HMRC has delisted thousands of overseas schemes that could previously accept pension transfers from Britain

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Swapping your final salary pension scheme for cash has become more attractive because of the new pension freedoms. But some savers are being offered far better deals than others.

George Osborne’s changes to how people can manage their retirement pot begin next month. These are some of the myths about it.

There is just over a month to go before the new pension freedoms are introduced. Those with defined contribution pension schemes, also known as money purchase plans, will be able to dip into their retirement savings or blow the entire pot from the age of 55.

The scale of the changes, announced less than a year ago, has left many people confused. We tackle 10 myths about what the freedoms mean for you.

1. Insurers will let me use my pension like a bank account from April

There’s nothing in the pension legislation forcing insurers to apply the new rules to existing policies. Indeed, some insurers, particularly those that are no longer interested in attracting new customers, may not offer any of the pension freedoms at all, while others simply have not been able to update their systems in time. As a result, 6 April could be a bit of an anti-climax.

Alan Higham, retirement director at Fidelity, the investment firm, said: “Your pension scheme or company can stick to the original deal of offering you just an annuity. You may well have to move to a new pension provider if you want to access your savings earlier.”

And bear in mind that transferring between providers is not always a quick process. You could have to wait a few weeks, or even a few months, to dip into your pot.

2. I can cash in my pension pot tax-free

There are growing fears that pensioners do not realise that only 25% of your pot is available to be taken tax-free. The rest will be taxed as income as it’s withdrawn from your pot, incurring rates of 20%, 40% or even 45%. Crucially, this means taking out a large amount of your pension – or even cashing in the whole pot – to pay for a home extension or a new property could push you into one of these higher tax brackets, resulting in a large tax bill.

Continue reading (The Guardian) →

If you have a UK pension, from a company or private scheme then this site will be a useful resource for you, to learn more about the UK pension system, what opportunities you have as an expatriate living in Thailand, and how future pension changes may affect you.

Leaving that pension in a UK scheme could be very costly to your future income, tax position and restrict the income which your family can enjoy when the inevitable happens.

Continue reading Welcome to QROPS Thailand →

A good analysis on the pros and cons of transferring a final salary pension. This relates to a UK transfer rather than a QROPS transfer which offers many more advantages when it comes to taxation on the income for an expatriate

Some final salary pension members are keen to take advantage of George Osborne’s new freedoms. But should they?

Hundreds of thousands of savers with “final-salary” pensions, which are considered the crème-de-la-crème of company pensions, are planning to trade in their future guaranteed income for a cash lump sum.

It is estimated that as many as 10pc of the 3.7 million private sector workers who are yet to start drawing their final-salary pensions will choose to forgo their generous guaranteed benefits and take the money as a lump sum instead.

In recent years these generous “gold-plated” pensions, which pay a guaranteed income linked to the worker’s wage at retirement, have become a dying breed. For millions of workers they have been replaced by the less generous “defined contribution” pensions. With these the employer pays a fixed amount in on a worker’s behalf. What they get at the end depends on investment returns, among other factors, and there are no guarantees.

But the huge attractions of final-salary-type schemes are expected to be outweighed by the new freedoms, first outlined by the Chancellor in his March Budget, which come into force in April 2015 but which only apply to defined-contribution plans. So to benefit, final-salary members would have to transfer their accrued benefits out of their scheme.

Continue reading (The Telegraph) →

From April 2015, savers over 55 will be given the option of taking a number of smaller lump sums. This is why it will benefit you.

From next year savers will have freedom to do as much or as little as they want with their pension, George Osborne said before the publication of the taxation of pensions bill. But what do these freedoms mean in practice?

What is the main change?

Savers have always had the freedom to take 25% of their pension in a tax-free lump sum, but have then generally been herded into buying an annuity with all of the rest of the money. But from April 2015, savers over the age of 55 will be given the option of taking a number of smaller lump sums, instead of one single big lump sum, and in each case, 25% of the sum will be tax-free. However, as pension advisers are saying, this change was widely anticipated as an essential part of the new pension freedoms, and was actually already in place in the form of “phased retirement” or “vesting” under the old system.

Continue reading (The Guardian) →

Up to 200,000 people are set to cash in their pension pots all in one go next year, according to new research.

From April 2015, all those over the age of 55 will have the freedom to take all their savings out of their pension fund, if they wish.

As many as 12% of those with pension savings will do so, says the investment adviser Hargreaves Lansdown.

In response, the Treasury insisted that people should be free to do what they like with their pensions.

If the estimates prove accurate, the government could be in line for a tax windfall of up to £1.6bn.

But the research also showed widespread ignorance on how much tax is payable on such withdrawals.

Only just over a third of those questioned in a survey knew how much tax would be deducted if they cashed in a medium-sized pension pot.

Those with larger savings were even less likely to know what their tax bill would be.

More than 1,000 adults with defined-contribution scheme pensions were questioned by Ipsos Mori for the research.

Continue reading (BBC News) →

Increasing numbers of the estimated 4.7 million British expats are taking their pensions out of the UK, according to two financial advisory firms

Increasing numbers of pensioners who’ve found a place in the sun have opted to move their pensions overseas with them.

Wealth management specialists the deVere Group saw a 15 per cent increase in the number of clients transferring pensions into a Qualifying Recognised Overseas Pension Schemes (QROPS) last year.

QROPS, which were established in 2006, are HM Revenue & Customs-recognised pension schemes based in selected jurisdictions outside the UK. Around 10,000 expats move their pensions each year.

“The 15 per cent growth in our QROPS business to the year ending December 2013 reflects the sustained upward trend in the QROPS sector more generally,” said Nigel Green, the deVere Group founder and chief executive.

“I would attribute this to the growing public awareness of the mounting problems of the UK pension system. There is a growing public perception that there are fewer incentives to keep retirement funds in the UK due to the scrapping of some key age-related benefits, among other factors; and because, as clients frequently tell us, pension pots have in recent years become easy targets for stealthy and not-so stealthy government raids.”

Continue reading (The Telegraph) →

2015 is expected to be a big year when it comes to UK pensions. The UK government have proposed changes to the system, which is designed to give those coming into retirement more access to their pension, and hopefully add more spending power into the UK economy. How this will work in practice is still to be clear but we are starting to get a better picture from the UK government, UK pensions industry and the offshore pensions industry and in particular QROPS.

What are the benefits which have been proposed by the Government:

i) From April 2015 a pension holder can decide how they will take their pension, and how much they will take (this refers to contribution / defined contribution schemes rather than final salary / defined benefit schemes). The individual would be taxed at their current marginal rate in the UK, in most cases 20% as an expatriate.

ii) If an individual wants to access capital from a final salary / defined benefit scheme then they will have the option to transfer out of that scheme into another scheme before taking income from it.

iii) People can pass on their pensions to others without paying any tax. The caveat to this is that the member must pass away before the age of 75 to allow them to pass their remaining pension assets tax free. If the scheme member dies after the age of 75 they can then pass on the income from the scheme at the family member’s marginal rate of tax. If the member passes the pension on as a lump sum and they are over 75 then the pension will still attract a 55% death tax.
There are many interesting questions which come out of the above points, especially for expatriates. We are happy to answer any other questions which you may have. Please get in touch through our website.

Firstly the question of income tax needs to be looked at for an expatriate living in Thailand. Are you happy to pay at least 20% of your pension income to the British Government when you pay virtually zero tax on income if you are placed into the right pension structure through an offshore scheme?

Secondly there are real and valid questions hanging over the Defined Benefit Scheme transfer. The government suggests that there are 18 million such schemes in the UK, if everyone took the option to transfer then the funds available would diminish very quickly and pension companies and insurers would simply not be able to pay. We are seeing already how this should play out, as “unfunded” civil service schemes will not be available for transfer after the new year. The cutoff date is still not clear. An unfunded scheme is basically one where the company is paying current retirees income from money coming in from current employees. If you find yourself in such a scheme then your future income will be paid by the workers of the future, you are paying for the retirees. Our last article covered this, and if you have a teachers / army / NHS pension then it is important to have this looked at before the end of the year.

Finally, critics have questioned whether people could end up struggling financially if they spend all their money after retiring. Earlier this year Steve Webb, the pensions’ minister, said that he would be “relaxed” if pensioners chose to buy a Lamborghini with their life savings. Everyone will have a different view on this but the QROPS industry would be in agreement that the idea of a pension (onshore or offshore) is that is able to provide an income for life of the individual, and then provide for their family upon death. To suggest that an individual spends their pension on luxuries and then lives off a meagre state pension is rather short sighted.

If you have any questions on the above points, or would like clarification on how the changes will affect your pension, we are available through our website or through Inspire.

Please click to speak to one of our local advisors.

Alternatively click for your free QROPS information pack.

Chancellor tells savers they can withdraw ‘as much or as little as they want’ from their pension

Workers will be able to use their pension pots like bank accounts from the age of 55 and withdraw thousands of pounds to save, invest or spend as they wish on holidays or other purchases.

George Osborne, the Chancellor, said that people would be able to take advantage of the Government’s flagship pension reforms to access “as much or as little as they want” from their savings.

Under the reforms those approaching retirement and pensioners will be able to dip into the retirement funds whenever they want. The first 25 per cent withdrawn will not be taxed, while the rest will be taxed at the individual’s marginal rate.

The move builds on the pension reforms Mr Osborne announced in his Budget, under which he scrapped rules that force most Britons to use their pension savings to buy an annuity.

At the time, ministers emphasised that pensioners would be able to draw down the entirety of their pension pots to save, invest in property or even buy a Lamborghini.

Continue reading (The Telegraph) →