Now may be the best time ever for expats to switch their cash to a Qualifying Recognised Overseas Pension Scheme (QROPS).
At the heart of transferring pension funds overseas is a cash equivalent transfer value (CETV) – the comparison figure for moving money into a UK onshore pension to a QROPS.
Current CETVs are among the highest ever and may have reached a peak that many retirement savers may not see again in their lifetime.
This is due to the alignment of financial events such as low inflation and near-zero interest rates.
Add to this some huge golden goodbyes to encourage savers to leave pension schemes and sometimes moving to a QROPS can seem an opportunity too good to miss.
Transferring a final salary pension to a QROPS does mean the loss of some benefits, such as payments to spouses on the death of the pension holder and locked in guaranteed annuity rates, but this does not necessarily mean staying in the workplace scheme is best.
Unspent QROPS funds are outside of the reach of UK taxes and can be inherited by loved ones which is tax free in some cases and then passed on again when they die and so one. With a final salary scheme, a spouse will gain a half or two thirds rate payment, but this dies with them.
The lifetime allowance – the UK limit on the size of a pension fund – is £1 million and will rise each year in line with inflation.
Many of the 1,250 QROPS pensions worldwide have no savings cap nor penalties on the fund growing over the lifetime allowance threshold.
Controlling the cash
Who controls the cash is also important.
Too many workplace pensions have promised golden retirements but delivered much less.
Certainty is a valuable commodity, and although QROPS investments are market-linked rather than guaranteed, a rescued workplace pension only pays 90% of guaranteed benefits and caps annual payments according to age.
QROPS are controlled by the retirement saver.
Tax paid on a fixed pension income is an important consideration. QROPS pay benefits gross and income tax is paid in the place where the expat lives – which may well be zero.
QROPS also grow free of capital gains and inheritance taxes.