As has been well documented, the UK pension landscape is changing post-Budget 2014, and is set to continue to transform into something far more beneficial to the British pension holder. With added flexibility and options to potentially be introduced, there is much to be positive about if you hold a UK pension. If however, you are an expatriate considering moving your money into a QROPS, just what are the implications of the proposed changes? And is a QROPS going to be worthwhile going forward?
A Brief Overview of QROPS
QROPS was developed and introduced in 2006 to enable those living abroad the security and benefits of being able to take their hard-earned savings with them. There are thousands of schemes in various jurisdictions, but these must match up to certain criteria to be able to qualify. Since 2006, the criteria have been changed – many, many times- and many of the schemes – and the jurisdictions which have held them – have been excluded, or have had to radically amend their structures to ensure they continue to qualify.
What a QROPS gives is freedom and flexibility, not to mention extremely generous tax-breaks when compared with the British equivalent. As a result, millions of pounds are moved abroad by expats every year, costing the government much consternation as they witness a UK pension pot – which is already in deficit – become further depleted. So with the Budget announcements in April, the UK pension sector is to receive a complete and long-overdue overhaul to try to offer or match many of the benefits of QROPS. As well as this, it should also provide an element of fairness to those who have spent their whole working lives paying into a savings fund in preparation for their retirement.
The Changes to the UK Landscape
Most changes announced in April have already been implemented, especially in light of the Queen’s speech which announced the opening of Parliament. The previous requirement to buy an annuity has been abolished, and there is now the potential for savers to benefit from being able to draw their pension in its entirety with little standing in the way.
Accessibility to Unlimited Withdrawals
Savers now have access to their funds in a way never before witnessed in the UK. With unlimited withdrawals and uncapped drawdown, ‘flexibility’ is now a part of the pension glossary, there are however criteria which must be adhered to in order to benefit from this. The first aspect to consider is that the saver must have at least £12,000 in their pension. This is reduced form the previous requirement for £20,000, but it should be noted that the pot should be made up of ‘relevant income’, such as a state or scheme pension or a lifetime annuity. Income gained from rental of property, returns on dividends, interest or salary will not count towards this figure.
Under Consultation
The government has been seeking assistance on implementation of reforms to the UK pension scheme for some time now, and many of the proposals put forward in the Budget 2014 had actually been on the table since the coalition came together.
The consultation is due to end on 22nd July 2014 and an announcement will be made in Autumn, some changes which have passed the process could be implemented immediately, while some may be brought in in the April 2015 Budget, coming just a month before the general election.
The Future for QROPS
The future for QROPS may still be uncertain until the consultation process is finished. It seems clear that the government are extremely keen on keeping as much pension money in the UK as they possibly can. There is every chance that implementation of new legislation surrounding QROPS could force more of the most popular schemes out of the game. QROPS will always hold huge benefits which cannot be matched by the UK because of the favourable tax regimes in other countries.
Of course until the announcements are finalised, industry experts can only speculate as to what the future may hold. However since the April 2014 announcements were made, QROPS specialists have reported a 35% increase in enquiries relating to making the transfer. As an expatriate looking to ensure that the most is being made of any pension savings, it is advisable to speak to an expert regarding your individual situation. QROPS could offer massive benefits, and now could well be the time to make the transfer.
