The siren call of Qualifying Recognised Overseas Pension Scheme (QROPS) should still sound strong for expats and international workers despite the major overhaul of the British pensions industry.
Over the past year, Chancellor George Osborne and Pension minister Steve Webb have dismantled and rebuilt the pensions industry.
Gone are poor performing annuities.
In their place, retirement savers have flexi-access pensions that they can draw down when they like and spend how they want.
QROPS advantages
Part of the overhaul has seen the new drawdown rules extended to QROPS – although The Treasury and HM Revenue & Customs (HMRC) have held back on how the finer details will be applied to offshore pensions.
However, The Treasury has pledged to release this information in good time for the flexi-access switch on date of April 6, 2015.
The reasons for transferring from a UK pension to an offshore QROPS remain strong.
The result of the onshore pension overhaul has strengthened rather than weakened the reasons to switch.
QROPS have always had tax, currency and investment advantages over and above those of an onshore scheme and any changes to a UK pension are added to the QROPS toolkit, while none of the advantages have been removed.
Switching a pension offshore
Some of the key points for expats and international workers to look at are:
- Tax paid on pension withdrawals can be as low as zero, depending on where the retirement saver is resident for tax.
- Some QROPS jurisdictions allow up to a 30% tax-free sum – 20% more than the UK maximum
- Money can be withdrawn from a QROPS in any major currency, smoothing out foreign exchange rate fluctuations
As the law stands, both defined benefit and defined contribution pension funds can be transferred into a QROPS, but this will change on April 5 next year, when the new rules prohibit transfers and flexi-access drawdown from civil service and public sector pensions.
In fact, the new pension reforms seem to reflect bringing onshore pensions into alignment with the offshore schemes.
QROPS have always come with no obligation to buy and annuity, which was one of the first and key reforms for onshore pensions.
Secondly, the offshore schemes have always had no 55% tax charge on beneficiaries inheriting unused pension funds – another recent and key reform to UK pensions.
Anyone wanting to transfer to a QROPS has more than 3,500 international schemes based in 42 financial jurisdictions to choose from.
