Introduction:

Before you go any further, it is important that you are reminded - Corporate Consulting (Taxation) Ltd are NOT pensions advisors. Anyone interested in anything displayed on this page will require formal pensions advice from an Authorised individual or company. The information here is to highlight some of the uses of one specific arrangement that is available to Pensions Advisors - if they contact us and ask.

What is a QROPS:
In April 2006, it was announced that individuals with UK pension rights, who have (or will) become non-resident in the UK for tax purposes, could move their pension benefits out of the UK to a Qualifying Recognised Overseas Pension Scheme - QROPS - with the Revenue's approval.

A QROPS is a Qualifying Recognised Overseas Pension Scheme that can have significant taxation and investment advantages to individuals with UK pension rights who have, (or will) become non-resident in the UK for tax purposes. The rules of the scheme should, for the most part, correspond to the rules governing an authorised UK pension scheme.

The trustee's of the QROPS must report to Her Majesty's Revenue Customs - HMRC - information about certain events if that individual was resident in the UK for tax purposes during the previous 5 years.

The events include:
The payment of benefits (lump sum, income and death).
Onward transfer of the QROPS.
If the individual has been non-resident for 5 complete tax years or more HMRC no longer require information to be reported to them.

An individual may wish to establish a QROPS in a jurisdiction with favourable pension rules.

Thereby it is possible to achieve significant tax and investment advantages when compared with a UK pension.

HMRC publish a list of QROPS although not every scheme chooses to be on that list.

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PLANNING NOTE:

Normally a QROPS is advised when the individual is planning to leave the UK. We work with an expert in this area, who is happy to help... but we also have some thoughts for why a QROPS might be beneficial for people who are NOT leaving the UK.

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Lifetime Limit Planning:
We cannot give advice on WHY to use a QROPS - that is the domain of a Pensions Advisor - however there are some interesting points to bear in mind:

a) At the point of transferring your UK Pension into a QROPS there is a valuation carried out (Benefit Crystallation event) to determine how much of the "Lifetime Limit" has been used by the existing fund. The limit currently set at £1.75m. So, if you have a pension fund of £1.75m and are aged 45....there is no real room for the UK Pension to "grow" as anything over the lifetime limit will be subject to significant tax.

A QROPS is NOT part of the lifetime limit, so once the transfer value has been taken into account.... ALL the growth will be allowed in ADDITION to the £1.75m current limit. This is therefore a significant factor for many UK resident individuals - not looking to retire abroad... but simply undertake what we call "Lifetime Limit" planning.

The position gets worse for younger people - funds as low as £600,000 can grow beyond the £1.75m in a matter of only a few years. The following table ignores increases to the "Lifetime Limit" - but also ignores times where annual fund performance is way in excess of 5%p.a:

How long will it take £600,000 to reach £1.75m at different annual growth rates: 3% 37 years (or a concern for anyone aged below 38) 4% 28 years (or a concern for anyone aged below 47) 5% 22 years (or a concern for anyone aged below 53) How long will it take £700,000 to reach £1.75m at different annual growth rates: 3% 28 years (or a concern for anyone aged below 47) 4% 24 years (or a concern for anyone aged below 51) 5% 19 years (or a concern for anyone aged below 56) How long will it take £800,000 to reach £1.75m at different annual growth rates: 3% 27 years (or a concern to anyone aged below 48) 4% 20 years (or a concern to anyone aged below 55) 5% 16 years (or a concern to anyone aged below 59)

In practical terms, this can be a very useful planning tool. A client with a fund of £600,000 might not be able to add any more to their approved pension fund - because a quote shows that they will exceed the Lifetime Limit. However, once their £600,000 were transferred to the QROPS - they would have £1,150,000 left of their 2009/10 limit... and could start funding their approved pension all over again... building up another £600,000... and then transferring THAT into their QROPS, leaving a remaining £550,000 to do the whole thing again for the 3rd time.

(This is just an example and is not pensions or investment advice, but it should be the thoughts on the mind of an IFA when discussing retirement planning).

From The Times November 26, 2008:
Freeze on pensions lifetime limit to hit savers by Ian King.
Alistair Darling was told last night that his decision to freeze lifetime pensions allowances could have severe consequences for thousands of savers. Mr Darling said that the pension lifetime allowance from 2010 to 2015-16 would be frozen at £1.8 million. Anything over that amount, as with the existing limit of £1.75 million, would be taxed at a rate of 55 per cent.

Death Benefits:
If an individual is moving abroad (or has done so) - then after the 5 yrs HMRC "reporting" has ended, there are massive IHT advantages to a QROPS. But what about someone who is wealthy and staying in the UK. How might a QROPS benefit them?

Well - there is one way, and that relates to death benefits:

TAXES & CHARGES ON DEATH AFTER AGE 75:

82%

This assumes that you have NOT bought an annuity and are simply drawing an income from the fund. If you HAD bought an annuity it is possible that the whole fund would be lost on death (unless a "joint" annuity was purchased). It also assumes that your Estate is large enough to use up your IHT Nil Rate Band before adding the value of the pension fund.

QROPS PLANNING:

0% - we can offer your Pensions Advisors with a QROPS where funds are NOT lost on death. This can be done in 2 different ways, which will be determined by individual circumstances.

Taking Income:
Because of the charges on death, many clients make the decision to take income - even where an income does not need to be drawn from the accumulated fund. Many scheme members are taking the view that they should draw the maximum possible in order to ensure that the remaining fund left to suffer this charge upon their demise is as small as possible.

However, as you know, one problem with drawing an income is that this will be subject to Income tax at up to 40%. Furthermore, if the net amount of income received is not being spent, but is left to accumulate within the recipient's estate, it will then be ultimately subject to a further 40% Inheritance Tax.

The principal benefit of this special pension planning is that the QROPS offers 2 options for people aged below 75 - each of which preserves the hard earned cash within your pension, without passing it to HMRC on death.

The problem is that many of our clients have accumulated considerable value within their pension schemes. However, their other personal assets/income are more than sufficient to provide for their living expenses and thus ways are being sought to transfer pension assets to their heirs in a tax-efficient manner.

Recent changes in pensions legislation have now made it very difficult to pass on funds within UK registered pension schemes to the next generation without incurring significant tax charges if one lives beyond age 75.

This planning solves these problems.

Contact Us NOW - For more information.

Please note: We are not investment or pensions advisors, so anything you read on this web site should not be taken as formal investment or pensions advice.

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