Does the liberalisation of UK pensions apply to QROPS?

[AyG]

Given that from next year UK pensioners will be able to cash in their pensions totally, will the same apply to QROPS? Anybody know?

[rak sa_ngop]

This is of interest to me as well.

I have a small pension pot growing in the UK, but I would now be interested in cashing it in (next year when the new pension regulations come in force).

BUT I have been advised by my accountants that money generated from a pension sale is considered to be money generated in the UK and subject to personal income tax. So assuming I can sell the policy before I claim my State pension, I would get maximum tax relief for that year, plus 25pc tax-free leaving me with a tax bill of 10,000 to 20,000 GBP.

Transferring the money to a QROPS might be the way to go especially if it could be cashed in (with less if any tax to pay).

PS Seeing my accountants for more advice next week.

[AyG]

This is of interest to me as well.

I have a small pension pot growing in the UK, but I would now be interested in cashing it in (next year when the new pension regulations come in force).

BUT I have been advised by my accountants that money generated from a pension sale is considered to be money generated in the UK and subject to personal income tax. So assuming I can sell the policy before I claim my State pension, I would get maximum tax relief for that year, plus 25pc tax-free leaving me with a tax bill of 10,000 to 20,000 GBP.

My understanding is that someone in your circumstances can cash it in in stages, ensuring that each year you stay under the income tax threshold (i.e. £10,000/year for most people).

[rak sa_ngop]

This is of interest to me as well.

I have a small pension pot growing in the UK, but I would now be interested in cashing it in (next year when the new pension regulations come in force).

BUT I have been advised by my accountants that money generated from a pension sale is considered to be money generated in the UK and subject to personal income tax. So assuming I can sell the policy before I claim my State pension, I would get maximum tax relief for that year, plus 25pc tax-free leaving me with a tax bill of 10,000 to 20,000 GBP.

My understanding is that someone in your circumstances can cash it in in stages, ensuring that each year you stay under the income tax threshold (i.e. £10,000/year for most people).

Ye,s but once I get my state pension in a few years I will only have a small tax free allowance left every year so any staged encashment will take years to complete unless I bite the bullet and pay tax. Hence the attraction of QROPS.

[AyG]

This is of interest to me as well.

I have a small pension pot growing in the UK, but I would now be interested in cashing it in (next year when the new pension regulations come in force).

BUT I have been advised by my accountants that money generated from a pension sale is considered to be money generated in the UK and subject to personal income tax. So assuming I can sell the policy before I claim my State pension, I would get maximum tax relief for that year, plus 25pc tax-free leaving me with a tax bill of 10,000 to 20,000 GBP.

My understanding is that someone in your circumstances can cash it in in stages, ensuring that each year you stay under the income tax threshold (i.e. £10,000/year for most people).

Ye,s but once I get my state pension in a few years I will only have a small tax free allowance left every year so any staged encashment will take years to complete unless I bite the bullet and pay tax. Hence the attraction of QROPS.

Based upon your higher estimate of your tax bill, that suggests that your pension pot is currently around GBP 150,000. If so, it would take you, by my rough calculations, about 10 years to cash it in tax free, assuming no other UK income.

Using the lower estimate it suggests a pot of around GBP 80,000 and it would take you 5 years to cash it in tax free.

Unless QROPS rules are changed to allow full encashment it probably makes sense to leave it where it is and start cashing in in stages as soon as possible. (There is an immediate QROPS gain in that in many jurisdictions one can cash in 30%, but that's really not going to make an enormous difference if other rules aren't changed.)

[rak sa_ngop]

This is of interest to me as well.

I have a small pension pot growing in the UK, but I would now be interested in cashing it in (next year when the new pension regulations come in force).

BUT I have been advised by my accountants that money generated from a pension sale is considered to be money generated in the UK and subject to personal income tax. So assuming I can sell the policy before I claim my State pension, I would get maximum tax relief for that year, plus 25pc tax-free leaving me with a tax bill of 10,000 to 20,000 GBP.

My understanding is that someone in your circumstances can cash it in in stages, ensuring that each year you stay under the income tax threshold (i.e. £10,000/year for most people).

Ye,s but once I get my state pension in a few years I will only have a small tax free allowance left every year so any staged encashment will take years to complete unless I bite the bullet and pay tax. Hence the attraction of QROPS.

Based upon your higher estimate of your tax bill, that suggests that your pension pot is currently around GBP 150,000. If so, it would take you, by my rough calculations, about 10 years to cash it in tax free, assuming no other UK income.

Using the lower estimate it suggests a pot of around GBP 80,000 and it would take you 5 years to cash it in tax free.

Unless QROPS rules are changed to allow full encashment it probably makes sense to leave it where it is and start cashing in in stages as soon as possible. (There is an immediate QROPS gain in that in many jurisdictions one can cash in 30%, but that's really not going to make an enormous difference if other rules aren't changed.)

Thanks AyG. Yes probably best to wait to next year and see what plans the pension companies come up with for early encashment.

PS your tax calculations are spot on (well one is)

[wordchild]

its an interesting question and I don't think there is a clear cut answer as yet. Firstly it will depend on the rules governing pensions/qrops in the jurisdiction where the QROP is located, Guernsey, for example, does not allow 100% cashing out, so they would need to change their rules for it to be possible. In my opinion if the relevant jurisdiction allows 100% cashing out I find it difficult to see how HMRC could argue that such a payment (even if they knew about it) was unauthorized once such payments become legal in the UK from next year.

Possibly one of our local, friendly, IFA,s (aka QROP pushers) may know more and can enlighten us on this.

Edited July 22, 2014 by wordchild

[AnotherOneAmerican]

This is of interest to me as well.

I have a small pension pot growing in the UK, but I would now be interested in cashing it in (next year when the new pension regulations come in force).

BUT I have been advised by my accountants that money generated from a pension sale is considered to be money generated in the UK and subject to personal income tax. So assuming I can sell the policy before I claim my State pension, I would get maximum tax relief for that year, plus 25pc tax-free leaving me with a tax bill of 10,000 to 20,000 GBP.

My understanding is that someone in your circumstances can cash it in in stages, ensuring that each year you stay under the income tax threshold (i.e. £10,000/year for most people).

Ye,s but once I get my state pension in a few years I will only have a small tax free allowance left every year so any staged encashment will take years to complete unless I bite the bullet and pay tax. Hence the attraction of QROPS.

QROPS is a clever way for crooks to steal your pension from you.

Better pay 25% tax, than have it all taken in management fees and iffy investments.

As it's managed offshore, you have no protection from your government, NONE AT ALL.

Anyone here ever known someone who transferred to a QROPs and is happy with their decision?

PS

Whatever you do, don't take advice from any financial services company operating in Thailand.

Edited July 22, 2014 by AnotherOneAmerican

[AyG]

its an interesting question and I don't think there is a clear cut answer as yet. Firstly it will depend on the rules governing pensions/qrops in the jurisdiction where the QROP is located, Guernsey, for example, does not allow 100% cashing out, so they would need to change their rules for it to be possible. In my opinion if the relevant jurisdiction allows 100% cashing out I find it difficult to see how HMRC could argue that such a payment (even if they knew about it) was unauthorized once such payments become legal in the UK from next year.

Possibly one of our local, friendly, IFA,s (aka QROP pushers) may know more and can enlighten us on this.

Guernsey, of course, is no longer able to provide new QROPS. They rather upset Hector with their rules, though New Zealand and some other countries were far more egregious in their transgressions. They only ever allowed 30% cashing in, in line with HMRC's rules. 100% cashing in has never before been allowed onshore or offshore (except for really tiny pension pots).

The current limits on withdrawals of QROPS appear to be specifically designed so that the pensioner will never be poor enough to return to the UK and rely upon the State. That's one reason why I rather suspect that the rules won't be liberalised for QROPS holders.

Still, I can cross my fingers and hope. It would be nice to escape the rather high charges on QROPS investments.

[wordchild]

The rules are made by the local jurisdiction where the qrop is based, not directly by the UK, but obviously each jurisdiction , up till now, has wanted to ensure, that their rules where compliant with the hmrc view as to how pension schemes should operate, they obviously want their schemes on the hmrc approved list for the benefit of their local pensions industry. The situation could now get interesting as different jurisdictions could decide to go in different directions with some allowing 100% encashment and others not. Though I suspect,in the end, most will follow the UK and allow it, but this will obviously also have implications for their own local pensions industry. Do they, for example, allow all the pensioners in their country to cash out? Guernsey is in an interesting position as the majority of their schemes are not on the hmrc approved list anymore (though without loss of benefit for existing members) and they no longer have any reporting obligations to hmrc

Edited July 22, 2014 by wordchild

[AyG]

QROPS is a clever way for crooks to steal your pension from you.

Better pay 25% tax, than have it all taken in management fees and iffy investments.

As it's managed offshore, you have no protection from your government, NONE AT ALL.

Anyone here ever known someone who transferred to a QROPs and is happy with their decision?

PS

Whatever you do, don't take advice from any financial services company operating in Thailand.

Apart from the PS, which I agree with, that is utter rot.

QROPS are an excellent way for expats to avoid paying income tax on their pension income and avoiding inheritance tax - potentially saving thousands of pounds of in tax a year and many tens of thousands when I die..

They are not expensive. I pay a fixed annual fee of GBP 995 to the plan administrator. I pay nothing to any financial advisor beyond the initial fixed fee to help select and set the QROPS up.

I choose the investments myself, so they're not iffy at all. They are held in the UK with a major wrap account provider, so are secure, and the wrap provider charges no more than if I held the same investments outside a QROPS.

And yes, I'm still happy after more than 10 years with my decision to transfer my UK pensions to a QROPS.

[wordchild]

QROPS is a clever way for crooks to steal your pension from you.

Better pay 25% tax, than have it all taken in management fees and iffy investments.

As it's managed offshore, you have no protection from your government, NONE AT ALL.

Anyone here ever known someone who transferred to a QROPs and is happy with their decision?

PS

Whatever you do, don't take advice from any financial services company operating in Thailand.

Apart from the PS, which I agree with, that is utter rot.

QROPS are an excellent way for expats to avoid paying income tax on their pension income and avoiding inheritance tax - potentially saving thousands of pounds of in tax a year and many tens of thousands when I die..

They are not expensive. I pay a fixed annual fee of GBP 995 to the plan administrator. I pay nothing to any financial advisor beyond the initial fixed fee to help select and set the QROPS up.

I choose the investments myself, so they're not iffy at all. They are held in the UK with a major wrap account provider, so are secure, and the wrap provider charges no more than if I held the same investments outside a QROPS.

And yes, I'm still happy after more than 10 years with my decision to transfer my UK pensions to a QROPS.

you might be getting a little carried away in your enthusiasm there AYG, QROP,s were only introduced from April 2006.

[GuestHouse]

If AYG has held his pension in a QROPS for the past ten years as he claims (despite QROPS only being around since 2006) then AYG ought to be aware that his QROPS has passed the period of time for which it is obliged to report his QROPS accounts to the UK tax man.

But as I say, and as Worldchild has pointed out, there is the issue with AYG claiming to hold a QROPS longer than QROPS have been in place.\

Two observations from this:

1. AYG has some explaining to do
2. This is precisely why it is extremely important for expats in Thailand to get good independent advice from fully regulated financial advisors.

Stay away from the Carpet Baggers in Thailand.

My advice to any British Expats considering QROPS now - wait and see what options the new pension regulations offer - do not decide in haste.

My advice to anyone considering a QROPS - Do not take out a QROPS until you are on the verge of retiring - why pay fees for years when your pension pot is safe in your home jurisdiction.

And a general request on QROPS

Those considering QROPS or who have already got a QROPS, how about doing us all a favour and posting your QROPS schedule of set-up, management and all other related fees.

Repeated requests to the Carpet Baggers for this information always draw a blank.

[AnotherOneAmerican]

I choose the investments myself, so they're not iffy at all. They are held in the UK with a major wrap account provider, so are secure, and the wrap provider charges no more than if I held the same investments outside a QROPS.

Wrap provider, These are usually crooks too.

The wrap is usually designed to stop you ditching the scheme, if you realize what the hidden charges are.

[AyG]

If AYG has held his pension in a QROPS for the past ten years as he claims (despite QROPS only being around since 2006) then AYG ought to be aware that his QROPS has passed the period of time for which it is obliged to report his QROPS accounts to the UK tax man.

But as I say, and as Worldchild has pointed out, there is the issue with AYG claiming to hold a QROPS longer than QROPS have been in place.\

Two observations from this:

• AYG has some explaining to do
• This is precisely why it is extremely important for expats in Thailand to get good independent advice from fully regulated financial advisors.

Stay away from the Carpet Baggers in Thailand.

My advice to any British Expats considering QROPS now - wait and see what options the new pension regulations offer - do not decide in haste.

My advice to anyone considering a QROPS - Do not take out a QROPS until you are on the verge of retiring - why pay fees for years when your pension pot is safe in your home jurisdiction.

And a general request on QROPS

Those considering QROPS or who have already got a QROPS, how about doing us all a favour and posting your QROPS schedule of set-up, management and all other related fees.

Repeated requests to the Carpet Baggers for this information always draw a blank.

I made a mistake. I thought I'd take it out before moving to Thailand. It now appears I took it out after the move.

As for not taking one out until about to retire, that leaves your pension pot within your estate should you die before retirement age which plenty of people do. For me an added benefit is that I can leave the entire amount to my partner who will receive it, tax free and without having to go through UK probate.

[AyG]

I choose the investments myself, so they're not iffy at all. They are held in the UK with a major wrap account provider, so are secure, and the wrap provider charges no more than if I held the same investments outside a QROPS.

Wrap provider, These are usually crooks too.

The wrap is usually designed to stop you ditching the scheme, if you realize what the hidden charges are.

Stupid, ill-informed stuff and nonsense.

Yes, some wrap accounts have charges to discourage you from leaving their scheme. However these charges are usually reasonable, covering the administrative process which can be complex. Others such as Transact charge nothing to move your investments out. And if you don't like the charges you can always transfer in cash, rather than in specie.

Some wrap accounts are very reasonable. One charges a maximum of GBP 200/year for custody, regardless of however many investments you hold with them and what their value. They charge GBP 10/transaction (less for frequent traders) and charge a transfer out fee of GBP 15. All very clearly stated at https://www.trustnetdirect.com/account-charges - no hidden charges. Where fund manager kick back commission to this platform, this is fully rebated. To me that's excellent value for money, and far better than the alternative of holding investments directly.

I have used a number of different wrap accounts over the years - Fidelity, Trustnet, Cofunds, Transact, Skandia, James Hay, Internaxx and have never encountered any hidden charges. Everything has been set out clearly in the Key Features or similar document.

Nobody's a crook here, and nobody's hiding charges.

[AyG]

Those considering QROPS or who have already got a QROPS, how about doing us all a favour and posting your QROPS schedule of set-up, management and all other related fees.

I paid my IFA around GBP 2,400 to set up my QROPS and to arrange transfer of four existing pension funds to the QROPS. My IFA was a fancy one based in an expensive part of London and my transfer was rather more complicated than usual. It could be done for half that. There is no ongoing payment to my IFA whatsoever.

There was a GBP 600 set up fee for the QROPS from the administrator.

Annual charges to the QROPS are now GBP 995/year. (They were higher, but have been reduced.)

I pay an additional GBP 25 to have my annual pension payment wired to me.

As for the wrap account which holds my investment, I pay exactly the same charges as anyone else using Transact for a General Investment Account. In summary:

- Zero wrapper administration charge.

- GBP 14.99 for each transaction on the LSE. (Overseas exchanges are more expensive.)

- Buy commission is 0.2% for funds.

- Annual commission of 0.325% of the funds' value. (That's for a portfolio of between GBP 300,000 and GBP 600,000 - the commission rate is laddered.)

- No charges for transfer in or out of cash or securities.

In other words, the total start up costs were GBP 3,000. The annual running costs are GBP 1,020 more than holding the same investments in a Transact general investment account.

(Just a caveat on that last comment: there are cheaper, non-advised wrap accounts out there, but these can not be used for QROPS, so it's not an exactly fair comparison.)

[AyG]

Interesting article which is relevant to the original topic: http://www.professionaladviser.com/international-investment/news/2335691/budget-pension-changes-pose-tax-traps-for-expats

It would appear that there will be an option to cash in, but with potential tax traps.

[Maximus33]

There are some UK changes for private pensions which have already come in and more in April 2015, with further state pension changes in 2016, so there is a lot to affect individuals and a lot more for advisers to consider in giving advice. The April 2015 changes referred to are 'Flexible Drawdown'. There is no suggestion at this time that QROPS will allow flexible drawdown. It would be up to trustees in QROPS jurisdictions to examine and maybe change their local rules if they wanted to add more flexibility. It is unlikely these would be allowed by HMRC though. QROPS use 'Capped Drawdown' rules usually following UK limits which did increase this year from 120% to 150% of UK government rates allowing more flexibility to both SIPP's and QROPS. For someone looking to maximise lump sums in the most tax efficient manner it would be a question of looking at the tax results of a SIPP in flexible drawdown vs. a QROPS in capped drawdown. I would be surprised if any advisers in Thailand and a limited few in UK wish to get into giving international tax advice, so you are likely to need a financial adviser and tax adviser.

A QROPS is the offshore equivalent of a UK SIPP, so broadly the same except in certain circumstances, can provide income tax and death tax savings. In either case, you will need a trustee, a platform and an investment manager, so you will pay for each one, so it is key as to the amount you pay and the quality of life received.

For information on a previous comment, under a SIPP there is no UK tax on death until the individual starts drawing benefits and 'crystallises' the fund. The current tax rate on passing on the crystallised lump sum is 55% but under review, likely to be 40% in line with UK IHT rate.

[wordchild]

We now have some clarity on this as the UK govt has just published a consultation (on the 19th Dec) over proposed legislation amendments that would seem to bring the rules for overseas pensions (eg QROPs) into line with onshore pensions.https://www.gov.uk/government/publications/draft-legislation-overseas-pension-schemes-miscellaneous-amendments-regulations-2015. So (once passed into law) there would be nothing (in the UK rules) to prevent 100% encashment of QROPs as per the UK requirements eg being over 55etc. However, as discussed above, it would also be dependent on the jurisdiction where the QROP is based allowing such encashments. Most jurisdictions would have to change their current pension rules to allow this. FWIW I think it would be likely that they would do this and fall into line with the UK.

Edited January 1, 2015 by wordchild

[AyG]

We now have some clarity on this as the UK govt has just published a consultation (on the 19th Dec) over proposed legislation amendments that would seem to bring the rules for overseas pensions (eg QROPs) into line with onshore pensions.https://www.gov.uk/government/publications/draft-legislation-overseas-pension-schemes-miscellaneous-amendments-regulations-2015. So (once passed into law) there would be nothing (in the UK rules) to prevent 100% encashment of QROPs as per the UK requirements eg being over 55etc. However, as discussed above, it would also be dependent on the jurisdiction where the QROP is based allowing such encashments. Most jurisdictions would have to change their current pension rules to allow this. FWIW I think it would be likely that they would do this and fall into line with the UK.

That's a pretty tough read.

It's interesting that any withdrawals must be reported to HMRC, even after the usual 10 year reporting period. I'm not sure why they'd be interested.

There also don't appear to be any penalties imposed if you cash it in all at once. (With UK pensions you'd be subject to UK income tax after the first 25%.)

The question now is whether overseas jurisdictions will allow this. In the case of Guernsey, which is no longer able to offer QROPS, why would they bother? Virtually everyone would immediately cash in their pension to avoid the annual charge, and the business would be finished.

Fingers crossed I'll soon be able to avoid the GBP 1,000/year charge for my QROPS.

[evadgib]

Updated 06 Jan 15:

https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-pension-schemes-qrops

HTH

Edited January 6, 2015 by evadgib

[Maximus33]

QROPS will have flexible drawdown as long as the QROPS jurisdiction local rules allow it and meet HMRC requirements. All the main 3rd party jurisdictions are looking at it with Malta already saying they meet the requirements.

[AyG]

QROPS will have flexible drawdown as long as the QROPS jurisdiction local rules allow it and meet HMRC requirements. All the main 3rd party jurisdictions are looking at it with Malta already saying they meet the requirements.

This is looking too good to be true. I very much doubt in practice I'll be allowed to transfer my QROPS to Malta and then, immediately, take the whole lot as cash, tax free. This is exactly the sort of thing that previous changes in QROPS rules have intended to prevent.

[Maximus33]

QROPS will have flexible drawdown as long as the QROPS jurisdiction local rules allow it and meet HMRC requirements. All the main 3rd party jurisdictions are looking at it with Malta already saying they meet the requirements.

This is looking too good to be true. I very much doubt in practice I'll be allowed to transfer my QROPS to Malta and then, immediately, take the whole lot as cash, tax free. This is exactly the sort of thing that previous changes in QROPS rules have intended to prevent.

I don't disagree with your logic, but HMRC has changed the rules for all of which almost all are UK resident which is their main concern. Malta has already announced they have met the requirements to allow flexible drawdown.

http://www.international-adviser.com/news/retirement/malta-qrops-to-receive-full-flexibility

However, you need to consider Malta has 15% and 35% tax bands and so you could pay more than in the UK depending on how much you are taking out.

Malta does not have a Double taxation agreement with Thailand so tax would need to be paid at source in Malta on both lump sum and pension. In most cases therefore Malta is unlikely to be best advice for a Thai resident.

As the various jurisdictions consider changes to allow flexible drawdown, the market will be much clearer over the next couple of months.

[Chivas]

This forum has become ludicrous with these adverts !!! They are just everywhere now makes reading threads a total joke

[wordchild]

Guernsey has started a consultation on the introduction of legislation that would allow full flexibility for Guernsey based QROP,s. (or funds that used to be called QROP,s prior to most Guernsey QROP,s being deregistered.)

[Maximus33]

New regs indicate only EU country QROPS will be able to offer flexi drawdown. Currently this just looks like Malta. Malta has no double taxation agreement with Thailand and so tax will apply meaning depending on the size of fund and income required, their regime could be better or worse than the UK. I understand each provider has to reapply to HMRC and that Malta's intention is to do this all in one go which will take some time. Other jurisdictions are still liaising with HMRC to clarify.

A previous point said looks to good to be true, why allow everyone to take their money out. You are assuming there are no IHT issues in removing your money from a trust. Whilst it may give flexibility in removing the fund from HMRC reporting, the money them forms part of your estate, unless you will be non domicile at the time of your death or put it into another trust format which could be equally restrictive.

[Maximus33]

_{Food for thought, assuming no double taxation agreements (Thailand doesn't have one covering pensions) and you have no other UK taxable income, if you compare UK tax position on flexi drawdown with Malta, you would need to be drawing out over £70,000 in Malta to pay less tax than in the UK. This changes if you have other UK taxable income which uses up your tax free allowance. You would still need to be a higher rate tax payer for Malta to be more advantageous as they charge a 25% withholding tax, compared to UK 20% basic rate tax.}

[wordchild]

http://www.international-adviser.com/news/1025135/guernsey-green-light-flexi-drawdown-changes

Looks like Guernsey has passed the legislation that would pave the way for pensions flexibility for those funds that originated from the UK, eg those that used to be called QROP,s prior to Guernsey getting red-carded by HMRC.

Edited October 5, 2015 by wordchild