QROPS GuideUnderstanding Qualifying Recognised

Overseas Pension Schemes

www.avantiswealth.com

THE RICHER RETIREMENT SPECIALISTS

ROD THOMAS INVESTMENT

Introduction

About Avantis Wealth

What is QROPS?

The Process

Considerations

FAQs

Find Out More

Contents

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If you have a UK pension and now either reside outside of the UK or plan to, you can transfer your pension into a QROPS – and access a host of benefits.

Put simply, a QROPS is an overseas pension scheme recognised by HM Revenue and Customs (HMRC) which can accept a UK pension transfer. The benefits of transferring your fund into a QROPS include increased tax efficiency, total investment freedom and large growth opportunities – to name just a few.

“QROPS is an Overseas Pension Scheme that can accept UK pension transfers.”As your pension is probably your second most valuable asset after your home, these benefits really matter, and can dramatically improve your life in retirement.

This demand for QROPS has been a key factor in their development and refinement, and so far over 30,000 expats have transferred their UK pension into a QROPS since the schemes were launched.

And with over 350,000 Britons leaving the UK to begin a new life every year, the demand shows no sign of slowing.

QROPS ability to simplify an individual’s retirement has also helped. With a QROPS it is much easier to move away from outdated arrangements, and consolidate numerous pensions under one roof.

Whatever your reason for considering a QROPS, this guide is essential reading to ensure you understand the benefits and pitfalls of QROPS, and can make an informed decision.

This Guide will explain what a QROPS is, and outlines the advantages of transferring. However, please note the information contained within is generic. Therefore if you have individual questions, please contact an experienced financial advisor by completing the GET ADVICE form and receive advice tailored to your unique circumstances.

“This guide will explain what a QROPS is, outlines the advantages and considerations, and shows you how you can benefit from transferring your UK pension.”

Introduction

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Avantis Wealth is an investment broker specialising in high income investments.We provide our clients with investment opportunities that will allow them to achieve market leading returns from their pensions, investments and savings, potentially leading to greater financial security and a better quality of life. The company was created as a direct reaction to the poor performance of the conventional pension sector and our belief that investments can offer high income at low to mid risk. This model provides investors with an alternative to poor performance and the real opportunity to improve their income either now or in retirement.

Expert knowledgeOur team is certified in the products we offer, so we know each investment inside and out. We have the knowledge and resources to give you all the information you need to make the best decisions for your financial future.

About Avantis Wealth

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• Fixed returns – this means that you know in advance the income that you receive in years to come.

• Regular high income – we expect investments to provide regular income, unless compound growth is chosen.

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UK pensions have traditionally been tied up in many limitations and regulations; partly to protect the UK’s tax revenues, and partly to stop pensioners spending their money too early in retirement and later relying on the Government for income.

The good news is that in 2006 HMRC began a drive to simplify pensions, which included the announcement that overseas British pension holders could move their pension fund into a QROPS – or Qualifying Recognised Overseas Pension Scheme.

As the name suggests, a QROPS is a pension scheme based outside of the UK eligible to receive UK pension transfers. What’s more, they give many financial and investment benefits to the individual, such as increased investment freedom, a lump sum of up to 30%, and the ability to pass on 100% of the fund to loved ones upon death.

The five-year ruleThe five-year rule refers to the length of time the member has been resident outside of the UK. It is measured in tax years (and not calendar years).

The rule is important as it determines when QROPS benefits can be taken. During the first five years, benefits mirror those available in the UK, such as a 25% lump sum, and 55% tax on fund after death.

However, after being a non-UK resident for five full tax years, your QROPS pension follows the rules of that jurisdiction. This means you can access up to 30% lump sum, incur no UK income tax, no tax ondeath, and access the host of other benefits your QROPS offers.

“After five years, you can access all the investment and income benefits of your QROPS.”Rising numbers of people now spend a quarter or even a third of their lives in retirement, making it quite possibly the holiday of a lifetime.

Transferring your fund into a QROPS means you enjoy the best of both worlds – receiving valuable tax relief whilst saving for your retirement in the UK, without needing to pay higher taxes when the time comes to draw benefits overseas, or submitting to the strict pension rules which have to be followed in the UK.

What is QROPS

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Needless to say, these opportunities are subject to change. In the past certain schemes – or entire jurisdictions – have been delisted by HMRC for not following QROPS rules.

This is why you need to connect to a regulated QROPS expert who can complete the necessary due diligence before any transfer, and give comprehensive advice.

Please note you cannot transfer a UK state pension or an annuity into a QROPS.

Pension comparisonTo begin, here is a comparison of your two pension options:

Keeping pension in UK scheme

Transfer UK pension into a QROPS

How much can I withdraw as a lump sum?

Up to 25% Up to 30%

Is my pension income taxed in the UK?

Yes No

Is my pension affected by exchange rate fluctuations?

Yes, as most accounts are held in sterling

No

Are there limits to what I can invest in?

Yes No, there is a wide range of options

Can I pass on my scheme when I die?

Not usually Yes, up to 100%

If I can pass on my scheme is the fund taxed on death?

Yes; up to marginal tax rate of beneficiaries

No

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“QROPS offer much greater investment and income freedom.”

QROPS Benefits

As mentioned above, QROPS offer some significant advantages no other type of pension scheme can. The main benefits are outlined below.

1. Remove the requirement to buy an annuity

2. Easily pass on your wealth

3. Avoid inheritance taxes

4. A tax-free lump of up to 30%

5. Increased income drawdown and greater flexibility

6. Greatly increased investment freedom and opportunities

7. Tax-efficiency

8. Avoid currency exchange rate fluctuations

9. The ability to base your pension in one country whilst you live elsewhere

10. Transparent charges

11. Benefits taken at age 55; or sooner dependent on special circumstances

12. Consolidate multiple pensions into one easy to manage scheme

13. No Lifetime Allowance (LTA) charge

14. Avoid further changes to UK tax and pensions legislation

1. Remove the requirement to buy an annuity

Historically, 75% of a British pension pot had to be used to buy an annuity – which provides guaranteed income for the rest of your life.

The downside is yields are low, subject to income tax, and when you die, your pension fund dies with you.

Many outdated pensions automatically default into an annuity or similar at a given time.

But by transferring your UK pension into a QROPS, this danger is avoided, and upon death any funds that have not been used to provide you with income is passed onto your loved ones.

“Pass on 100% of your pension to your loved ones.”

2. Easily pass on your wealth

As you nominate your beneficiaries when you transfer your fund into a QROPS, passing your wealth onto your loved ones is usually easier, faster and less stressful for your family than with a UK pension.

Yet, when it comes to passing on your wealth with a QROPS, there is another, huge benefit:

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3. Avoid inheritance taxes of up to 55%

Inheritance tax (IHT) is assessed on the total, worldwide assets of people domiciled in the UK.

Even if you are resident overseas, if HMRC can establish Britain was the country you regarded as home at the time of your death, your UK pension would be subject to IHT.

UK pension funds being passed onto beneficiaries will incur an IHT charge of 55%. However, this deduction does not apply to QROPS; where your funds can be passed onto your loved ones free from tax at source.

4. A tax-free lump of up to 30%

Many QROPS allow up to 30% as a tax-free lump sum; as the scheme only needs to keep 70% of the original transfer pot as retirement income.

In the UK, the cash lump sum is limited to 25%.

This benefit alone is one of the most popular reasons expats transfer their UK pension into a QROPS.

An experienced financial advisor can explain this in depth, ensure that 100% of your fund can be passed to your beneficiaries, and help you to plan for your succession.

“Receive 30% of your fund as a tax-free lump sum.”

5. Increased drawdown income and greater flexibility

If you transfer your UK pension into a QROPS, when you have been a non-resident of the UK for five years, you can take advantage of significantly more flexible income drawdown rules.

The drawdown amount on UK pensions is calculated using the Government Actuarial Department (GAD) rates. These rates are currently at their historical lowest.

With a QROPS, the jurisdiction’s rules allow the trustees to use a different calculation then the UK GAD. This can allow for income to be up to 50% greater than a UK pension.

A QROPS will also avoid UK income taxes which typically range from 20% to 50% depending on how large your fund is.

Therefore by transferring your UK pension into a QROPS a higher income – and a dramatically more comfortable retirement – can be achieved.

An experienced financial advisor can explain this in depth, ensure that 100% of your fund can be passed to your beneficiaries, and help you to plan for your succession.

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“QROPS: Increased, and more flexible income.”6. Greatly increased investment freedom and opportunities

One of the most significant ways in which QROPS are superior to UK plans is in their investment choice – which is usually very wide indeed.

To highlight the differences, UK stakeholder pensions have low investment charges, but tend to offer a limited choice of funds. Conversely, traditional UK personal pensions tend to offer a wider choice of funds than stakeholder schemes, but can carry hefty charges, particularly on older, outdated plans.

What you may not know is that both these UK pensions are usually run by insurance companies. This means you are only investing in a small selection of funds that are either run by the insurance company itself – or possibly a limited selection form associated fund managers.

So if you require access to the best fund managers in the market and an unparalleled variety of asset classes, a QROPS is an infinitely better choice.

A world of choice

QROPS offer the widest possible choice of investments, allowing you, your financial advisor or investment manager to pick from a range of asset classes across the global market.

There is also no limit to the size of funds a QROPS can hold, meaning when you have transferred your fund, you can continue to grow it as you see fit.

“What’s more, both your contributions and the fund itself can grow free from capital gains tax.”With a QROPS, both your contributions and the fund itself can grow free from capital gains tax.

So if you wish to escape from mediocre performance, the cripplingly high fees of UK pensions and take control of your future, a QROPS cannot be ignored.

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Keeping pension in UK scheme

Transfer UK pension into a QROPS

Collective investment funds

Unit trusts No Yes

Investment trusts No Yes

Open Ended Investment Companies (OEICs)

No Yes

Exchange Traded Funds (ETFs) No Yes

Insurance company funds Yes Yes

Stocks and shares

Individual UK shares (equities) No Yes

Overseas equities No Yes

Gilts No Yes

Bonds No Yes

Futures and options No Yes

Permanent Interest Bearing Shares (PIBS)

No Yes

Other

Cash and deposit Yes Yes

Traded endowment plans No Yes

Commercial property and land No Yes

Loans No Yes

Here is a comparison of which investments you can choose:

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7. Tax efficiency

Many countries impose lower taxes on income than the UK; including on pension income.

Depending on where you live, you can therefore receive income from your retirement fund at substantially lower tax rates than would apply in the UK.

8. Avoid currency exchange rate fluctuations

A UK pension pays out in sterling regardless of where you live, so you face complicated timing issues to make the best of changing currency rates. In addition, investing in international funds can add costs due to currency conversion.However, because a QROPS can invest and pay out in most major currencies, you:

1. Reduce the effect of exchange rate fluctuations,

2. Avoid the hassle of timing transfers to get the best rate, and;

3. Can choose your FX broker to receive the best rates.

9. The ability to base your pension in one country whilst you live elsewhereBy transferring your UK pension into a QROPS your scheme can either take advantage of the tax rules where you live – or a different low-tax jurisdiction which has increased benefits.

For individuals who might move between countries, or are moving in the future, multi-jurisdictional schemes are also offered by some providers. They allow your QROPS to move between jurisdictions to maximise its efficiency without additional charges.

“Multi-jurisdictional schemes allow your QROPS to move between jurisdictions as you do; and maximise efficiency.”10. Transparent charges

One of the main disadvantages of UK pensions concerns confusing charges found in outdated schemes. When these charges come into effect they can put a serious – and wholly unexpected – dent in your retirement.

By transferring your UK pension into a QROPS however, your advisor can clearly outline the applicable charges so you can see exactly where your money is going – a factor strengthened by the fact UK pension charges are usually percentage based whilst QROPS enjoy a fixed fee.

11. Benefits taken at age 50; or sooner dependent on special circumstances

There is generally a large amount of flexibility on when to take your QROPS benefits.

Usually you will begin taking income between 50 and 75 years of age; but it is possible to access your funds both before and after these birthdays (i.e. in special cases such as ill health).

For more information regarding your circumstances or needs, please complete our GET ADVICE form.

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12. Consolidate multiple pensions into one easy to manage scheme

With a QROPS, you can consolidate any number of UK pension funds into one larger, easier to manage plan.

This allows all your hard earned pensions to benefit from improved investment choice, and overall you will save on charges and maximise growth.

You also benefit from having one plan for all your retirement provisions, and one point of contact; making managing your retirement fund much easier.

“A consolidated fund means you can save on charges and maximise growth.”

13. No Lifetime Allowance (LTA) charge

In the UK, there is a lifetime allowance (LTA), which sets a limit on the amount of tax relief you can receive before additional taxes. Currently £1.25 million for the 2014/15 tax year.

This applies to all your pension savings. So, if your total pension fund exceeds the LTA, you could be hit with a 55% charge on the excess.

However, if you transfer your fund into a QROPS you will not be taxed – even if your fund grows beyond the LTA after the transfer.

Please note, if your UK pension is above the LTA and you transfer into a QROPS there will be a tax charge.

14. Avoid further changes to UK tax and pension legislation

Once in a QROPS, your fund is safe from the ever- changing rules and regulations in the UK.

This includes the possibility that before long, the ability to transfer your fund into a QROPS could itself be scrapped – something we talk about more in the Considerations section.

This is by no means the complete list of QROPS benefits. You also have the advantage of protection against possible future creditors – depending on your QROPS jurisdiction – and greater confidentiality than if you left your pension in the UK.

To find out about all the benefits inherent in QROPS which are applicable to you, please use the Contact Form.

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The following outlines how long it may take to transfer your pension into a QROPS.

These times can vary, and depend on the speed information is given to your financial advisor by your existing pension provider.

The Process

1st Week

• You submit an enquiry

• Your advisor sends you a Letter of Authority to complete – so they can speak to your current pension provider on your behalf

2-4 weeks

• You email or fax the Letter of Authority and send the original

• Your existing pension provider is then contacted to confirm its value and check it is eligible to transfer

5-8 weeks

• You complete the application forms

• A discharge form is sent to your existing provider, and an application form is sent to the chosen QROPS provider

• Your pension is then transferred into the QROPS – providing tax-efficient income in the currency of your choice with a wide range of investments to choose from

Letter of Authority

This letter is an authorisation from you which allows your adviser to gather information about your UK pension.

Please note this letter is not binding in any way and does not constitute an authority to make changes to or transfer the scheme.

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QROPS are not right for everybody. However, for most UK pension holders a QROPS can be significantly beneficial, so long as the following factors are considered carefully:

1. Less investor protection

Some low-tax countries provide less investor protection than the UK – i.e. there is less regulation of financial service providers. This regulation gapis a particular worry to pensioners and those approaching retirement who can be targeted by ‘pension busting’ scams.

This makes it all the more important for you to take advice from experts who are authorised by the UK authorities and experienced in your future jurisdiction.

2. Incorrect jurisdiction/scheme may be chosen.

There is the possibility the right scheme may not be chosen for you. In addition, if you wish to take an active role in deciding where your fund is invested you will need to be sure that your QROPS allows you to manage your own funds.

3. Too good to last?

Lastly, as a QROPS allows individuals to build up substantial pensions with tax relief then later avoid paying British tax on pension income, some experts believe the benefits of QROPS are simply too good to last. They believe HMRC may, in the future, decide to alter or completely remove QROPS (as happened with the delisting of Singapore’s schemes).

Considerations

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Are all QROPS the same?

Definitely not! Differences include when you can access the tax-free lump sum, how much you can take as income, and the costs. This is why it is imperative you take expert, independent advice – so you learn the best option for your unique needs and circumstances.

Who can transfer their pension into a QROPS?

Anyone with a UK pension can transfer their fund into a QROPS – providing they have not bought an annuity. However, considerations such as any pension benefits, the total amount in your pension, and where you are currently a resident all need to be considered in detail, meaning you must speak to an advisor.

Can I take 100% of my QROPS fund as a lump sum?

No, as your retirement fund needs to be able to provide income for you for the whole of your retirement, HMRC has set the lump sum limit to 30%. Some jurisdictions do allow additional payments however. You should speak to an advisor for more details.

I may go back to the UK in the future, can I still benefit?

If you transfer your fund into a QROPS and return to the UK after five years, there is no obligation to transfer your fund back to the UK. In fact, there are significant advantages – such as only being taxed on 90% of your pension income.

I have a UK SIPP and I have already drawn some income – can I benefit?

Even if benefits have already been taken, you can transfer most registered UK pension schemes into a QROPS.

A QROPS can be described as an advanced SIPP – in that it allows you all the same investment freedom but the ability to base your pension outside of the UK.

Can I transfer and set up a QROPS myself?

Usually no – although some QROPS ‘lite’ versions can be set up by the individual.

However a QROPS ‘lite’ means you will miss out on whole of the market advice, an expert review of your financial situation, recommendations that span the entire QROPS market, an overview of the investment options available to you and a thorough examination of the QROPS most suited to your needs.

In addition, the better QROPS require regulated financial advisors to handle the transfer.

FAQs

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DISCLAIMER

Avantis Wealth Ltd is not authorised or regulated by the Financial Conduct Authority (FCA).

Avantis Wealth Ltd does not provide any financial or investment advice. We provide a referral to a regulated advisor who will offer appropriate advice, or to the company offering an investment who will determine your suitability for the investment prior to any offer being made. We strongly recommend that you seek appropriate professional advice before entering into any contract. The value of any investments can go down as well as up and you might not get back what you put in. You may have difficulty selling any investment at a reasonable price and in some circumstances it might be difficult to sell at any price.

Do not invest unless you have carefully thought about whether you can afford it and whether it is right for you and if necessary consult with a professional adviser in accordance with the Financial Services and Markets Act 2000. These products are not regulated by the FCA or covered by the Financial Services Compensation Scheme and you will not have access to the financial ombudsman service.

Information is provided as a guide only, is subject to change without prior notice and doesn’t constitute an offer of investment. Some investments may be restricted to persons who are high net worth, sophisticated or professional investors or who take independent advice from an authorised independent financial advisor.

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