Financial advisors often have to answer questions from expats about the difference between a self-invested personal pension (SiPP) and a Qualifying Recognised Overseas Pension Scheme (QROPS).
On the face of it, both work in similar ways, allowing the retirement saver to manage their own investments.
But the underlying tax and investment structure of both pensions varies greatly once the bonnet is lifted.
The main point for expats to consider is their tax residence.
If the expat is not UK tax resident, some tax benefits of a SiPP are lost – for example, pension contribution relief no longer applies.
Other issues include:
- SiPP investments are limited to those offered by the UK provider
- A SiPP pays pension benefits in Sterling and currency exchange fluctuations can impact on the spending power in the expat’s local currency
- Foreign exchange currency fluctuations can also affect spending power
So what are the benefits of switching a SiPP to a QROPS for expats?
Many QROPS offer more flexible investment opportunities. A typical QROPS will include a wider range of currencies, markets and commodities for retirement savers to choose from according to their attitude to risk.
QROPS will also pay out in a number of currencies, so an expat in Europe can directly receive pension payments in euros, for instance.
QROPS savers also benefit from tax-free growth on their funds in the same way as any SiPP investor.
Importantly, QROPS are not subject to the 55% tax charge on the value of any money that remain in the pension fund should the retirement saver die before drawing down their investment.
Another benefit is the expat can live in one financial jurisdiction while basing their QROPS in another. Expats should check this point out with their provider as not all financial centres offer this.
Many Malta, Gibraltar and Isle of Man QROPS offer this ‘third party’ option, but others, like Guernsey and Jersey do not.
It’s easy to see that although QROPS are primarily retirement savings vehicles, they also link well into personal tax and estate planning for expats.
What should you do if you are an expat with a SiPP?
If you are temporarily outside of the country and intend to remain tax resident in the UK, then a QROPS is not likely to be the pension of choice for you. One of the main rules is a QROPS investor cannot be tax resident in the UK.
However, if you want to retire abroad, review your tax residence and speak to an experienced QROPS advisor about the benefits of transferring your pension offshore.
