When is a Pension Transfer Not a Pension Transfer?

Posted: 05 May 2010
When is a Pension Transfer Not a Pension Transfer?

Answer: When it’s a Transfer to a QROPS. Confused??????

You will see lots or articles in the financial and public press, along with web blogs and glossy brochures from various financial companies and Qualifying Recognised Overseas Pension Schemes (QROPS) providers regarding overseas pension transfers from UK pension schemes to QROPS.

 

However, technically, there is no such thing as an overseas pension transfer. What actually happens when transferring UK pensions to a QROPS is a Benefit Crystallisation Event (BCE).

 

When a BCE event occurs, the benefits are tested against the Lifetime Allowance (LTA). An LTA test is no cause for concern for the average person’s pension fund, but where an individual has funds in excess of the lifetime allowance (£1.8m for the 2010/2011 UK tax year), the excess of the funds over £1.8m are open to a lifetime allowance charge at up to 55%.

 

This charge can have a significant impact on an individuals fund, so specialist advice should be taken. In certain circumstances i.e. dependent upon the future tax jurisdiction that the individual may end up living in, this LTA charge may even outweigh the benefits of QROPS.

 

For those who sought specialist QROPS advice well in advance of their intended departure date from the UK and registered for either Primary or Enhanced protection, the LTA charge will not apply. Those who did not are out of luck and must now plan extremely carefully.

 

Where a BCE event has already occurred on your UK pension funds e.g. where Unsecured Pension (previously referred to as Income Drawdown) has been implemented, the procedure can be further complicated, in that a second lifetime allowance test must be conducted. Already things are becoming complicated and we haven’t even mentioned phased drawdown yet!

 

If your adviser gets your QROPS advice wrong, in addition to incorrect advice regarding the overseas pension scheme, you could be in for some hefty HM Revenue & Customs (HMRC) tax charges. Be sure you seek QROPS advice from a specialist QROPS adviser such as the QROPS advice team at Offshore QROPS.

 

For more information and advice regarding the lifetime allowance charge, benefit crystallisation events, QROPS and the HMRC QROPS list, please call Andrew Hains (Senior Client Adviser) at Offshore QROPS on 00 44 (0)1483 202072.



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