Just how much control expats have over their state pensions has been thrown in to doubt by the British government’s action suspending payments to Cyprus residents.
Cyprus is a popular destination for British pensioners – making up a large number of the 25,000 British expats living on the Mediterranean island.
However, they cannot access state pension payments while the Cyprus Eurozone bail out is sorted out.
The past few days have seen money seized from private bank accounts, cash machines switched off and financial upheaval as the Cypriot government and the Eurozone thrash out the finer points of a 10 billion Euro bail out.
The country’s economy is in turmoil following the debt crisis in Greece as the Cypriot s heavily invested in Greek banks.
Bail out cash grab
The British government explained the state pension payments are stopped to make sure the money goes to the pensioners and not a cash grab to offset the bail out.
UK Treasury minister Greg Clark explained the pension money is only held for safekeeping and pensioners who want their money can open an online bank account that bypasses those in Cyprus.
Banks in Cyprus will stay closed until March 21 while the government debates how to handle the bail out.
The British government action is yet another example of how expats do not control their money from the UK.
Expats in many countries have protested for years over the unfairness of the British government index-linking state pensions in Europe and some selected countries, while those in other expat destinations like Canada, Australia and New Zealand miss out.
The government is also proposing expats will lose other payments – like the winter heating allowance.
Other government tinkering that affects private pension incomes includes setting annual and lifetime allowances, and the GAD figure.
GAD stands for Government Actuarial Department, which is the office responsible for setting the level of private pension pay outs.
For instance, GAD was set at 100% but is rising to 120% from March 2013. The effect of changing the GAD rate means private pension incomes will rise by 20%, although the extra cash will take up to 14 months to work through the system before every pensioner sees the benefit.
QROPS and expat pensioners
One alternative for expats who have left private pensions in the UK when they have moved overseas permanently is a Qualifying Recognised Overseas Pension Scheme (QROPS).
A QROPS allows the retirement saver to take more control of their pension.
For the first five years overseas, a QROPS is effectively a British private pension based overseas, as many of the rules governing the scheme are the same.
However, some significant advantages are available to expats, like up to 30% tax-free lump sum payments compared to 25% in the UK; more flexible investment options and exemption from UK inheritance tax for unused funds when the investor dies.
Advice
If you are interested in transfering your UK pension to a QROPS and would like to be put in touch with a qualified financial adviser, please contact us via the contact form here for a referral.
Getting the right pension advice is vital – QROPS rely on the right mix of cross-border tax interaction, so look for an advisor with tax knowledge and whole-of-the-market experience who can personalise the right pension plan rather than fit you into an unsuitable scheme.
Stop the heating allowance for the thousands of pensioners who live in hot countries, and use it for the pensioners in our country who actually need heating because it cold.