Once 100% access to UK pension schemes is officially granted as of April next year, can we expect the same generosity to be extended to QROPS?
The access ruling has been much maligned by EU member states – calling it “irresponsible” – and, predictably enough, pension providers, who see it creating a huge backlog in paper work, as well as substantial levels of cash leaving the coffers in one fell swoop, something which no provider enjoys.
The reality is that the vast majority of savers will choose not to take the 100% option when it comes around, this is because of supplier charges on lump sum withdrawals, combined with tax on 75% of the sum. These charges in combination with Income Tax will severely deplete the original level of funds, however, if the same access is granted for QROPS, it could be a very different story.
Historically, QROPS have always been made to mirror the UK pension model as closely as possible – minus the deficit of course – so come April, expat savers could be offered the chance to take their pension pot in a lump sum with next to no tax – depending on the jurisdiction in which their money is held.
Charges
QROPS providers – much like UK pension providers – are very wise to the fact that the UK’s pension legislation will continue to be subject to a raft of legislative amendments, and as such, the small print within each policy will most likely cover every eventuality, including 100% access.
If this measure is extended to QROPS, savers should study their documents to ensure they will not pay exorbitant levels of fees for 100% withdrawal. Annual statements should document any charges paid to the provider for fund management and administrative costs, and these should be weighed up against the benefit of withdrawing the whole fund as soon as possible.
Unless a huge debt with high interest needs to be paid off, it is not advisable to withdraw the whole fund in one go. QROPS tend to perform very well as they continue to mature, so being content with the standard 25 or 30% lump sum upon retirement will usually be the best way to go for most.
However, it is good to have options, and QROPS have always offered multiple options for savers formerly restricted by the legislation-heavy UK market.
Now more than ever, the need for UK savers to be extra-informed regarding their savings is vital. The UK pension market is in turmoil, and with restrictions, age extensions, and benefit reductions coming to the fore with alarming regularity, and as a result, surveys show that the majority of expats are seriously considering placing their funds into a more secure overseas plan.
QROPS offers many benefits for UK pension holders:
Jurisdiction choice
Investment flexibility
Early retirement option
Death benefits
Currently up to 30% lump sum tax-free
Choice of currency
Stable environment
Advice is available and should be sought before a QROPS transfer is considered. While QROPS offer a way out of the uncertainty of the UK pension market, they are not necessarily right for everyone. Personal circumstances should be taken into account before a transfer is agreed upon.
