A guide for expatriates and international investors with private or company pension schemes in the UK.
Over the course of your working life you may have had the opportunity to work outside the UK, maybe in more than one country. You may have experienced different cultures and possibly even found a place that has captivated you to such an extent that you have decided to build your life there.
Perhaps you are a foreign national that lived and worked in the United Kingdom with a private UK pension scheme, and have decided to return home. Or maybe you’re just planning your retirement in the sun.
Whatever your unique personal circumstances maybe you should consider the benefits of transferring your UK pension to a more tax efficient structure if you see your future outside of the UK, or sometimes even if you expect to return.
The Key Questions to ask yourself:
Where will you retire?
How much will you need as an income?
What tax will you pay on pensions if they remain in the UK?
Are you clear on the options available to you in respect of your UK pension assets?
Please note the UK State Pension CANNOT be transferred.
Now that you have left the UK, you should be considering the options available to you in respect of your pension assets left behind in the UK.
• Do nothing. Leave the pension funds in the UK
• Transfer to an HMRC Recognised Overseas Pension Scheme (ROPS) - formerly known as a QROPS
• Transfer to an International SIPP (Self Invested Personal Pension)
Leaving your pension in the UK
The following may apply to you and your pension if you leave your funds in the UK:
Leaving your pension in the UK is often considered the safest option, because things stay exactly as they are. Sometimes, however, change is the better option. Here's a few things to bear in mind should you leave your pension in the UK.
Income Tax will apply - up to a potential 45%
Beneficiaries may not receive the full value of your fund after your death - Some UK pensions will form part of your estate to be passed on to loved ones, but not all - you should be certain of the terms and conditions that apply to your own scheme.
Subject to Lifetime Allowance (LTA)* assessment - any savings in excess of the LTA limit will face an additional tax of between 25% and 55% • Subject to ongoing and fast paced changes in UK Pension legislation, and tax rules
UK Pension Funds are generally held in GBP creating a potential future currency risk - if all your income is derived in GBP and the Pound falls you will lose real spending value in your new country of residence.
84% of UK Defined Benefit (Final Salary) schemes are underfunded leading to a number of high profile closures - Many Defined Benefit pension holders have lost their schemes in recent years and will now suffer a much lower quality of life in retirement
No/Limited control of investments - Typically UK pension invest into set options and therefore investment choice and returns can be restricted
Restricted growth options and capital protection
* The Lifetime Allowance in the UK is currently £1.055 million. Key Reasons to Transfer Your UK Pension
What is A SIPP or a ROPS?
What is an International Self-Invested Personal Pension (SIPP)?
A SIPP is simply a UK government recognised personal pension scheme, which can offer greater investment freedom and control. If you are living abroad, the International version may provide more scope in respect of currency flexibility and investment options.
Your SIPP can receive transfers from UK registered schemes and Recognised Overseas Pension Schemes. Please note that UK State Pension benefits cannot be transferred.
Your SIPP will remain in the UK and as such will fall under UK regulations and the potential implications of any future tax and pension law changes
Your SIPP can convert to a ROPS at any point if your circumstances change.
Who are International SIPPs for?
A SIPP is available even if you are a non UK resident (however tax relief will not be provided at source when you are non-UK resident).
What is a ROPS?
A ROPS is a Recognised Overseas Pension Scheme and may be relevant to you if you are resident in the EEA (defined as the EU plus Norway, Liechtenstein and Iceland) and intend to remain resident in the EEA for 5 full years after your pension transfer.
A Recognised Overseas Pension Scheme is a pension plan that is recognized under UK HMRC rules to accept transfers from UK Pension Schemes.
The pension benefits you have built up are your assets for your future financial security. If you move abroad, or are thinking of moving abroad, you have the option to transfer them to another pension scheme, which could be based abroad.
Who are ROPS for?
Anyone with a UK personal and/or occupational pension scheme with at least £100,000+ invested and who has either left or, is planning to leave the UK in the next 12 months and living in the EEA and will continue to do so for the next 5 years.
If you fall into the above category you have the opportunity to maximise the growth and income potential of your pension, rather than be limited to the restrictions of a UK pension scheme and the lifetime allowance.
*Please note that UK State Pension benefits cannot be transferred.
Benefits of Transferring Your UK Pension to an alternative scheme:
Pay less income tax -your pension funds in the UK could be taxed up to 45%
100% of your pension fund can be passed to your beneficiaries
Increased PCLS (Pension Commencement Lump Sum) availability - up to 30%
Access to your pension at 55 years of age
Crystallisation - If you are transferring into a ROPS, a crystallisation event takes place at the point of transfer, meaning that the lifetime allowance rules will not apply thereafter
84% of UK final salary schemes are underfunded - so your pension fund could become insolvent and end up in the Pension Protection Fund with reduced benefits. This can be avoided by moving the scheme
Flexibility of Income payment options - not restricted by mandated UK government withdrawal rules
Eliminate Exchange Rate Risk - Hold your pension in the currency where you reside
Control of investment and growth potential
Consolidation of multiple schemes under one roof
What’s Right for You?
Whether the best solution for you is a ROPS or an International SIPP, or indeed to remain in your current scheme will be determined by your individual scenario and country of residence.
Knowing what your options are, and what the potential benefits could be for you, is of paramount importance.
If you hold a UK pension and would like to discuss your options in more detail with a qualified advisor please reach out to us at www.partners-ps.com and we will be delighted to help you to identify the best solution to you personally.