Pension legislation in the UK has changed in recent years, but as an expat, have you kept up? If you are living in Dubai, but with preserved pensions in the UK, you must make sure your pension plan is keeping up with the times. Right now, there are two pension plans which UK expats should consider, or even anyone who has worked in the UK and accumulated pension benefits. These are the UK regulated Self Invested Personal Pension (SIPP) and the Qualifying Recognised Overseas Pension Scheme (QROPS).
What are the differences between these plans and which one is best for you and your family? Here's a look at both plans to help you answer those questions.
The SIPP is a "pension wrapper." The pension wrapper keeps you within pension rules and regulations and administers your plan. Within this wrapper, you have the option of investing in many different products, so your pension portfolio becomes highly customised to meet your unique needs and goals.
Some of the most important things to remember about the SIPP include:
• It is based in the UK, and thus subject to the pertinent laws of the UK, regardless of where you live.
• You may hold a SIPP wherever you live in the world.
• Your investment choices are wide ranging, even including the option to directly invest in UK commercial property or direct shares.
• You may take benefits from age 55 years (under current legislation).
• Your benefits are flexible, you may draw as much or as little income as you like, or turn the income on or off as you wish.
• You are entitled to up to 25% of the fund value free of tax – but you don’t need to take this all at once, you can ‘phase’ this over a number of years which can be an excellent way of planning for income tax.
• You may transfer your funds on to a QROPS later on, in the event this becomes more suited to you and your retirement plans.
• It is an excellent plan for those who plan to retire in the UK or in a nation with a preferential double-taxation agreement with the UK.
QROPS stands for Qualifying Recognised Overseas Pension. It is an international pension plan you can use anywhere, and it is recognised by HMRC. It can accept transfers of funds from pension accounts based in the UK, but it is not subject to UK pension regulations after its qualifying period. It reports to HMRC for its first 10 years after you establish it, but if you have resided outside of the UK for over 5 years you can benefit from its further features. Because the plan itself is not based in the UK, but internationally, you can benefit from differing taxation policy, if they are more friendly to your financial needs than a UK-based plan. It can be better suited for those who are retiring outside of the UK, in a country where there is no double-taxation agreement.
Some important things to remember about the QROPS include:
• It is not subject to the ever changing UK regulation
• There is no lifetime cap on the amount of funds you can accumulate
• There is no tax placed on the funds upon your passing on, should you die outside of the UK
• It is a good plan for those who have more than one million pounds in their retirement savings, who are retiring outside of the UK, and who want to preserve more wealth for their heirs.
At Guardian Wealth Management we know that making a decision on which pension is right for you can be daunting, which is why we have produced a handy guide to help you answer your questions.