SIPPs versus QROPS – which is the better choice?
We’re faced with many different choices when it comes to retirement planning and pensions, and for those who live outside of the UK or are intending to retire abroad, gaining an understanding of the differences between SIPPs and QROPS is essential in order to make the right decision.
While there are some similarities between SIPPs and QROPS, there are some integral differences that need to be understood too. SIPPS stands for Self Invested Personal Pension, and in reality a QROPS is a type of SIPP. Both of these pension options allow you to pay funds into them and offer some degree of investment flexibility. However, a QROPS is only available to people who are intending to leave the UK on a permanent basis – conversely, a SIPP can be held if you live away from the UK but have the intention to repatriate.
If you choose to invest in a SIPP, you will be entitled to tax relief on your contributions. Also, SIPPs tend to be less expensive to enter than QROPS, despite the general reductions in QROPS costs. In essence, a SIPP is the ideal pension choice if you wish to enjoy flexibility and stay in control of your money – but for expats living abroad, you need to be sure that you’re going to be returning to the UK.
Proposed QROPS changes could make SIPPs a better option
We’ve recently posted some articles on our news pages regarding proposed changes to QROPS. Although these changes have not yet been confirmed, there’s a good chance that from April 2012, in order to benefit from QROPS, your pension funds would need to be held outside of the UK for a minimum of 10 years – otherwise it will be treated in the same way as a UK pension. If you’re planning to take pension benefits within a 10 year period, you’re probably better off opting for the lower cost SIPP option.
Whether you ultimately decided to go for a SIPP or a QROPS , professional advice from a financial adviser is essential. Your financial adviser can help you to build and rebalance your SIPP investments, and a SIPP will allow you to pay in as much money as you wish whenever you want. If you’re working abroad as an expat, your salary may be higher than an equivalent position in the UK – with a SIPP, you can add this increase in income or any bonuses to your pension pot, with the option to reduce your contributions when you return to the UK. This differs from a traditional pension in that there’s no commitment to keep your contributions at a certain level.
Our adviser’s take on SIPPS
Ian Sweet, Commercial Director here at Guardian Wealth Management says: “HMRC created the QROPS market and now want to make changes that are unlikely to be in the best interests of the consumer. One has to ask if this is the beginning of an on-going erosion of the QROPS benefits. If you want certainty and a flexible pension scheme where you are in control of the investment strategy, whichever country you live in, then a SIPP is an ideal choice.”
If you’d like to talk to one of our financial advisers, to find out whether a QROPS or a SIPP will best suit your needs, please feel free to contact us via the link.