There is a lot of confusion surrounding pensions. Even the chief economist of the Bank of England has confessed he can't make any sense of them. What happens for example if you decide to move abroad? What happens if you get a divorce? And what about the tax? Is there any way to get around it?
Through looking at QROP'S, QNUP'S and SIPP'S (don't worry you'll soon understand what they mean) this article aims to clear up all the confusion.
What are QROP'S? - QROP'S stands for recognised overseas pension scheme, meaning this is the scheme for you if you are living outside the UK or at least thinking of moving.
Who are QROP'S suitable for? - QROP'S are ideal for anyone with a UK pension, including non nationals who have been working in the UK, who are living or planning to live in another country on a permanent basis.
The money will then be transferred to an overseas pensions, tax free, if you meet the following criteria;
- You are transferring it to a scheme based in an European Economic Area (most EU countries)while you are are tax-resident within the EEA,
- You are transferring to a scheme outside the EEA to a country where you are also paying tax.
- You are transferring to a public service, international scheme, or occupational pension located anywhere as long as it is QROP'S.
- If your transfer fulfils one of these requirements you are exempt from paying tax on the transfer. Otherwise you will have to pay up to a 25% charge.
Pros of QROP'S
- You can potentially put many pension funds into one big one, giving you greater clout when it comes to investment opportunities.
- From the age of 55 up to the age of 75 you get a tax-free lump sum.
- You can transfer 100% of it to beneficiaries.
- UK and residents and those who have lived an paid tax in the UK can use QROP'S for Lifetime Allowance planning (LTA.)
Cons of QROP'S
- While the UK is unlikely to impose taxes on your QROP'S, the country you are moving to may charge you. Always check before you make the transfer.
- All QROPS trustees must report to HMRC, including any changes in their circumstances.
- The cost of transfer can be steep.
- The QROP'S aren't UK regulated, which means as an expat, you may be subjected to charges.
What are QNUP'S - QNUP'S stands for qualifying non-UK pension schemes.
Who are QNUP'S suitable for - QNUP'S are most suited either for individuals between the ages of 55 and 75 looking for an international pension scheme or for individuals who have reached their maximum income tax relievable pension contributions in the UK. The best thing about them is there are no restrictions on where you live; though how much tax you pay on it will depend on your country of residence; with some countries charging more than others.
Pro of QNUP'S
- You are exempt from UK inheritance tax (IHT), meaning your family and friends inherit a lot more of your wealth.
- At the moment there are no limits on contributions. Be careful, however. It may not last. The authorities are constantly looking at ways to charge offshore schemes. As a safety measure experts suggest that you restrict your contributions to around 50% of your net worth.
- While many of these schemes will only allow you to invest into the scheme up to the age of 75, the QNUP'S has officially no age limit. We say officially because it can depend on the country. So always check first.
- A more concrete advantage of a QNUP is that it has no limits on fund size. You can put as much of your money into as you like.
- You can transfer 100% of the QNUP'S fund to your beneficiaries. This will probably be subject to charge depending what country you are transferring it from.
Cons of QNUP'S
- Once you start looking into QNUP'S you will start seeing that you can never be quite certain about the regulations surrounding them. There are so many grey areas, particularly around tax treatment, that you will naturally worry about what will happen if this and this law slightly changed. Without a doubt it is a risk.
- You will receive no UK tax relief on any of the amount you invest.
- As these are often sold as inheritance tax protection vehicles, they have to be used carefully, and advised on properly and technically.
- Be careful with with mis-sold QNUP'S. People have been know to sell the lie that QNUP'S are exempt from pension sharing rules on divorce. If you hear that move straight on. The best thing to do is to go into it with a complete understanding of what QNUP'S entail.
What are SIPP'S - SIPP'S stands for self invested personal pension.
Who are SIPP'S suitable for? - SIPP'S are suitable for people who already own UK pension assets, but are looking to move to a scheme with more or less unrestricted investment options. While on the whole they are for UK residents, they will make some allowances, so check with them before you make you decision. It's even been know for people moving to the UK to get on a SIPP scheme.
Pros of SIPP's
- You can potentially invest in a whole spectrum of underlying assets.
- As a SIPP member you can move funds in from other schemes into your SIPP scheme.
- A SIPP does not cost as much as the others to set up.
- You are exempt from inheritance tax.
- For those of you not so good with money you could see the following as a disadvantage. A SIPP scheme, however, allows you to withdraw the whole amount at anytime.
Cons of SIPP's
- They leave you open to UK taxation. A big problem of course if you are also paying tax in the country of your residence.