The benefits of Offshore Qualifying Recognised Overseas Pension Schemes (QROPS)

April 7, 2009 - PRLog -- QROPS is a relatively new invention as far as British expats are concerned. UK pension holders were introduced a new retirement planning opportunities, called QROPS, on 6th April 2006. Prior to this date, pensioners moving overseas had the choice of either leaving their pension funds in the UK or to transfer them to their new country of residence.

Before QROPS there were serious disadvantages for pensioners if the country in which they then resided had schemes that had less flexibility than the UK, or even had no pension system in place at all, such as in Thailand.

The advantage of this legislation is that pensioners are now not required to transfer their QROPS to the country that have or intending to migrate to. This means that UK pensioners have far more options worldwide as the UK’s Revenue and Customs permits UK pension rights to be transferred to a QROPS.

There are huge benefits for expats who transfer their UK pensions to a QROPS. For example, pensioners can transfer their benefits to a QROPS and are able to take 25% of their total fund as a tax-free lump sum and an additional 5% which is taxable. But to qualify for the lump sum option, members must either be fifty years of age now or before 2010; or, if not, they have to wait until they are fifty-five.

In terms of explaining the potential benefits of QROPS to British applicants, benefits accrue when the pension holder has been non-resident in the UK for at least 5 years. This is because once their pension scheme has been transferred into a QROPS and the individual has been non-resident for at least 5 years, then the QROPS provider is under no obligation to report any actions such as withdrawals or payments to the UK tax authorities.

Significantly, since the Finance Act 2008, the argument for transferring UK pension rights to a QROPS for expats has become even more compelling. A new clause in the Act has been added to the Inheritance Tax Act 1984, which gives QROPS freedom from UK’s capital transfer inheritance taxes. This affords massive protection to individuals, as the estate following death is available to beneficiaries without any incurring death duties in the UK.

Whether you are retired and simply require a steady income or are looking to protect part of your portfolio against market volatility, it is important to have access to “capital protected” and reliable “income-producing investments”.

One company offering these services, Montpelier, has sought out a number of such investments for their clients, which form the core of a truly diversified portfolio. For example, their five-year “Regular Income Bond” offers a return of 7.5% per annum with full capital protection unless the index falls by more than 50% and fails to recover, then the capital is reduced on a ratio of 1:1. Also, their “FTSE Defensive Gilt-Backed Growth Plan” offers a 9.0% per annum return, paid upon each anniversary if the FTSETM 100 Index is equal to or more than 90% of the level recorded at the start of the plan. This plan offers full protection unless the index falls by more than 50% and fails to recover, then the capital reduced on the same ratio as the “Regular Income Bond” of 1:1.

The majority of market analysts agree that global equity markets are now approaching “bottom” levels, with the MSCI World Index recently having reached levels unseen since April 2003 (almost 60% off their highs in Oct 2007). For this reason, investors are well advised to take full advantage of the opportunity to re-position a proportion of their portfolios into potential growth areas.

In order to ensure that investors do not miss the current growth opportunities and to eliminate the difficulties associated with attempting to “time” the market, Montpelier recommend “Drip Feeding” funds into potential growth sectors. This can be achieved via a regular savings account, lump sum investments or ongoing bespoke portfolio management of your existing portfolio.

For those individuals who currently hold UK pensions and do not plan to return to the UK, Montpelier has announced that there are now greatly improved QROPS options available and recent discussions between the HM Revenue & Customs (HMRC) and various offshore jurisdictions, Montpelier are now able to offer expatriates holding UK-based pensions an extensive range of HMRC-approved QROPS schemes, including:
- No requirement to purchase an insurance company annuity;
-  Income paid gross;
-  Ability to leave remaining funds to your beneficiaries;
-  Greater flexibility on drawing benefits;
-  Dramatically increased scope of investments;
-  No limit on contribution or fund size;
-  Assets held in a QROPS grow free of taxation

Many UK pension funds are now performing extremely poorly, with some not even keeping up with inflation. This is erosion has reduced the value of pension funds at a time when pensioners could be enjoying far higher tax-free growth.

With the value of the pound against the baht at much lower levels than before, pensioners are running exchange rate risks in respect of pension income, but by transferring to a QROPS it means that pension payments can be received in baht, which eliminates this exchange-rate risk.

If you are an expatriate living abroad or planning on retire abroad, it makes sense to take a look at the Qualifying Recognised Overseas Pensions Scheme (QROPS ). With the help of a qualified and reliable financial adviser, your pension will be both protected with strong income flows and protected capital.

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Soho Properties is a leading Bangkok property real estate agent and location specialist, offering a first-class service for all your property-related needs.
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