Much has been written about the impact that the Chancellor’s budget announcement has, and will have on the QROPS industry, however when the bullet points are researched in slightly more depth, the impact felt by most of the QROPS market will be negligible as things currently stand.
The Changes
As of 6th April 2015, the following initiatives on UK pension schemes will come into place, although these are all subject to consultation and are all in the proposal stage right now:
• Those reaching the age of 55 will be able to take their entire pension in one go. 25% will be tax free and the remaining 75% will be subject to tax at the marginal rate which is calculated from the person’s lifetime allowance.
• UK death taxes are set to be significantly decreased from the 55% they currently stand at, or potentially completely scrapped.
• There will be no requirement for retirees to purchase an annuity or any other income stream.
• There may be regulations introduced which impose restrictions on the transfer of pensions. This could mean that the transfer into QROPS may be disallowed for certain elements of the workforce, for example: the civil service or the public sector.
The Implications
While it is likely that the UK death tax will be reduced, the idea that it may be abolished altogether is slightly far-fetched at this juncture, so although a significant reduction may encourage those with smaller pensions to keep their funds in the UK instead of transferring them abroad, for those with a larger pension pot the benefits of the transfer will remain pertinent.
The fact that Lifetime Allowance remains in place will certainly encourage the more affluent expat to move their funds into a QROPS, and the increased access and reduced taxation on a percentage of the fund will still not be able to match up to some of the favourable options offered elsewhere.
The implications won’t be fully known until the full consultation has taken place, and final proposal published, however with certain sectors of the British workforce being excluded from the scheme, there will be an impact felt and they will be subject to British tax laws regardless of whether they decide to cut their ties with the UK or not.
It is unlikely that changes will be made to the way in which retirees can access their UK pensions, without changes being made to QROPS too. Many QROPS providers will be involved in the consultation process and as developments occur throughout the year there will be much interest across the world.
The main point of significance for the industry is that the larger pensions that offer the more significant incentives will remain unaffected as the benefits offered by QROPS still far outweigh those mooted in the Budget 2014.
To Conclude
The reason that QROPS were created was really as a result of pension companies not offering the flexibility to their customers to enable even a small amount of control over the money they had paid into them over years and years. The fact that the government is now proposing changes to the industry which could be of significance, is really just a product of the failure to react to growing demand by UK pension companies.
The UK pension as a product has not been made better or developed at all since QROPS were ceased and as such the government have decided to intervene. For those thinking of QROPS, the time to seek advice on the options is now. Changes are afoot from the UK perspective, however the benefits offered by QROPS for 80% of expats will not be rivalled by those offered from the shores of Great Britain as things currently stand.
