Volatile stock markets affecting expat pensions

by Ray Clancy on November 17, 2011

Brits collecting pension abroad should consider a Qualifying Registered Overseas Pension Scheme

With ongoing uncertainty in global stock markets, British expats are increasingly transferring their UK pensions overseas to take advantage of irresistible tax benefits, it is claimed by financial consultants.

‘The markets are being battered and trillions are being wiped off global share prices. Around 60% of an average pension fund is invested in shares, so the current situation affects many people’s financial futures,’ said Andrew Oliver, senior managing partner of deVere Spain, part of the deVere Group, the world’s largest independent international financial consultancy group.

‘What we’re witnessing is most concerning for those with personal pension funds and on the cusp of retirement,’ he added.

He pointed out that at the beginning of August, for instance, the FTSE 100 fell by more than 10% in one week and eight million Britons have their pension fund invested in schemes where the pension is linked to how markets are performing.

The market’s volatility has led to an increasing number of British people who live abroad opting for an offshore pension, he believes.

‘The trend is soaring as more and more Brits learn about the benefits of transferring their pension. With daily reports of leading companies having high percentages wiped off, anyone in the UK who is planning to retire abroad, or who is currently living outside Britain and collecting a pension there, should consider a Qualifying Registered Overseas Pension Scheme (QROPS),’ he explained.

Introduced several years ago, QROPS is an overseas pension scheme where the fund is no longer subject to HM Revenue & Customs rules.

Financial advisors say that in these uncertain financial times one of the key advantages of QROPS is the ability to switch funds easily if the current ones are under performing.

In addition, the range of different funds available is considerably wider than a typical UK scheme, and you can turn your fund into cash at any time. It is these cornerstone features which many insist give those with a QROPS a more extensive set of options.

Traditionally, those moving abroad for more than five years have sought advice on QROPS for tax purposes.

‘Inheritance tax is zero, compared with levels of up to 80% in the UK. This means there are more funds to leave to your loved ones. Similarly, you can transfer QROPS to a territory where there’s zero percent on income tax,’ said Oliver.

‘There are tens of thousands of people who have already moved to Spain, for example, and have left their pensions in the UK, who should seriously take a look at their arrangements to see if they are paying too much tax,’ he added.

Those with a QROPS can also take a tax free lump sum of 30% whereas those with a typical UK pension are restricted to 25%.

The lack of annuity is another big plus for many.

‘In the UK you’re forced to invest in a Compulsory Annuity Purchase. This limits how your wealth can be passed on to beneficiaries, but with QROPS you are not obliged to buy an annuity, allowing freedom to invest in other areas which may give a greater return,’ Oliver explained.

He also pointed out that British people living abroad and collecting a pension in sterling are at the mercy of fluctuating exchange rates and will often incur charges for converting their pension funds into local currency.

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