I have come across many such individuals now living overseas. While they often have a vague recollection of a long-forgotten pension arrangement somewhere, many have no idea where it is now, how much it is worth or what they can do with it, and have subsequently written if off their personal balance sheet.
A few letters, phone calls and emails later, we were able to tell them that they do in fact have a lump sum of money entitlement and what their options are. On several occasions the amounts have been very significant indeed, exceeding all expectations.
All UK Pension holders of any nationality already living or intending to move overseas on a long term basis, would be well advised to examine their own position with regard to a possible transfer of their accumulated pension rights to an approved overseas jurisdiction.
For someone who does not intend to move back to the UK there are some very real benefits in transferring to a non-UK pension arrangement.
One of the main drawbacks of remaining in a UK scheme is that, on death while in drawdown, the accumulated fund is subject to a charge of 55 per cent before passing on to beneficiaries. For those planning to retire outside of the UK, this charge is not payable if death benefits are paid from an overseas pension scheme and they have been non-resident for at least five complete tax years.
On retirement, all of the major approved jurisdictions allow for a ‘Pension Commencement Lump Sum’ (PCLS) of up to 30 per cent to be taken, as opposed to 25 per cent from a UK self-invested personal pension (SIPP).
In addition, while the approved overseas scheme has to provide ‘an income for life’ from the pension fund, its Trustees are not restricted to using pre-set UK government limits for income, so individuals can potentially receive a higher annual pension amount.
There are a number of other potential benefits that perhaps make a transfer to an overseas pension sooner rather than later a better choice. These are too numerous to list here in full, but among them are:
* Transferring before you can’t: Will it even be possible to transfer your pension overseas when the time comes? Overseas Pension rules were introduced in 2006, changed in 2012 and will almost certainly change again before your retirement. It’s possible to effect a pension transfer overseas today, but there’s no guarantee that situation will last forever.
* Lifetime Allowance Limits: If a scheme, through investment growth, reaches a level that is over the lifetime allowance, any excess would be subject to a charge if held within a UK SIPP. This would not be the case if it is held in an approved offshore scheme.
* Domicile: UK-domiciled individuals pay Inheritance Tax on worldwide assets at the level of 40 per cent above the allowance threshold. It is very difficult to lose UK domicile in favour of another, and the UK tax man looks at a number of factors, generally surrounding your ‘intent’ to move back to the UK. Transferring your UK pension offshore would lend credibility to your claim of intent to move out of the UK domicile net.
For those who do not intend to retire in the UK, a transfer to a ‘Recognised Overseas Pension Scheme’ has several distinct advantages but great care should be taken and professional advice sought to assess pros and cons before any transfer takes place. In some cases the best advice is to leave it where it is.
Finally, a word of caution to those who do ultimately decide to transfer their UK pension rights overseas: – from 2006, overseas pension transfers have been possible only if the overseas scheme is registered with HM Revenue & Customs as a Qualifying Recognised Overseas Pension Scheme (“QROPS”).
It is imperative then that you only transfer to a scheme that is included in the UK Revenue & Customs (HMRC) approved list to avoid unauthorized tax charges of 55 per cent. A full list of currently approved schemes can be found on the HMRC website: http://www.hmrc.gov.uk/pensionschemes/qrops.pdf
Jerry Dingley of IFA Property Portfolio Services and business partner Tim Whiteley have a combined 50 years’ experience advising expatriates and international investors both onshore UK and in the Asia Pacific region. info@qropspensioncentre.com
Important Note – This article contains general information only and is not intended to be taken as specific financial advisory, investment, or tax advice. A personal analysis should be obtained before acting or refraining from acting upon any information given.