Expat Pensions

Lisa Smith, BA (Hons), CeFA
By

What’s in a name for offshore expat pensions? Well, quite a lot as several similar but competing schemes are out there if you know where to look.

IFAs like to make the market seem more complicated by shrouding the products they offer behind confusing names, like QROPS, QNUPS and SIPP.

Each of these expat pensions can solve specific wealth management problems, depending on where an expat lives, their age and financial goals on retirement.

The names are confusing but refer to the set of UK rules that govern how the pension is run.

Generally, each pension is set up as a trust and then structured to reflect UK pension legislation and the rules put in place by local regulators.

Many of the rules apply to all the schemes, but the differences give scope for expat tax planning with each pension offering its own advantages.

There’s no best expat pension, instead an IFA should tailor a retirement plan that reflects the current and future goals of the expat.

This guide explains the rules, pros and cons of each pension and gives expats a handy starting point to lay their plans for retirement.

QROPS

QROPS, Qualifying Recognised Overseas Pension Scheme logo

QROPS stands for Qualifying Recognised Overseas Pension Scheme.

These are offshore pensions for UK expats or foreign workers who have UK pension savings.

Read the in-depth guide to QROPS here.

QROPS availability

Brexit may lead to changes in QROPS availability after the transition period under the withdrawal agreement between Britain and the European Union ends on December 31, 2020.

Currently, expats in the European Economic Area (EEA) can live in one EEA country and invest in a QROPS based in another EEA country.

Outside of the EEA, expats must live in the same country as their QROPS is based or face the overseas transfer charge. The overseas transfer charge is an exit penalty on moving funds into a QROPS set at 25% of the value of the money transferred.

Changing residence status within five years of starting a QROPS can trigger the overseas transfer charge.

Transfers

Retirement savers can transfer money from UK pension funds to a QROPS with some restrictions.

Moving money from a UK workplace or private pension is OK, but you cannot transfer the state pension or any state funded scheme, such as police, nurses, teachers, civil servants, or other public sector scheme.

Tax-free lump sum

QROPS come with a lump sum payment on reaching retirement age worth between 25% and 30% of the total pension fund value. The payment may be subject to income tax in some countries.

Tax on fund growth

QROPS funds grow free of any capital gains taxes

Retirement age

Retirement savers cannot draw on a QROPS until they reach the age of 55

Investments

QROPS can have a broad investment base ranging from bonds, stocks and shares and property to fine wines, art, and antiques.

Lifetime allowance

QROPS are not subject to the UK lifetime allowance once funds are transferred into the scheme.

If the transfer is from a UK pension, HMRC will test if the lifetime allowance of £1.073 million has been breached. If not, once the funds are moved to a QROPS they can grow free of any cap.

How the lifetime allowance is tax-treated depends on your age.

If you are over 75, any amount over the maximum limit is taxed at 25% of the offending amount.

If you are under 75, the likely result is an enhanced lifetime allowance

Unspent funds

If you die before your 75th birthday, generally leaving the fund to someone in the UK is free of tax, although wealth taxes may be due in the country where you live.

If you die after your 75th birthday, your nominee may pay income tax on the money, depending on local inheritance tax rules.

Flexible pension access

QROPS come under the UK’s flexible access pension rules, but providers can opt not to offer the benefit.

HMRC status

QROPS providers must tell HMRC about the status of each retirement saver’s scheme for 10 years after set-up. If the rules are broken during this time, HMRC will make a tax charge at 55% of the fund value plus penalties.

Minimum fund size

QROPS do not have minimum or maximum fund sizes, but some providers may impose them due to costs. Many QROPS funds start at £100,000, although many QROPS lite products for smaller funds are on the market.

Currencies

QROPS come with the option of setting the fund up in one of several major currencies, such as Sterling, US dollars and the Euro. Some providers offer more currencies, like the Indian rupee or Australian dollar.

QNUPS

QNUPS, Qualifying Non UK Pension Scheme by iExpats

QNUPS stands for Qualifying Non-UK Pension Scheme.

These are offshore pensions for UK expats saving for retirement or older expats considering succession planning.

Read the in-depth guide to QNUPS here.

QNUPS availability

QNUPS are available worldwide but cannot be set up in the UK although UK residents may save into a QNUPS in another country from the UK.

The bonus for expats is they can have a QNUPS based in one country while they live and work in any place they wish. This portability allows the pension to stay in one place and to avoid early exit and other charges if the pension was cashed in every time they crossed borders.

Transfers

Retirement savers cannot transfer money from UK pension funds to a QNUPS without paying an ‘unauthorised transfer’ charge of 25% of the transferred fund’s value.

Tax-free lump sum

QNUPS come with a lump sum payment on reaching retirement age worth between 25% and 30% of the total pension fund value. The payment may be subject to income tax in some countries.

Tax on fund growth

QNUPS funds grow free of any capital gains taxes

Retirement age

Generally, retirement savers cannot draw on a QNUPS until they reach the age of 55 although local rules may allow earlier access, such as in Malta where the age is 50 years old.

Investments

QNUPS can have a broad investment base ranging from bonds, stocks and shares and property to fine wines, art, and antiques.

Lifetime allowance

QNUPS are not subject to the UK lifetime allowance.

Unspent funds

If you die before your 75th birthday, generally leaving the fund to someone in the UK is free of tax, although wealth taxes may be due in the country where you live.

If you die after your 75th birthday, your nominee may pay income tax on the money, depending on local inheritance tax rules.

Flexible pension access

QNUPS come under the UK’s flexible access pension rules, but providers can opt not to offer the benefit.

HMRC status

QNUPS providers have no reporting obligations to HMRC.

Minimum fund size

QNUPS do not have minimum or maximum fund sizes, but some providers may impose them due to costs. Many QNUPS funds start at £100,000.

Currencies

QNUPS come with the option of setting the fund up in one of several major currencies, such as Sterling, US dollars and the Euro. 

SIPP

SIPP, Self Invested Personal Pensions

SIPP stands for Self-Invested Personal Pension.

SIPPs can come as UK or international pensions.

These are offshore pensions for UK expats or foreign workers who have UK pension savings.

Read the in-depth guide to SIPPS here.

SIPP availability

SIPPs are available worldwide, including the UK.

Like QNUPS, expats can have a SIPP based in one country while they live and work in any other place they wish. This portability allows the pension to stay in one place and to avoid early exit and other charges if the pension was cashed in every time they changed tax residence.

Transfers

Retirement savers can transfer money from UK pension funds to a SIPP.

Moving money from a UK workplace or private pension is OK, but you cannot transfer the state pension or any state funded scheme, such as police, nurses, teachers, civil servants, or other public sector scheme.

Tax-free lump sum

SIPPs come with a lump sum payment on reaching retirement age worth between 25% and 30% of the total pension fund value. The amount is 25% for a UK-based SIPP. The payment may be subject to income tax in some countries.

Tax on fund growth

SIPP funds grow free of any capital gains taxes

Retirement age

Retirement savers cannot draw on a UK SIPP until they reach the age of 55

Investments

SIPPs can have a broad investment base ranging from bonds, stocks and shares and property to fine wines, art, and antiques.

Lifetime allowance

SIPPs are subject to the UK lifetime allowance of £1.073 million.

How the lifetime allowance is tax-treated depends on your age.

If you are over 75, any amount over the maximum limit is taxed at 25% of the offending amount.

If you are under 75, the likely result is an enhanced lifetime allowance

Unspent funds

If you die before your 75th birthday, generally leaving the fund to someone in the UK is free of tax, although wealth taxes may be due in the country where you live.

If you die after your 75th birthday, your nominee may pay income tax on the money, depending on local inheritance tax rules.

Flexible pension access

SIPPs come under the UK’s flexible access pension rules, but providers can opt not to offer the benefit.

HMRC status

SIPPs have no reporting obligation to HMRC

Minimum fund size

SIPPs do not have minimum or maximum fund sizes, but some providers may impose them due to costs. 

Currencies

SIPPs come with the option of setting the fund up in one of several major currencies, such as Sterling, US dollars and the Euro. 

Expat Pensions FAQ

Comparing QROPS, QNUPS and SIPPs offshore expat pensions is a job best left for a professional IFA.

Tax consequences for breaking the rules can lead to a huge penalty that adds up to more than half your retirement savings – and there’s a lot that can go wrong across the tax and pension rules of two or more countries.

To help clear up some of the confusion, here are some answers to the most asked questions about QROPS, QNUPS and SIPP expat pensions.

✅ I’m regularly on the move, how do I keep track of my pension?

Many providers offer smartphone apps for accessing your funds 24/7 or web access from a computer. Providing you have a mobile signal or broadband, you should easily trade funds and keep up with your pension admin wherever you are in the world

✅ If I have a UK SIPP do I get tax relief as an expat?

One of the bonus features of a UK pension is the tax man tops up premiums. A higher rate taxpayer only pays in £60 to make a £100 contribution – the balance comes from HMRC. Unfortunately, you must be UK resident to qualify for the top-up 

✅ Which is best, a QROPS, QNUPS or SIPP?

Don’t get side-tracked by the detail and concentrate on which pension has the features that match your financial goals in retirement. Each scheme has pros and cons that depend on tax residence and tax.

✅ Can expats consolidate more than one pension into an offshore scheme?

QROPS and SIPPs both allow consolidation of pensions although the lifetime allowance cap may apply to the transfer or fund size

✅ How do I start an offshore pension?

Speak to a suitably qualified international financial adviser who will benchmark your current financial status and discuss your retirement options. From there, you should have a short-list of recommended options that may include one or more offshore pensions.

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