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UK Budget may cause problems for expat savers and QROPS industry
| Published: | 2 Apr at 6 PM |
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The rewriting of many pension rules unveiled in the UK’s recent budget could result in troubled times for QROPS providers as well as expat savers.
Experts are stating that the Budget pension reforms may well threaten the future of the profitable QROPS industry, with reduced tax restrictions likely to dilute the appeal of the product. QROPS have been seen as especially useful for expats wishing to transfer their pensions to their new countries of residence.
Interestingly, a little-noted new restriction announced by the chancellor in his budget speech will make it more difficult for civil servants to transfer their pensions overseas, whether via QROPS or other financial vehicles. According to a director of a well-known advisory firm, the move will have damaging currency exchange and tax effects for defined benefit scheme members wishing to retire overseas.
Paul Davies of Global QROPS considers that, if DBS members are unable to transfer to a QROPS on emigration, income would need to be paid in sterling through a UK scheme, leaving the amounts vulnerable to currency fluctuations. Retirees in certain countries, including Australia, would be assessed for tax in the UK on their overseas income, whereas Australian QROPS payments are tax-free.
Less retirement options for DBS members and less choice of products, he believes, will lead to a lack of interest and drop in demand for QROPS. He adds that clarity is needed as to whether, as previously ruled by HRMC, a restriction on several QROPS paying out 100 per cent in a lump sum is still in place.
Davies is concerned that, under the new regime, QROPS may not be afforded the flexibility offered by UK defined contribution pensions. This and legitimate concerns over the tax payable by non-UK residents on lump sum withdrawals is likely to dampen enthusiasm for the product amongst many due to retire in the near future
Experts are stating that the Budget pension reforms may well threaten the future of the profitable QROPS industry, with reduced tax restrictions likely to dilute the appeal of the product. QROPS have been seen as especially useful for expats wishing to transfer their pensions to their new countries of residence.
Interestingly, a little-noted new restriction announced by the chancellor in his budget speech will make it more difficult for civil servants to transfer their pensions overseas, whether via QROPS or other financial vehicles. According to a director of a well-known advisory firm, the move will have damaging currency exchange and tax effects for defined benefit scheme members wishing to retire overseas.
Paul Davies of Global QROPS considers that, if DBS members are unable to transfer to a QROPS on emigration, income would need to be paid in sterling through a UK scheme, leaving the amounts vulnerable to currency fluctuations. Retirees in certain countries, including Australia, would be assessed for tax in the UK on their overseas income, whereas Australian QROPS payments are tax-free.
Less retirement options for DBS members and less choice of products, he believes, will lead to a lack of interest and drop in demand for QROPS. He adds that clarity is needed as to whether, as previously ruled by HRMC, a restriction on several QROPS paying out 100 per cent in a lump sum is still in place.
Davies is concerned that, under the new regime, QROPS may not be afforded the flexibility offered by UK defined contribution pensions. This and legitimate concerns over the tax payable by non-UK residents on lump sum withdrawals is likely to dampen enthusiasm for the product amongst many due to retire in the near future
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