British businesses could face a £450 billion bill as a result of plans to force pension funds to protect themselves from risk with extra capital. If the proposed rules were introduced, they would accelerate the closure of Britain’s remaining final salary pension schemes in the private sector. The EU body that regulates occupational pensions estimated that the deficit in the UK’s defined benefit pension schemes would almost double from £237bn to £450bn if the new rules, called “Solvency II”, were introduced.
Steve Webb, the minister for pensions, said: “The EU’s latest figures show the extremely high cost its plans would place on UK defined benefit pension schemes. “This confirms that any such new rules would harm businesses’ ability to invest, grow and create jobs, and many more schemes could be forced to close. I continue to urge the Commission to abandon these reckless plans.”
The National Association of Pension Funds (NAPF) warned that moving to the new rules for pensions would put a “huge burden” on Britain’s remaining final salary pension schemes and the businesses that run them. Joanne Segars, the NAPF’s chief executive, said: “The EU plans for UK pensions come with a clear and unpalatable price tag. Businesses trying to run final salary pensions could be faced with bigger pensions bills to plug an astonishing £450bn funding gap. This would have a highly damaging effect for the retirement prospects of millions of workers.
Anyone with a UK pension scheme who now lives overseas as an expatriate, or who is planning to leave the UK, can now transfer their existing pension provisions into a QROPS (Qualifying Recognised Overseas Pensions Scheme).
Follow the procedures correctly and the financial benefits can be huge, producing greater investment growth and flexibility, and assuring the future financial security of your pension.
Some Key QROPS FAQs
Will payments from my QROPS pension fund be reported to HMRC in the UK?
QROPS providers are required to notify HMRC of any payments from transferred pensions in respect of a relevant member. However this only applies when the member is resident in the UK when the payment is made, or has been resident in the UK earlier in the tax year in which the payment is made or in any of the five tax years immediately preceding that tax year.
If I transfer my UK pension into a QROPS will I have to buy an annuity?
No, although you may if you wish. Without the need to purchase an annuity it means you can invest into better returning assets and gain the advantage of passing any remaining funds upon death to your loved ones.
Can I manage my own QROPS assets?
Under certain circumstances you can manage the assets yourself with total freedom, or you can work with an investment manager, or appoint one to make the decisions for you or with you. It really depends what you are looking to achieve and how involved you would like to be with the investment decisions. There is no limit to the size of funds that may be accumulated within a QROPS.
How and when can I take benefits from my QROPS?
Usually benefits can be taken between the ages of 50 and 75, depending on where your QROPS is based.
How will any benefits or withdrawals be taxed?
It is possible to achieve a genuinely minimal taxation rate, depending on the scheme, and of course we are happy to advise. This will also depend on where you are tax resident at the time.
What are the key facts to look for in a good QROPS?
Strong investor protection from a well established jurisdiction similar to the UK, transparency of charges and tax efficiency.
If I have a large pension fund to transfer, are there additional tax implications?
A transfer to a QROPS is classified by HMRC as a benefit crystallisation and is not subject to taxation unless the fund to be transferred exceeds the lifetime allowance (currently £1.5 million in 2012/2013 tax year).
Key Benefits of QROPS
• No need to purchase an annuity or pay UK tax charge upon death.
• All unused pension funds can be left to your beneficiaries.
• Much greater investment freedom.
• Tax free lump sum of up to 30%.
• Access to onshore and offshore funds with highest fixed deposit rates, plus total diversification.
• Pension income is much more tax efficient.
• Take income and benefits in the currency of your choice.
• Protection against possible future creditors. (Depending on QROPS jurisdiction).
• Greater confidentiality.