Anyone moving abroad to retire and thinking about taking their pension pot with them can be forgiven for confusion at the thousands of schemes available.
Almost 3,000 Qualifying Recognised Overseas Pension Schemes across 48 countries are available – and all are based on the same HM Revenue & Customs template.
The schemes are straightforward and fairly easy to understand, but trying to decide on which jurisdiction you should move your pension pot to is a tad more complex.
For instance, not all of them have the same retirement age.
In some countries, retirement is at 55, while others, such as New Zealand, a pension is drawn between the ages of 60 and 65.
Accessing a QROPS
This date of taking a pension is important because the QROPS jurisdiction or the pensioner’s country of residence may impose an income tax liability regardless of whether any income is actually received.
If you are not planning on accessing the pension pot then finding a QROPS jurisdiction with a later retirement age is useful since the fund should remain untaxed for longer.
In common with most financial centres, New Zealand also offers early access to the money in cases of ill health or hardship if the retirement saver has been non-resident in the UK for more than five years and the QROPS trustees agree.
There are also variations in the amount of lump sums which can be claimed, usually between 25% and 30% of the scheme’s transfer value.
When it comes to paying a regular income, most jurisdictions have similar approaches and link their benefit payments to the UK’s Government Actuarial Department (GAD) tables.
QROPS and tax
However, when the QROPS holder has been a UK non-resident for more than five years several jurisdictions allow the pension scheme to pay more to the saver under local rules.
Another pressing issue is how much a QROPS is going to be taxed. Some jurisdictions offer zero tax pensioners living overseas, but charge income tax on those living locally.
This issue can become complicated when looking at double taxation treaties between the financial centre holding the fund and the country where the retirement saver lives.
QROPS are complicated investment and retirement products that some advisers suggest are simple to buy on scant details.
The truth is an experienced and regulated independent financial adviser should carry out a transfer value assessment to highlight the pros and cons of a Qualifying Recognised Overseas Pension Scheme to any expat or international worker with UK pension rights.
The IFA should also work with an international tax adviser who can help with tax on pension payments and lump sums.