The relaxing of the regimented UK pension rules is just a couple of months away now, and with overseas schemes (QROPS) for expats following suit and allowing 100% access from the age of 55, is it a good idea to allow investors to use their lifetime’s worth of savings as and when they please?
Why wouldn’t it be? If you’ve spent perhaps 50 or more years working, saving and investing for your future, who could possibly justify somebody placing restrictions on how and when you can use those savings? It’s amazing the totalitarian UK pension model managed to hang onto its dictatorship values for quite as long as it did.
But along with the new freedoms, do come some risks. Restraint must be exercised, as the temptation to hit the 365 day-per-year cruise scene simply refuses to go away, but in truth most savers simply want the opportunity to be able to choose how they save and invest their money.
Pensions are key to a long-term financial strategy, of that there can be no doubt. Combining tax relief on ongoing contributions with tax-efficiency in growth of investment is critically beneficial to any investor, however the frustration in the UK emanated from the restrictive access and the exorbitant tax upon death.
These two aspects are now to be a thing of the past from April, and this will change how pensions are used – not just in the UK, but overseas too.
Take the Lot, but Take Advice
As the new 100% access rule was extended to QROPS, global providers of the HMRC-recognised schemes reported another huge surge in enquiries as expatriates seek the most tax-efficient method of withdrawing their funds.
One thing which is paramount to the access rules in the UK, is the need to take advice before being allowed to withdraw. In the wider world, and especially before transferring to a QROPS on the proviso of being able to withdraw 100%, the right advice is also critical.
While it is perhaps not advisable to withdraw the entire lot and end the day by driving a Ferrari off the forecourt, 100% access does open up quite a few opportunities for control, investment and simultaneous lifestyle quality maintenance. Here’s a few examples of what QROPS clients are looking to do with their access allowances:
“Taking the 30% tax free, taking the other 70% at the local tax rate. Keeping the 30% for myself, investing the remainder in overseas buy-to-let property which will be managed for me. I get an income each month from the rent, I don’t have to worry about anything except choosing the right properties, and at the end of it all, my kids will have something tangible left to them. They can keep the properties and look to get more, or they can sell them.”
“I’m taking the whole of my QROPS pension fund at 55 and am passing it onto my daughter so as she can buy a house, I have my own savings and have paid off my mortgage over here. I don’t need anything. I originally transferred into a QROPS to pass 100% of my NHS pension onto her anyway, rather than give most of it back to the government when I die. This ruling just means that I will be able to give practically the whole lot to her now, while I am alive to see her prosper from it.”
Is it for You?
Taking the entire contents of a pension, judging by the level of enquiries we are seeing, is appealing to a lot of people, but it may not be the best strategy for everyone. Some would still benefit from the certainty of the QROPS wrapper, and for others the danger of not having a clear idea of what they want to do with the cash once they have it, could see it squandered. Also, a lump sum of cash attracts scam merchants like sharks round a bleeding whale. It’s a danger that risky investment opportunities could be see huge amounts of the cash wiped out.