Phuket Expat Finance: QROPS – Back to Basics

PHUKET: In 2005 the EU Commission proposed a directive that laid the foundations for a radical change in the portability of an individual’s pension. British, Dutch and Irish nationals were given the flexibility to move certain private pensions to the jurisdiction of their choice, rather than leave it in their home country and currency.

The seeds planted in 2005 were slow to take root, but once they did, they quickly sprouted and grew into a multibillion-euro industry, with a plethora of offshore tax-free centres opening their doors to pension transfers, and evolving into specialists in the field of overseas pensions.

The largest of these, the UK QROPS market (Qualifying Recognised Overseas Pension Schemes), sprung up in April 2006 when the UK amended its legislation to embrace the EU directive. Since then, UK pension holders have enjoyed the flexibility to move their pensions, provided the new jurisdiction offers approved, qualifying pension schemes which have been vetted by HMRC.

There are a number of reasons why you would consider doing this. Certainly, if you’re a UK non-resident who has lived overseas for many years and have no intention of returning to live in the UK at any time in the future, moving your pension can make simple common sense.

Firstly, many QROPS jurisdictions have friendlier tax regimes than the UK. So purely from a pounds and pence perspective, the ability to earn a higher annual pension income due to lower taxation is very appealing.

If you qualify for a QROPS transfer, your new pension jurisdiction should be chosen based on the tax regime of the country where you choose to retire, and/or any DTAs (Dual Tax Agreements) which exist between that country and the UK.

But what happens if you decide to relocate during your retirement, or even move back home? Well, the pension trustees have thought of this. Most of the major global players are established in multiple jurisdictions, ensuring that they can provide you the best possible tax advantages for your pension, regardless of where you decide to live.

Also, most global players offer the flexibility to transfer your pension from one jurisdiction to another at no cost whatsoever, requiring only the completion of a simple form to do this.

For retirees in Thailand, one of the most appealing destinations for your pension is the British Overseas Territory of Gibraltar, which has a meagre 2.5 per cent tax rate for pensions.

Like the Channel Islands and the Isle of Man, Gibraltar governs its own affairs, with only defence and foreign representation remaining the responsibility of Whitehall. Financial services is now one of the island’s main industries, as it continues to blossom into one of the world’s premier offshore centres.

So what other benefits, aside from tax, are worth noting? If you have a final salary (or defined benefits) scheme in the UK and leave it there, your spouse would typically receive only 50pc of the pension income in the event of your death.

When your spouse dies, that income stream will cease altogether. This is not the case for a pension transferred into a QROPS, where the spouse will receive the full pension value and all future balances will pass to the rest of the family upon her death.

If your pension pot has instead been amassed through many years of defined contributions – whether into a company scheme, a private pension, or SIPP (Self-invested personal pension) – there are still distinct advantages to moving it.

Once the pension has been transferred into a QROPS, you can avoid all inheritance taxes. A private pension left in the UK, by contrast, will be liable to a 40pc tax if death occurs after the age of 75. Not only can you avoid unnecessary inheritance taxes, but you can also avoid UK probate, allowing the remaining balance of your pension to be left to those who you wish to have it, without this being contested in a court of law.

If you would also prefer more control over the way your pension is managed, a QROPS also offer far greater investment options and flexibility. Whether you are more interested in keeping your pension in conservative timed deposits, money markets or fixed income, or would prefer to be at the helm of dynamic investment portfolio, with access to 34 global stock markets, an “Open Architecture” QROPS platform certainly gives you far more options than a conventional UK pension.

It is not only the investment choice, but also the currency choice that may appeal to you. If you are living abroad, the pound sterling may not be the most suitable currency for you, so you can choose to denominate your pension in any other major currency.