UK Pension Transfers

Rising interest rates mean higher gilt rates which, in turn, means lower pension transfer values (CETV’s).

If you hold a UK pension and are now living overseas, transferring your UK pension to a more tax efficient vehicle such as a SIPP or ROPS is one option that you must consider.

In 2015 the Pensions Regulator (TPR) and Department for Work & Pensions (DWP) published a joint statement on 5th July and confirmed that the DWP is currently reviewing these Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations, ( Dealing with transfer requests | The Pensions Regulator ).

This followed the original pension changes announced in 2006 which only applied to those moving away from the UK to live and/or work abroad.

Until 2006 if you lived in the UK with a UK pension, and moved abroad, your options to ‘port’ that scheme into an expat pension was virtually impossible. Typically, if you became an expatriate, your pension schemes would have been frozen, meaning no more contributions were possible.

In April 2006, the UK Government introduced new legislation, to help British expats have more control over their pensions when moving overseas. This legislation introduced an expat pension option known as QROPS, or Qualifying Recognised Overseas Pension Scheme now simply called ROPS.

Your UK pension is likely to fall into one of two types:

• Defined contribution scheme – a pension pot based on how much is paid in
• Defined benefit scheme – which provides a guaranteed pension on retirement

So what does this mean your options are:

1) Leave your pension in the UK

If you are looking for a low risk, guaranteed lifetime income and your existing pension will provide this, then you may be better off staying with your existing scheme. It may also be the case that a UK Pension Transfer would see a substantial reduction in the value of your benefits.

2) Take Control Of Your UK Pension by transferring to a SIPP or ROPS

If you want greater control over your investments, then protecting the current transfer value of your scheme for yourself and your beneficiaries, taking the current opportunity of the high transfer value, a UK pension transfer away from your existing scheme could be the right choice for you.

What is A SIPP?
A Self-Invested Personal Pension (SIPP) is a straightforward UK based pension that, with the help of your financial adviser, allows you to take greater control of your pension fund. Transferring your UK pension to a SIPP can provide increased investment choice and greater flexibility over income options at retirement, you can tailor a retirement plan to suit your individual needs. It is estimated that one million people hold a SIPP, and as platform efficiencies have allowed lower cost solutions to be reached by more investors, SIPPs are becoming more attractive and increasingly popular for those looking to transfer their existing UK pension to make the most out of their retirement provision.

What is A ROPS?
A Recognised Overseas Pension Scheme is an international pension plan, recognised by HMRC. As an international plan, it can benefit from local taxation and adapt to your changing circumstances – particularly of use for those retiring offshore where residency and taxation are a key component of long-term income planning. When you transfer your UK pension into a ROPS, it is no longer subject to the ever-changing UK pension legislation, can benefit from improved tax efficiency for those residents outside of the UK for at least ten years, and does not carry a pension lifetime allowance when tested on transfer from the UK.

A ROPS has to meet certain criteria, it must be established outside of the UK, recognised for tax purposes in the country where it’s located and regulated in the country where it’s established (this must be an EEA country to avoid the 25% tax charged imposed in 2017).

ROPS v SIPPs

There are two distinct advantages of a ROPS scheme over a SIPP scheme and they are:

• The Life Time Allowance (LTA) rules for a ROPS are far more beneficial and flexible
• ROPS pays their drawdown pensions gross, so you benefit from deferred taxation

These advantages, mainly apply to higher transfer values which will cross the LTA limits at some stage. A transfer from a registered pension scheme to a ROPS is a benefit crystallisation event (BCE 8) therefore on completion of the transfer we will test the transfer value (before a potential overseas transfer charge) against the current Lifetime Allowance for the year. With any Lifetime allowance test should it exceed 100% of your available Lifetime Allowance then tax charges will apply.

Here are the main advantages of transferring to either scheme:

• A tax-free lump sum of up to 30%
• The ability to have your income taxed in your country of residence, which may have lower tax rates
• Potential to pay no Income Tax charge in the event of death
• Access to a large range of global investment funds
• Possibility to consolidate multiple historic pensions
• No charge on lifetime allowance; the amount you can save tax-free in your pension
• The ability to leave your pension to a beneficiary of your choice
• Access to pension benefits from age 55 without penalty
• Payments in any major currency, thereby eliminating the impact of exchange rates

WORKING WITH GPI

Dealing with expat pensions can be a complex process, especially if you are trying to relocate your career, family and life overseas. Our team of financial planners has many years of experience in dealing with expat pensions, tax and retirement.

To discuss your plans in more detail, please contact us!