends on the level of benefits attached to the scheme, and the size of the funds.
QROPS benefits MUST be assessed on a case-by-case basis as there is no one-size-fits-all arrangement with these schemes. There are now over 3,500 schemes available globally, and the industry’s prominent providers continue to report huge growth in light of the current concerns surrounding the future of the UK market.
While there were initially teething problems – as could reasonably be expected from any new financial scheme – QROPS are now established, and are here to stay. Part of any credible financial expert’s advice should be a QROPS consultation if the client has expressed an intention to retire abroad.
UK Gap in Knowledge
Unfortunately within the UK, there is a fear of QROPS among UK advisors who don’t fully understand the benefits such schemes can offer, and with 42 jurisdictions and the amount of schemes available, it’s understandable.
For expert advice and knowledgeable insight into whether a QROPS is appropriate for you, contact QROPS Group. They have a host of member advisors posted across the globe who have experience in dealing with QROPS.
