Qualifying Recognised Overseas Pension Schemes (QROPS) can help retirement savers from leaving loved ones short of cash when they die.
Many British workplace and private pensions come with a wealth trap that means half or less of unspent pension contributions are passed on to beneficiaries when a pension saver dies.
New laws have helped resolve the problem by giving a framework to leave the entire unspent pensions to loved ones, but still do not plug the gap as many providers will not implement them without instructions from a customer.
Final salary pensions offered by employers look to have unbeatable benefits, but most only offer a no lump sum and only half of the saver’s monthly pension to their widow.
Lost savings
Many personal pensions are no better – some providers have specific clauses on their annual statements and projections that clearly state that any unspent pension contributions are lost when the scheme member dies.
This means someone who has diligently saved for years may lose at least half if not all of their contributions when they die, leaving their loved ones without a major source of retirement income.
When pressed, some companies will agree to write the pension in trust, which places the fund outside of an estate for inheritance tax in the UK.
They will also protect unspent contributions so they can pass to a spouse or loved one.
Read the small print
QROPS can help expats escape the pension wealth trap as they are already written in trust and follow UK inheritance rules.
This allows someone to inherit all the unspent fund tax free if the saver dies before they are 75 years old. If they are older, the person inheriting pays tax at their marginal rate unless they are an expat, when tax rules local to where they live apply.
Expats with a pension based in the UK should check with their provider to see what happens to their money when they die – and may pick up a nasty surprise and realise their family is not protected.
Estate planning is a major issue for expats who do not want to see their loved ones go short of cash in their later years and a transfer to a QROPS is a simple and effective way to deal with the problem.
Further QROPS Information and Guidance
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
