UK PENSION

TRANSFER GUIDE
Introduction
Expats have such an inordinate amount of information to digest
when it comes to their pensions, the question is, often, where do
I start?

The next question is, how do I get the most value from my
pension, which could entail an overseas pension transfer, a
deferment, a lump sum cash in, or a number of other options.

Then there are tax considerations, both in your home country

and the drawing country.

Needless to say, it’s worth taking independent financial advice to

help you navigate the complexities of pensions.

This guide aims to outline the most common Pension options for
expats.
Pensions and Tax
Pensions can benefit from some favourable tax conditions, for
example they grow free from capital gains tax and you may be
able to take a 25% tax free lump sum when you begin drawing
down on the pension (PCLS). The variations of pensions often
face different tax conditions and it is important to get advice
from a professional. If you live abroad or intend to retire abroad
it is best to consult a professional who is familiar with the
offshore market and working with expats.

Any UK pension income will be subject to income tax at your

marginal rate regardless of whether you live in the UK or not.
QROPS and QNUPS could help an expat to mitigate UK income
tax as they are based offshore and will be subject to the local
tax rate instead.

DB schemes won’t be liable for inheritance tax as they are not

your personal asset, but any benefits that are given to the
spouse will add to their income and be taxed at normal marginal
rates. DC schemes are a personal asset and will be counted in
your estate value.
Savers with DB and DC schemes face a tax bill if their pension
grows to an amount higher than the lifetime allowance (LTA). The
LTA is currently £1,073,100 but this threshold could change. When a
benefit is accessed, known as a benefit crystallisation event (BCE),
HMRC will look to see what the total value of the pension is. If the
value of all of your pension benefits, across all schemes, exceeds
the lifetime allowance, any excess attracts a tax charge of 25% if it
is withdrawn as an income (for instance from an annuity or a
drawdown arrangement) or 55% if it is withdrawn as a cash lump
sum.

This event then repeats when the pension holder turns 75. It may
be possible for some people to apply for LTA protection, which can
increase their LTA amount to £1.25m.

If you are a member of a DC scheme, the value of your benefits is

the value of your pension pot in that scheme.

If you’re a member of a DB pension scheme, the value of your

benefits is calculated as 20x the pension that you have accrued
under the scheme plus any tax free cash that you received (if you
have been drawing income since before 6 April 2006, this income
payment is valued by multiplying by a factor of 25).

For expats who are aware that they are approaching or have
crossed the LTA, moving to a QROPS could be a good way to
protect against this tax.
Understanding Pension
Terminology
GMP – Guaranteed Minimum Pension. Most DB and some DC
schemes will have a GMP figure; this is the legal minimum that the
scheme is required to pay a member.

PCLS – Payment Commencement Lump-Sum. This is a tax-free

amount that can be taken from DB/DC schemes (not state pension)
up to 25%. If taken from a DB scheme the member will see their
benefits decrease and if taken from a DC scheme the member will
see a reduction in their pot value.

CETV – Cash Equivalent Transfer Value. The CETV is the amount a

DB scheme will give to a member who asks to leave the scheme. It
is supposed to represent the value of the benefits given up. It is
important to note that the CETV will change, going up and down
depending predominantly on interest rates. The CETV is calculated
by looking at what amount would be needed as a lump sum for an
individual member to maintain an equal level of benefits once they
move to a private pension.
A few assumptions have to be made about the potential investment
return when they are calculating the CETV. Resulting in a situation
where if interest rates are low CETV values will usually be higher.
The average ‘multiplier’ for a CETV is 20 times, so the lump-sum is
20 times the promised benefits. For example, a member wants to
leave his DB scheme that is promising him an income of £25,000.
The scheme offers £500,000 as a lump sum, which is 20 times the
promised benefit. Some schemes will offer a CETV that is as high as
40 times the promised benefit. Most schemes will give members a
CETV on request for free every 6 months. The value will typically
expire within 3 months and a new one will need to be requested.

LTA – Lifetime Allowance. The LTA is the maximum amount that a

pension can grow to without being taxed. This amount is currently
£1,073,100. Anything over this amount is taxable at 55% if taken as
a lump sum or 25% if taken any other way. It might be possible to
apply for LTA protection that could increase the threshold to £1.25
million.

PPF – Pension Protection Fund. The PPF was set up to protect

members of schemes that become insolvent. It is funded by all the
schemes that are still solvent that would fall into the PPF if they
became insolvent.
BCE – Benefit Crystallisation event. A test usually has to be carried
out each time benefits are taken from a registered pension scheme,
to make sure the tax charge is applied if the lifetime allowance is
exceeded. The occasions when this test is carried out are called
benefit crystallisation events (BCE).
Who Should I Speak To
About My Pension?
In all instances advice should be sought from a professional
adviser. If you are living overseas an adviser who is experienced in
offshore finance may be able to provide more rounded advice.
Self Invested Personal
Pension (SIPP)
What is a SIPP? (or Self-Invested Personal Pension)

A SIPP is a pension ‘wrapper’ that holds investments until you retire

and begin to draw an income. It works in a similar way to a
standard personal pension. The difference is that with a SIPP you
typically have more flexibility when you choose what to invest into.

With standard personal pension schemes, your investments are

managed for you within the pooled fund you have chosen. SIPPs
give you the freedom to choose and manage your own
investments. However, because this is a complex area, most
people choose to have an authorised investment manager make
the decisions for them.
Essential Details of a
SIPP
A SIPP is based in the UK and regardless of where you live it
is regulated by UK law.
A SIPP is available to you regardless of where you live in the
world.
Under current legislation you can start drawing retirement
benefits from the age of 55. You can do this even if you are
still employed.
Your benefits are flexible. You may draw as much or as little
income as you like. You can also stop and start withdrawing
whenever you wish.
Up to 25% of your total funds can be withdrawn as a tax-free
cash lump sum.
If needed you can transfer your funds into a QROPS later on.
SIPPs are excellent for those who plan to retire in the UK.
They are equally beneficial for those in a nation with a
preferential double-taxation agreement with the UK.
SIPP investments grow free of capital gains tax or income
taxes.
What can you invest in
within your SIPP?
Quoted UK and overseas stocks and shares
Unlisted shares
Collective investments (such as OEICs and unit trusts)
Investment trusts
Gilts
Exchange-traded funds (ETFs)
Property and land (but not most residential property)
Insurance bonds

Some SIPPs can also raise a mortgage against the property. The
rent will go towards paying down the loan and the costs of
running the property.
Things to consider
about SIPPs for expats
A SIPP is a personal pension. You are not required to live in the
UK to be able to invest into one. However, there are important
considerations if you do not live in the UK and are thinking about
using a SIPP.

1.Even though a SIPP is held in the UK, it is possible to have a

multi-currency SIPP. This can be a great benefit to expats as it
helps to mitigate currency fluctuations on both contributions and
withdrawals.

2. SIPPs abide by UK pension rules and as such are affected by

any changes the UK Government makes to pension rules. A
recent example of this would be the changes to the Lifetime
Pension Allowance that saw a reduction in the allowance from
£1.25m to £1m.

3. When drawing an income from your SIPP you will still be

subject to UK income tax. If you no longer live in the UK, your
income may also be subject to tax in your country of residence.
Hence it is vital to understand the local tax rules as well as those
in the UK. You can then make an informed choice about how to
draw an income from your SIPP.

4. Many expats will speak to a financial adviser while making a

decision about their retirement plans. They will do this because it
is a very complex and critical area. If you are seeking advice
from an adviser in the UK, remember that they may not be fully
aware of all the opportunities for expats.
Qualifying Recognised
Overseas Pension
Scheme (QROPS)
A QROPS is an overseas pension scheme that meets particular
requirements set by HMRC.

A QROPS must have a beneficial owner and trustees, and it can

receive transfers of UK Pension Benefits. QROPS came about as
part of UK legislation launched on 6 April 2006. This was a direct
result of EU human rights directive for the freedom of movement
of capital and labour. It is essentially a trust or a contract based
offshore pension. As such the tax residence of the beneficial
owner or beneficiaries is critical, as some countries do not
recognise trusts.
A QROPS can be appropriate for UK citizens who have left the
UK to emigrate permanently and intend to retire abroad having
built up a UK pension fund. Alternatively, a person who is born
outside the UK having built up benefits in a UK-registered
pension scheme is able to move their pension offshore if they
want to retire outside the UK. Unfortunately, your UK State
Pension benefits can’t be transferred. Defined contribution,
defined benefit pension schemes and SSAS pensions can be
transferred abroad though.
A QROPS does not have to be established in the country where
one retires; rather, a person can move the pension to another
jurisdiction and have the benefits paid into their chosen country.
Moving to a QROPS could also be a good option for expats who
are intending to return home but are approaching the lifetime
allowance or have already gone over the lifetime allowance.
QROPS Key Points
1. As with other private pensions you can begin drawdown from
the age of 55
2. With a QROPS access is flexible meaning you can draw down
as much or as little as you like.
3. QROPS typically offer a broader range of investment options
and are not subject to the same restrictions most UK pensions
are.
4. In contrast, unlike defined benefit pensions, that typically only
have a limited inheritance amount for spouses, a QROPS allows
you to name any chosen beneficiary you like.
5. QROPS allow you to hold and invest in various currencies. This
can make them appealing to expats who will be retiring abroad
and don’t want to be receiving their pension in pounds sterling.
6. The benefits of a QROPS can vary depending on how long you
have been abroad, intend to stay offshore and whether you
remain offshore for a long or short period of time.
7. A QROPS can allow you to take an enhanced tax free lump sum
when you begin drawdown. This increases to 30% from 25%.
8. Much like a SIPP, a QROPS can be used to consolidate multiple
pensions.
9. If you transfer into a QROPS and you live outside the EEA
(European Economic Area) you will be subject to the ‘Overseas
transfer charge’ – which is 25% of the value.

If you think a QROPS may be a good option for you and would like
more information, speak to one of our advisers today.
Qualifying Non-UK
Pension Scheme
(QNUPS)
A Qualifying Non-UK Pension Scheme is a form of overseas
pension available to British citizens. If the QNUPS complies with
specific HMRC regulations, it will be recognised as a QROPS.
Generally a QNUPS has greater investment flexibility and can even
hold property and other physical assets within the pension
wrapper.

QROPS and QNUPS both have the same qualifying conditions. This
in effect means that many of the guidelines governing QNUPS are
similar to QROPS. As such, QROPS and QNUPS are very similar and
related pension schemes. Which one is more appropriate for an
individual depends on their financial circumstances and the
country in which they are domiciled and/or resident.
Typically a QNUPS would be set up by an expat who has spent
many years working abroad or who plans to remain tax resident
outside the UK, but is still deemed UK domicile and wants to
protect his assets from UK taxation.
QNUPS Key Points
1. A QNUPS can be entered into if you are a UK resident, work in
the UK or are a British expat. It may also be available to UK
non-residents, depending on the rules of the scheme.
2. A QNUPS can be held in any country. They don’t need to be
situated in a country that has signed a double taxation
agreement with the UK. This not only means that you have a
larger choice of countries that can host a QROPS but it may not
be subject to reporting requirements to the HMRC.
3. As UK pensions often receive tax breaks, there is normally a
limit on the maximum amount that these allowances apply to.
Typically a QNUPS would not be subject to the LTA (Life Time
Allowance).
4. There is no maximum age at which you can contribute to a
QNUPS.
5. A QNUPS can, in certain situations can be used as a good way
of mitigating inheritance tax.
6. As with many pensions and offshore lump sum investment
vehicles, a QNUPS can grow free from Capital Gains Tax.
7. A QNUPS can hold a broad range of assets within it. This can
include residential property and physical goods such as classic
cars or expensive collectors items. When used in conjunction
with careful Trust planning there can be some useful
Inheritance Tax mitigation opportunities.
8. A QNUPS can accept contributions not only from earned
income during employment but other sources also.