One of the issues faced by expats wishing to transfer their UK pension plans is whether to move to a QROPS or iSIPP (International Self Invested Personal Pension). The answer as to which choice is best may change depending on how pension legislation evolves in the wake of the upcoming UK and EU trade negotiations. The consequences of this for pensions and retirement planning will be significant. We are all going to have to review our arrangements to make sure that we are in the best possible position.
The decision to choose QROPS or iSIPP
There are many similarities between QROPS and iSIPPs:
- Compatibility with UK pension regulations
- Almost unlimited access to investment funds
- Flexible access when receiving benefits
- Lumps sums and income can be paid to any account worldwide
- Full flexibility regarding choice of currency
The choice of either a QROPS or iSIPP is a matter of individual circumstances. Below is a summary of which route is usually best in a variety of circumstances.
QROPS or iSIPP: based on pension value
- Pension pots worth less than £250k are usually better placed in iSIPPs
- There is unlikely to be an issue with the Lifetime Allowance (LTA)
- Annual charges are a little lower.
- With pensions valued between £250k and £500k, a lot will depend on the age of the pension holder
- Younger people could well be affected by the LTA if their pot is nearer the upper end of this range and retirement is still some time away
- Older people who are looking to receive benefits in the near-future would most likely be content with an iSIPP
- Those with pension funds in excess of £500k are probably best advised to transfer to a QROPS
- The LTA is much more of an issue
- Taxation of between 25% and 55% will be levied on funds which breach the current £1,055,000 limit
QROPS or iSIPP: based on residency
- Anyone resident outside the European Economic Area (EEA) would be best advised to transfer their UK pension to an iSIPP due to the Overseas Transfer Charge (OTC) of 25% that would be applied if moved to a QROPS
- Should pension legislation change in the wake of Brexit, the OTC on the transfer of UK pensions could be extended to residents of the EEA. In such a scenario, an iSIPP would be advisable
- Those seeking to transfer their pension outside the UK in order to avoid any future detrimental UK pensions legislation would opt for a QROPS
The Malta QROPS
Malta is the most appropriate destination for a QROPS at present. Gibraltar, by comparison, imposes a non-refundable income tax of 2.5% on withdrawals, which would be levied on top of any local taxation. The Gibraltar jurisdiction also limits members to a capped drawdown income facility, which restricts the way in which benefits can be taken
Overall, careful consideration needs to be taken regarding how to manage our pensions and retirement plans after the UK leaves the EU. If a reasonable deal is struck by the end of 2020, disruption will be manageable. If not, and a hard Brexit occurs, expats in the EU will be severely affected. As such, early preparation covering all eventualities is highly recommended.
It is very important to consider pensions in relation to personal and lifestyle circumstances, including tax liabilities (present and future), currency requirements, and investment risk. The first step in deciding whether to opt for either a QROPS or iSIPP is to speak with a qualified adviser. We would be very happy to help!
