Do you have a UK pension or a “frozen UK pension,” and have considered a QROPS Pension Transfer?

If so, you should be aware of some of restrictions on your current pension, as well as some of the possible restrictions and costs of a QROPS Pension Transfer.

Each pension varies, and it is impossible to cover the scope of every individual pension scenario, but this should offer you a broad and independent overview of UK pensions and QROPS Pension Transfers.

What can you expect if you keep your UK Pension?

With your current UK pension, you are able to take a 25% tax free lumpsum at the age of 55 (in some instances, age 50). Thereafter, you are required to purchase an annuity by the age of 75 or face an 82% tax charge!

This annuity, which is likely to return in the region of 2 to 3%, will be a taxable annuity and will be taxed between 17 to 21%.

While your funds are with the pension company, their mandate is to outperform UK inflation, which is very low. Thus, you can expect a minimal growth, and despite this low risk, low growth philosophy, in many instances, pension funds have lost over 20% in the last few years. It would have been better to keep your money in the bank doing nothing.

Most people assume that if they die, the UK Pension will be passed on to their beneficiaries. This is a common error. In actual fact, on the death of the individual, in most instances, 50% of the UK pension value will go to the spouse, and the remaining 50% of the UK pension will return to the life company.

Upon the death of the spouse, 100% will return to the life company! These funds eventually filter to the UK government from the UK pension company through taxes and levies. (When the government offered a tax break to contribute to a pension fund, they knew they would get it back with interest in the end.)

Thus, to briefly summarize your current UK pension scenario:

• 25 % tax-free lumpsum at age 55 (or 50)
• You have to take a taxable annuity by age 75 or face an 82% tax charge.
• This annuity will be taxed between 17 to 21%
• Your pension fund value is only expected to slightly outperform inflation and in many instances lost 20% in the last few years.
• On your death, 50% will return to the pension company.
• On death of yourself and your spouse, 100% returns to the Life Company and state.

A further factor to consider on your UK pension is the fact that there is a pension crisis in the UK, and this crisis is increasing exponentially. Ten years ago for every person drawing funds from the pension fund, 16 people where contributing. With advances in medicine and an ageing population, currently there is an increase in the number of people relying on the pension fund, and there are now only 4 people contributing for every person drawing from the fund.

When you retire, statistics are predicting that the pension fund may run out, leaving many people who have contributed for over 20 years, with no pension.

When you understand how pensions work and the limitations of your UK pension, you will understand why 90% of people who qualify for a pension transfer into a QROPS, opt for it.

What is a QROPS Pension Transfer?

A QROPS Pension Transfer is a transfer of your UK pension into a HMRC approved Qualifying Recognized Overseas Pension Scheme.

Thus, you are transferring your UK pension to an HMRC approved scheme that is outside of the UK. This QROPS is usually based in the Channel Islands, due to the strong investor principles and financial strength of the jurisdiction, or it can be based in another jurisdiction. It all depends on your personal circumstances. The choice of jurisdiction is something you will need to discuss with your financial adviser.

The Benefits of a QROPS are numerous and include:

• No need to purchase a taxable annuity (although you can if you want to)
• Tax-free growth
• Greater investment flexibility
• Greater growth of underlying assets due to increased investment flexibility
• Ability to pass on your pension to beneficiaries
• Can be denominated in a hard currency (GBP, USD, Euros)
• Access after 5 years 

QROPS Resources

• QROPS Pension Transfer Comprehensive Site
• QROPS Explained
• QROPS Article

Thus, if you contrast a QROPS to your existing UK pension or "frozen" UK Pension, it becomes apparent why it is a “no brainer.”