ANYBODY with a UK pension scheme who lives abroad can now transfer their private pension into a QROPS or Qualifying Overseas Recognised Pension Scheme.

But it might not always be the best way to go.

Many British expats believe the UK pension system is over-complicated and suffocated in layers of regulation and restriction.

They view retirement planning with scepticism and opt for other solutions such as purchasing investment properties to fund their retirement years, be it through rental income or the sale of the property.

In a declining property market, where many are now experiencing ‘negative equity’, people are now beginning to question their own judgement.

Access to credit remains tough and the number of repossessions continues to rise.

In April 2006, we saw the introduction of A-Day and the so called ‘simplification’ of the UK pension system.

Amongst the many changes made, was the ability for a UK pension policy holder to transfer his or her pension into a QROPS.

The benefits include avoidance of inheritance tax, a greater degree of investment management flexibility, a tax free lump sum of up to 30 per cent, all income and proceeds in a currency of your choice, no need to ever purchase an annuity, protection against any future creditors, and, most importantly, you can take income from your pension in a much more tax-efficient way.

If we dissect some of the tax advantages, it could be argued that, in some circumstances, the transfer should be a ‘no brainer’.

The essential benefits come into play when you have been out of the UK for at least five years and don’t intend to return in the foreseeable future.

The QROPS provider does not have to report any withdrawals or payments to the HRMC because the pension is subject to the laws of the relevant overseas jurisdiction.

In addition, the requirement to purchase an annuity by age 75 to avoid a possible 82 per cent tax charge is no longer applicable, and the age at which you draw the pension, say 50 or 55, can remain the same.

At first glance, there appears to be very little argument to suggest that a transfer could be detrimental.

The structure of your pension scheme will have a fundamental bearing on whether it is better to transfer the scheme into a QROPS.

The majority of QROPS schemes are Money Purchase Schemes or unsecured pensions, whereby no capital guarantee is given and the fund is subject to standard market movement volatility.

Such pensions don’t provide the same guarantees and security that a Final Salary or Defined Benefit scheme would give.

If things don’t work out as planned, the door is firmly shut and there is no option to transfer the money back.

Catastrophe planning is fundamental when addressing retirement planning.

Such are the advantages of these pensions, it is highly unlikely that a QROPS scheme would be deemed the best option.

Holding other investable assets and cash deposits means it is quite often possible to work out an exit strategy should this be the appropriate advice.

In short, a QROPS transfer is not the best option for everybody.

Only a UK qualified and registered adviser will be able to definitively analyse and recommend whether it is indeed appropriate to transfer your retirement savings out of your current scheme.

All pension schemes, especially Final Salary schemes, really do need to be analysed with extreme caution.

No two individuals have the same needs and financial assets, liabilities, and tax positions need to be taken into consideration.

Before we build the house, we need to have foundations, and this is a fundamental within the realms of financial planning.

Transfers into QROPS can be made right now, but it is absolutely fundamental that one knows and understands all of the options available.

*Lee Wood Cert PFS is Director of Financial Planning for Sterling Assets. He is Phuket’s only UK registered and qualified financial adviser.

To contact him, call 076 326 301 or 081 082 8464, or visit
www.sterling-assets.com