Retirement planning is a thorny problem for high earning executives and employers who want to put together competitive remuneration packages.
A £50,000 cap on annual tax-relieved contributions and the decreasing generous lifetime allowance have blocked the traditional option of paying significant contributions in to a pension.
The way round for many is bumping up salaries – but this triggers even more tax problems for high earners.
One solution that many HR departments are looking towards is a Qualifying Non UK Pension Scheme or QNUPS.
These are a new tool for the employee benefits advisor. Instigated in 2010 to clarify inheritance tax (IHT) rules for overseas, pensions, QNUPS are similar to the better known qualifying recognised overseas pension (QROPS).
QNUPS and QROPS compared
The main difference between the schemes is QNUPS are open to UK residents as well as expats and they accept ongoing contributions.
The bad news is ingoing funds do not have the benefit of pension contribution relief – but then neither do a self-invested personal pension (SiPP) or personal pension if the investor is not UK resident for tax or if annual contribution and lifetime allowance caps are exhausted.
QNUPS have other advantages for high earners and expats:
- The funds grow free of income or capital gains tax
- No cap is imposed on contributions or fund size – so no annual contribution or lifetime allowance rules apply
- A broader range of assets generally unavailable in QROPS or UK pensions are open to investors, including cash, private company shares, stock options, buy-to –let investments, commercial property, art, fine wines and classic cars
- Some QNUPS let investors borrow up to 25% of the fund value, providing the money is repaid on commercial terms
- A QNUPS can run alongside another pension that is restricted by contribution and lifetime allowance caps without affecting reliefs on contributions
Although QNUPS are not primarily an IHT or estate planning device, they do have the added benefit of holding assets outside of the UK IHT regime.
Starting a QNUPS
A spokes person from QNUPS.net says “The issue with using a QNUPS to manage IHT is HM Revenue & Customs may consider the fund is being manipulated to avoid tax rather than to provide a pension on retirement”
So IFAs should only offer a QNUPS option based on lifestyle and retirement goals.
QNUPS generally have many of the tax and pension benefits of a QROPS.
That means a tax-free lump sum of 25% – 30% of the fund value on retirement from age 55.
QNUPS are not suitable pensions for every retirement saver, but can offer significant advantages to high earners who wish to contribute extra to a pension.