After moving abroad many British expatriate leaves their existing right to UK pension. These private pensions remain subject to UK pensions law with the effective requirement to purchase an annuity at a later stage (and in any case no later than attaining 75 years of age without the later prospect of huge tax charges otherwise). Additionally UK taxation may be suffered on pension payments.

Under UK legislation introduced in 2004, effective from April 2006, expatriates or UK residents who have a demonstrable intention to move overseas may transfer the value of their UK pension rights to a non-UK pension scheme and thus avoid all the normal restrictions imposed on the pension fund if it remained in the UK. The transfer must be made to a Qualifying Recognized Overseas Pension Scheme (QROPS for short) that is approved by HM Revenue & Customs (HMRC).

QROPS

There are a number of basic rules and regulations that must be satisfied in order for a transfer, to a non-UK pension scheme, to be considered advisable. Cases should be examined on an individual basis but the basic rules are:

• The pension holder must become non-resident of the UK and remain so for at least five complete UK tax years.

• The existing UK pension scheme can be in drawdown (i.e. benefit is being paid from the fund directly ) before transferring to a QROPS. However, there are restrictions and if the permitted lump sum (nearly always 25% of the value of the pension rights) has been taken, no further lump sums are allowed.

UK rules impose a statutory lifetime allowance relating to the amount payables from UK registered pension schemes that will be treated as tax-privileged. For the tax year 2008/9 this allowance is £1.65m and will rise in stages to £1.8m by 2010/11. Transferring benefits to a QROPS is known as a crystallization event and the value of pension rights transferred in excess of the lifetime allowance will be taxed at the rate of 25%.

TAXATION

The QROPS we recommend are established so that the underlying investments are not subject to tax and with careful planning the pension fund can be continued until retirement date on a tax-free basis.

BENEFITS

The other principal benefit in transferring a UK Pension to QROPS is that the UK requirement to purchase an annuity in later life is avoided. The pension fund can therefore be used by the member for his lifetime and any remaining balance can be passed on to their heirs upon the member’s death.

TIMESCALE

Once the relevant information has been obtained from the pension holder, the Plan can normally be set up within a 6-12 week period. This timescale will depend on the existing UK pension provider, the company with whom we work, will liaise with that provider at all times at no extra cost to the individual member.

Independent Pension Review

It is recommended that individuals obtain an independent review taking account of their own circumstances before transferring their UK pension rights to a QROPS. However this is not a legal requirement and can be waived by the member.

Sadekya is not able to provide this advice directly but we can introduce clients to qualified advisers who can undertake this work for a fee.