UK pensions SIPPS V QROPS

This blog covers the complex issue of UK pensions for Expatriates or UK residents considering permanently moving abroad so I will try to keep it a simple as possible. Over recent years larger numbers of UK nationals are choosing to work and retire abroad what impact does this have on their pension entitlement? There are three options for you to consider for your existing pension schemes.

1. Do nothing and leave it where it is.
2. Transfer to a SIPP (Self Invested Personal Pension)
3. Transfer to a QROPS (Qualifying Recognised Overseas Pension Scheme)

The first thing to do is clarify the two terms (QROPS and SIPPS). QROPS are not a product, HMRC recognises an overseas pension which is approved and regulated in the jurisdiction in which it is based. The jusidiction (eg. Isle of Man) then applies to HMRC for recognition as a QROPS arrangement solely to enable it to accept transfers from UK authorised and approved pension scheme which consist of UK tax relieved funds. In effect an offshore pension is a SIPP which conforms to HMRCs QROPS legislation.

UK SIPP

• Designed for UK tax payers or persons with UK sourced income.
• Benefits cannot be taken till age 55.
• Fund growth is free from taxation.
• Annuity purchase available but not mandatory.
• Tax free lump sum(Pension Commencement Lump Sum) PCLS of 25%, remaining balance must provide an income for life.
• Capped income drawdown(receiving income) is governed by UK GAD (Government Actuarial Department) rates at 100%(of GAD)
• Income is taxed at source.
• Provides tax relief on members contributions.
• 55% Member Payment Charge (tax) on residual fund on death if you are receiving income.

Overseas QROPS personal pension arrangement.

• Designed for UK nationals who are living abroad or have the intention of moving abroad.
• Benefits can be taken from age 50(dependent on jurisdiction)
• Fund growth is free from taxation.
• Income is paid gross (Income would then be declared in your resident country)
• Annuity purchase available but income draw down is generally favoured.
• Greater flexibility of investment choice and currency options.
• Once the you have been non-resident for 5 full complete and consecutive tax years(five-year rule) the benefits are as follows,

1. Tax free lump sum (Pension Commencement Lump Sum) PCLS  of 30%, remaining balance must provide an income for life.
2. No member payment charge on residual fund upon death if you are in income drawdown, the full fund is payable to your beneficiaries.
3. No inheritance tax(IHT)
4. Capped income drawdown governed by UK GAD rates with 120% (of GAD) available under local pension rules.

As you can see there is no real significant advantage to a QROPS over a SIPP for tax purposes before you start to take benefits. The main benefits kick in once you begin income drawdown(and have completed 5 full complete and consecutive tax years as a non-resident),

• Tax free lump sum (Pension Commencement Lump Sum) PCLS  of 30%, remaining balance must provide an income for life.
• No member payment charge of 55% on the residual fund upon death if you are in income drawdown, the full fund is payable to your beneficiaries.
• No inheritance tax(IHT)
• Capped income drawdown governed by UK GAD rates with 120% (of GAD) available under local pension rules.

The old argument that QROPS are more expensive to administer than SIPPS is simply not true any longer and in some case can be cheaper than many UK SIPP providers, LifePlus Insurance Brokers LLC have negotiated very favourable charging structures with many QROPS trustees in a variety of jurisdiction to suit any clients requirements.

It certainly makes a lot of sense to review your current pension arrangements by appointing a suitably experienced Financial Advisor to fully assess what your options are, therefore letting you make an informed choice.

Iain McIntyre is a Senior Consultant with LifePlus Insurance Brokers LLC and can be contacted on the contact form below.

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