Background

The sweeping changes to UK Pensions announced in the Budget have cut a swathe through what used to be “de rigueur” for financial advice regarding investing in, taking income from, transferring abroad or what happens on death with regards to your pension. Add to that the dramatic reduction in the number of available QROPS brought about by HMRC writing to all such schemes to ask them to re-state their suitability to on the HMRC list (link below) and we have a new “pensions landscape” to consider.

https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-pension-schemes-qrops/list-of-recognised-overseas-pension-schemes-notifications 

You will also notice on this page that QROPS are now referred to as ROPS, HMRC having dropped the word qualifying as this gave a false impression that they were somehow endorsed by HMRC.

What are the Changes?

In brief the changes which have taken place are:

• Pension drawdown has become much more flexible
• You no longer have to convert your pension fund into an annuity at retirement (this has actually been true for a few years now but was not widely known)
• People who have already opted for an annuity can potentially trade them for a lump-sum from 2016
• The Pension Commencement Lump Sum (PCLS or better Tax-Free Cash) does not change from the original 25% but can now be taken as a series of lump sums. 
• The remaining fund of 75% can be taken as income as a series of lump sums rather than monthly (taxable)
• Major changes to the death benefits depending on age, leading to interesting succession planning possibilities
• You may take the entire value of your pension pot as a lump sum (25% tax free and the remainder subject to tax at emergency tax rates, some of which you may claim back in your tax return later.

Interestingly news from Royal London has indicated that nearly 70% of people have opted for this route with quite a number being shocked by the tax charge. Even more worryingly a large number of these people have simply deposited the money in their bank and are paying tax on the interest received (if they even get any). This is frankly mad and as an Independent Financial Adviser infuriates me that advice was not sought, even a short, cost-free phone call could have at least highlighted the tax problem and other available options.

The cynics amongst us (who me?) may believe that collection of additional tax revenue was the true purpose of the new “pension freedoms” in the first place.

So what about QROPS?

You could be forgiven for thinking that HMRC would simply “export” the new freedoms over to QROPS. This however is not practical for a few reasons:

• Different jurisdictions have different rules
• The flexibility and pension freedoms now available in the UK do not apply to QROPS from April 2015,although this has now chaged for some jurisdictions!
• QROPS benefits cannot be taken prior to age 55 except in the case of serious ill health. Taking QROPS benefits prior to age 55 was one of the big “sales pushes” of previous schemes. This has been removed and is one of the main reasons such a large number of schemes have disappeared from the HMRC list.

HMRC View of QROPS (now ROPS)

The following excerpt was taken directly from the HMRC website:

 “HM Revenue and Customs (HMRC) can’t guarantee these are Recognised Overseas Pension Schemes (ROPS) or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings.

HMRC will usually pursue any UK tax charges (and interest for late payment) arising from transfers to overseas entities that do not meet the ROPS requirements even when they appear on this list. This includes where taxpayers are overseas. HMRC will also charge penalties in appropriate cases. 

Tax relief is given on pensions to encourage saving to provide benefits in later life. Accessing benefits (directly or indirectly) before age 55 will result in a liability to UK tax charges in all but the most exceptional circumstances. You should seek suitable professional advice including from a regulated financial adviser”.

Message from the Author

Pension legislation, tax implications and the recent changes / freedoms have forever changed Pension Advice.  This is a hugely complex area of financial planning and we have not even discussed the various investments which can be held in a pension. 

The Pension freedoms available in the UK have now been made available to certain UK expats and this is an area where advice is needed as you may well benefit from transferring to a QROPS.

As mentioned in the last paragraph of the excerpt above by HMRC “You should seek suitable professional advice”. Speaking as an Independent Financial Adviser in Mallorca I clearly have a vested interest in saying “I couldn’t agree more”. But you have to consider that you also have a vested interest in seeking Qualified, Independent Advice, after all the cost of making a mistake will far outweigh the cost of advice.

Get in touch directly or click on the link at the bottom of the article to access our range of financial guides including QROPS.