Individuals seeking to work or retire outside of the United Kingdom should carefully consider their pension planning with a view to generating a sustainable and efficient income. The European Union has made it easier for the mobile professional to earn an income across national boundaries, however each legislative jurisdiction treats earned income differently, has unique tax rules and extends its own retirement rights.
The laws governing pension funds and taxation vary from country to country; these differences can limit the portability of pension funds and restrict flexibility for individual pension planning. The situation can be exacerbated for British expatriates with pension savings denominated in pounds sterling; this can expose their retirement income to currency exchange rate risks. Offshore pension plans offer a solution for expatriates.
Labour mobility has been a primary objective of the EU ever since its foundation. In order to help accommodate mobile workers, pension funds and pension rules have evolved. Occupational pensions have been set up to offer cross-border stability for mobile executives; national governments have adjusted retirement legislation to assist the transfer of pensions overseas; international providers of offshore pensions have increasingly become pivotal players on the European scene. The European Union has passed legislation enabling pension funds to be transferred across borders, although each member state must decide for itself whether to accept them or not. The United Kingdom in particular allows for such transfers; as a result thousands of citizens have taken advantage of this opportunity. If you are planning on spending your ‘golden years’ in a foreign country, it may be that a Qualifying Recognised Overseas Pension Scheme (QROPS) can provide crucial benefits to your overall retirement planning strategy.
Pension Planning Flexibility
UK pension rules are not quite as restrictive as they used to be for domestic retirees, however British residents still lack substantial control over much of the investments in their pension funds. In contrast, one of the most significant benefits of an overseas pension transfer is the ability of individual savers to control their investment strategy. This flexibility allows expats to choose from a wide range of international funds to be held within their retirement plan. It is important to bear in mind that laws and regulations change on a regular basis; investors in offshore pension funds should keep abreast of these changes.
Transfer to an Offshore Pension Plan
QROPS were introduced in 2006 to assist expats who wished to transfer their pensions to another country. These schemes are regulated by HM Revenue and Customs in the UK; each scheme must meet the following criteria:
- The pension scheme is established outside of the United Kingdom
- The pension scheme must be recognized for tax purposes in the country where it is located
- The pension scheme must be regulated in the country in which it is established
Funds within a QROPS can be held in any major global currency and are freely convertible; this can significantly reduce any exchange rate risk when retiring abroad. Multiple pensions can be transferred to a QROPS; this can be advantageous to expats who have worked for several UK based companies in the past. These schemes can help expats avoid British inheritance taxes of up to 55%, and also allow early access to a greater amount of retirement income. For further information please download our free QROPS Guide