Boon for British expat retirees

Transferring a pension abroad is now an easier exercise for British expatriates thanks to the number of qualifying recognised overseas pension schemes (Qrops) on the market.

HM Revenue & Customs has made emigrating to Malta less difficult by recently approving the country’s first Qrop. The programme will be administered first by MC Trustees in the UK and later managed in Malta. PricewaterhouseCoopers are its auditors and a wrap platform, which permits the management of assets online, will be offered.

Qrops, which were introduced in 2006, permit British pensioners who are non-UK residents for at least five consecutive tax years to withdraw funds from international pension schemes based in tax-friendly jurisdictions such as Guernsey. Qrop schemes must meet the Revenue’s reporting requirements for five years after a Briton has emigrated. And state pensions cannot be transferred into them.

Popular destinations for Britons looking to emigrate include Australia, France and Spain. And Paul Davies, director of the advisory firm Global Qrops, says a number of expatriates choose to keep their pensions in Guernsey – which permits pensions to be denominated in sterling, euros or US dollars and does not charge income
or capital gains tax on
pension assets – and move elsewhere.

This is because the offshore centre’s tax treatment is more closely aligned to the UK’s. No Guernsey
tax is applied on pension withdrawals from abroad, but taxes may apply in
the country where you reside. Another plus is there is no need to
purchase an annuity by the age of 75 if you transfer your private pension funds to a Qrop.

As well as underlying fund charges, additional costs for taking out a Qrop include a set-up charge of
1 per cent of the fund’s value and a yearly management charge of £1,000-
£1,500, according to managers’ estimates.

Tax systems vary widely by country and those interested in taking out a
Qrop are encouraged to
contact the Revenue for more details on particular schemes. A list of
participating Qrops can be downloaded at www.hmrc.gov.uk/pensionschemes/qrops.pdf.

Transfers to a non-registered overseas pension scheme which is not a Qrop are subject to a 40 per cent unauthorised payment charge, according to the Revenue.

Andrew Yonge, senior financial planning consultant with Smith & Williamson, said: “Although I can advise clients on transferring benefits to Qrop schemes, an individual should always take advice locally from tax authorities. It might be more beneficial, in some cases, to transfer a Qrop to a tax-haven such as Guernsey, in some cases, and draw from the pension elsewhere.”

Australia appears to be a good place to transfer a pension as UK expats who are resident there can take out benefits tax-free from an Australian Qrop
scheme at age 60. But you can only transfer A$450,000 every three years into an Aussie superannuation scheme from pensions elsewhere, or A$150,000 each year, according to Paul Davies, director with Global Qrops.

The area that tends to present difficulty is the transfer of “final salary” or “defined benefit” schemes – where pensions are based on a member’s salary and length of service.

Transfer values out of these funds are the present cash value of deferred retirement income promises made by employers. They depend on assumptions made regarding investment returns by the fund. This, and the fact that pensions tend to be indexed, has to be balanced out against the benefits of transfer into a Qrop scheme.