Expats looking to move their pension pot abroad for when they retire are urged to consider which country they move their money to and what impact currency fluctuations may have on payments in retirement.
Moving a pension from the UK is tax effective for an expat, since offshore rules are more flexible than those in the UK, although their savings can only be moved under the Qualifying Recognised Overseas Pension Scheme (QROPS).
That’s because QROPS are strictly controlled by HM Revenue and Customs, which tries to align the convenience of having a pension based outside the UK with fair play tax rules.
The issue for HMRC is that the pension pot is built using tax relief in the UK, and to ensure no one gains a tax advantage or exploits the potential opportunities of moving their savings, funds can only be switched to a scheme on the tax man’s QROPS list.
Third party QROPS
Now a QROPS expert is flagging up the potential issue of currency fluctuations on the payments and is urging expats to think about using QROPS based in the Isle of Man.
Mark Kiernan, a director at QROPS provider Boal & Co, says that the IoM has a flexible and well-established regime for pensions, including administrating them for those living abroad.
He said that for using a QROPS based in the Isle of Man would help reduce the currency risk of transferring regular payments from Sterling to the currency of the country the expat is living in.
He added: “Not all countries are allowed to offer QROPS, so an expat may not be able to transfer their pension to the country they are living in.
“There may also want to maximise the tax benefits available and the Isle of Man provides a well-established regime for pensions.”
Pension rates
When a UK worker retires they are allowed to take out up to 25% of their pension pot in a tax free lump sum, while those in the Isle of Man about can take out as much as 30%.
Also, if the pension fund is to be passed on as part of an estate it would be taxed at 55% in the UK while in the Isle of Man the same fund will be taxed at 7.5%.
QROPS also offers expats better rates of income since the Government Actuary’s Department (GAD) rules governing income drawdown are different to those in the UK after the retirement saver has been non-resident for at least five years.
However, expats should factor pension transfer costs into any decision about starting a QROPS to make sure the numbers involved are cost-effective.
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