Transferring A Uk Pension

[marshbags]

Bangkok Post, Spectrum, Sunday November 09, 2008

TRANSFERRING A UK PENSION

Consider the options carefully

Richard Colburn

UK pension regulations permit the transfer of pension rights to overseas investment vehicles provided the overseas scheme is a QROPS (Qualifying Recognised Overseas Pension Scheme).

There can be considerable benefits in transferring your UK pension rights to a QROPS, including:

the ability to legitimately mitigate or avoid the withholding tax that is applied to pension income received from UK-based pension schemes;

legitimately avoiding inheritance tax on the pension fund;

more flexibility with investment management;

freedom to choose your pension fund beneficiaries.

The potentially tremendous benefits that QROPS can offer, depending on personal circumstances, have been widely and enthusiastically promoted, not least to the expat community in Thailand.

However, one size does not fit all, and depending on your circumstances, it may be in your best interests for your pension rights to remain in the UK. Let's look at some of the relevant information you need to make the best choice.

Unsecured pensions: The majority of QROPS are "money-purchase schemes" which do not provide a guaranteed income. Neither do they guarantee the capital value of your pension fund, so they are classified in the UK as "unsecured pensions".

Secured pensions: There are two types of secured pension arrangements for those whose pension rights remain in the UK:

Scheme pensions: Also known as final salary (or defined benefit) scheme pensions, these provide the greatest level of financial security. Pension income is guaranteed for life, at relatively high (often double-digit) effective rates of return and may also include statutory annual increases of up to 5 per cent. They also provide the highest level of financial security for surviving spouses and civil partners. These considerable benefits mean that there are relatively few cases in which a QROPS transfer would be considered to be the best choice for someone with a UK defined-benefit or final-salary pension arrangement.

Annuities: The other form of secured UK pension arrangement, annuities also guarantee a pension income for life as well as provide pension income to surviving spouses or civil partners.

The guarantee provided by an annuity is achieved by investing in fixed-interest government securities, and so the returns are significantly lower than those provided by scheme pensions. Annuities typically provide between one third and one half of the pension income that would be provided by a scheme pension of equivalent value.

One of the best-kept secrets is that there is actually no requirement to purchase an annuity at the age of 75. However, the effective returns provided by an annuity for someone aged 75 are quite attractive and involve no management charges. It is also the conservative and cautious option for those who are more risk-averse, which many, if not most, 75-year-olds are.

Transfer costs: Arranging a QROPS transfer comes at a price. While the charges and fees of most QROPS are calculated as a percentage of money transferred, most QROPS incorporate monetary maximum charges. This means that the greater the amount transferred to the QROPS, the lower the effective cost of the QROPS arrangement. Conversely, those with relatively small transfer values would suffer disproportionately high charges.

Furthermore, QROPS do not provide financial planning advice to those wishing to transfer their UK pension rights overseas, so it is necessary to retain and pay for the services of a professional financial planner when selecting your scheme.

Availability of advice: QROPS transfers are based entirely on UK laws and regulations. Given the wide range of factors that need to be carefully considered and examined on a case by case basis when considering a QROPS transfer, it would seem sensible to choose a UK-qualified financial adviser when reviewing your options and perhaps selecting your QROPS scheme.

In many countries in the Far East, a large percentage of people in the financial services industry working with expats do not hold the professional qualifications necessary to give advice in the UK. The UK Personal Finance Society (http://www.thepfs.org) recently confirmed that it has barely a handful of members in Thailand who hold these qualifications.

Unquote

For the conclusion please go to:-

Ref url:- http://www.bangkokpost.com/091108_Spectrum...2008_spec24.php

Richard Colburn Cert PFS is a UK-qualified financial planner and managing director of Sterling Assets, a specialist wealth management

marshbags

Edited November 9, 2008 by marshbags

[billd766]

As far as I understand it does not apply to the state pension nor any military pension.

[GuestHouse]

This is the first time I have read a report on QROPS that I consider even nearly balanced. Thouh I would still recommend anyone considering QROPS use a UK based advisor to make the transfer - Being qualified in the UK and being regulated in the UK are two different things.

But like I say, pretty well balanced and a lot better advice than the usual garbage encouraging guys to use QROPS to get their hands on their pensions and hence rush to turn a midlife crisis into a late life disaster.