International workers with British pension rights need to make some careful decisions about their retirement savings.
As a new era of early pension access in the UK approaches from April 2015, some of the financial factors affecting pension funds in Britain by workers from overseas are changing.
But just how they impact on individuals is complicated and confusing.
With more than 3,400 Qualifying Recognised Overseas Pension Scheme (QROPS) in 42 different jurisdictions, the permutations of tax and financial issues arising from transferring are almost countless.
Take Kiwisavers – popular with New Zealanders coming to work in the UK as well as British going to New Zealand as expats.
Tax incentives
First, New Zealanders have got to think about the tax incentives they pick up back home and may lose if they contribute to a UK pension scheme – and if they do contribute to a UK scheme they have to make sure it’s a QROPS compliant scheme if they want to transfer any funds in from their time in Britain.
Then, drawing down on a Kiwisaver may trigger tax charges in the UK as a first home withdrawal, which is allowed in New Zealand, is considered an unauthorised withdrawal of funds in the UK.
HM Revenue & Customs (HMRC) slams a 40% penalty and 15% surcharge on the withdrawal if the Kiwisaver members has lived in the UK during any of the previous five tax years.
Although the Kiwisaver would have to report any withdrawals to HMRC for the first 10 years of the scheme, QROPS rules seem to make the withdrawal penalty an anomaly and only active for the first five years.
Trapped in the UK
This applies to defined contribution pensions – mainly personal or workplace schemes – but a different set of rules come into play for unfunded public sector pensions, according to a new announcement by Chancellor George Osborne.
Any international worker wanting to take their pension offshore to a QROPS needs to make the decision by April 2015 or effectively; the pension is trapped in Sterling in Britain.
The government is acting to protect public finances in Britain but is discounting the effects this has on thousands of workers who have stayed in the UK and contributed to a pension pot.
Another factor leaving QROPS transfers in limbo for overseas workers is whether early access rules planned to start from April 2015 will apply to QROPS – The Treasury is not sure and is awaiting a policy decision from the government.
