If you have worked all your life and cringe when you consider how much tax you have paid to HMRC, you are not alone. However, many people decide to draw a line when it comes to paying taxes from their pensions. There are ways to minimise the amount of money the UK government can squeeze out of your retirement nest egg and most of them involve transferring your pension to an offshore equivalent. To do this, you would need to be classed as a resident of another country, which is great if you are already an ex-pat or considering moving abroad. Most people have concerns about the financial implications when they make a move, but overall the news is good.
Concerns about Offshore Pensions
The transfer of a UK pension to a fund located elsewhere can be a stressful time for the beneficiary because it usually involves the movement of large sums namely, the provisions that are in place to enjoy retirement. As with any large transaction, there are natural nervous moments and much of this is because of a fear of the unknown. This is why the UK FSA has devised a set of rules for pension funds to meet before a UK pension is transferred overseas. These rules are primarily to ensure UK citizens are protected. Sceptics would argue that the UK government is equally concerned about the possibility of people gambling their pensions on inadequate funds and then becoming forced to return to the UK where they would burden the taxpayer.
How does a pension fund qualify?
There are sets of rules for the two main types of funds that the FSA allow people to transfer their pension funds to without incurring massive penalties. Funds that meet these rules are Qualifying Recognised Overseas Pension Schemes or Qrops and Qualifying Non-UK Overseas Pension Schemes or Qnups. The qualifying criteria, is very stringent and that is why many funds aimed at being expat pensions belong to investment banks with a strong relationship to the UK. The names of these offshore pension providers are well known to many Britons and this is a direct result of the funds being designed by major financial institutions to maximise the benefits to the UK ex-pat.
Are there any benefits to transferring my pension?
The short answer is yes. Offshore funds have much more freedoms associated with them and they are subject to much less tax. It is a sad fact that many married couples lose out considerably when their partner dies before their pensions is transferred to a qualifying overseas pension fund because of the high rate of inheritance tax. This often means the life enjoyed abroad would come to an end because the remaining partner may be unable to sustain their lifestyle or afford to remain in their property. Inheritance tax may be the largest cost to the beneficiaries, but freed-up income tax is the benefit most appreciated by expats.
Is there any rush?
Strictly speaking no, but there are timeframes as long as five years of living abroad before you can take advantage of some of the benefits of a transferred fund. Another concern is that a Qrops or Qnups pension is an old product that each new Chancellor of the Exchequer reviews when they take the reins. This is why the benefits associated with expat pensions are increasingly limited with each change of government.
At the time of writing, the majority of benefits enjoyed by people with expat pensions still exist, but there is no guarantee that future generations transferring their pensions will benefit from the lack of taxes paid to HMRC. It is always wise to speak with a professional who can advise you on your specific situation. The financial world is constantly changing and what is available today may not be available tomorrow.
Whichoffshore provides professional expatriate information on offshore estate planning, QROPS pensions and more, in order to help British expatriate make the most of their money. For more information, please visit – http://www.whichoffshore.com/