Five Questions You Must Ask to Protect Your Offshore Pension

Securing yourself a regular income in retirement is of vital importance to everyone and in particular for expats who may not have the security of a state pension to fall back on.

Ensuring that your UK pension is transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) will give you peace of mind that your future is provided for while also protecting your hard earned retirement fund from high taxation and expensive annuities.

Here are five simple questions that you should ask when the time comes for you to move your pension pot to an offshore scheme.

1. Is the scheme included on the HMRC list of QROPS?

This should certainly be your first port of call and you can find the list of QROPS pension schemes here. However it is important to be aware that HMRC can still decide that it does not qualify, even if it is on the list. This means that any transfers could be retroactively ruled illegitimate and therefore subject to a tax charge.

2. Does the scheme conform to the HMRC rules?

Schemes must meet a number of requirements in order to be a HMRC recognised QROPS scheme. It must be set up outside of the UK and there are a number of requirements that must be met regarding tax recognition, regulations and the payment of benefits. Determining whether the scheme meets these and qualifies as a QROPS is vital.

3. Does the scheme meet HMRC’s reporting requirements?

HMRC also has a number of requirements for reporting and the scheme must meet these. For example, HMRC must be notified of any payments made with funds transferred from a UK pension scheme, even if it is no longer a QROPS. Keeping HMRC in the loop is vital.

4. Does the scheme allow benefits to be taken before the age of 55?

If the answer to this question is yes, then the scheme is probably not a QROPS. HMRC state that such benefits cannot be taken prior to the age of 55.

5. Does the scheme allow pension income of more than 120% of GAD (Government Actuary Department) rates?

If the answer to this question is also yes, then the scheme is once again not a QROPS. The GAD rates determine the maximum drawdown pension that can be taken from a fund. Although it is possible to negotiate the minefield of international tax laws alone, one wrong step can spell disaster for your retirement plans. To make matters more complicated, top industry analysts are expecting major changes to the way HMRC handle the QROPS system in 2013.

With this in mind, it is highly recommended that you seek professional advice to guarantee that you can make the most of your retirement years abroad. Your financial planner will be able to ensure that the right scheme in the right jurisdiction is chosen, minimising your personal risk and maximising the time you spend relaxing with your loved ones in your new home.