When the Chancellor delivered his autumn budget statement last year, it was confirmed that Qualifying Recognised Overseas Pension Schemes (QROPS) would be treated the same as pensions would be dealt with in future under the pending UK “pension freedom” rules. However, overseas pension schemes holding UK tax-relieved savings outside the European Union are now, in fact, prevented from offering “pension freedom” to members after 6th April. This U-turn has meant that owners of a QROPS sited in popular jurisdictions such as Guernsey, the Isle of Man and New Zealand have found themselves in a ‘ring-fenced’ situation and these QROPS must continue to provide an “income for life” on 70% of the subject pension fund.
Another issue, therefore, that retirees now face concerns the potential for them to relocate their respective pension schemes in order to enjoy “pension freedom”. We have seen first-hand that most providers in Guernsey are not able to move a pension or to return pension monies to the UK. In light of the current situation, relocating a pension to the UK would constitute a move to a more favorable jurisdiction and, as such, this would represent a breach of local pension rules. This has naturally left many retirees in Portugal feeling frustrated. For its part, Malta has confirmed that it will allow “pension freedom”, however this provision must first be incorporated into their local legislation so as to reflect that in the UK.
At Affinity we have been recommending to our clients for the past 18 months that they should consider using a self invested personal pension (“SIPP”) to plan for their retirement. Many advisers will not provide advice on UK pensions as they either do not hold the correct permissions or, since regulatory changes introduced in January 2013, they face a nil commission return for themselves.
The use of a SIPP in the UK is often a more cost effective solution than other options and, with the benefits of QROPS having diminished, it is now a more viable option in many cases.
At Affinity, we believe that a SIPP represents an excellent alternative for the following reasons:
1. Keeping a pension in the UK offers the pension holder a good level of protection due to the degree of consumer protection and the guidance offered by the Financial Conduct Authority.
2. There is no need to purchase an annuity, which was previously a main feature of a QROPS.
3. There is no “pension death tax” until the pension holder reaches the age of 75, so unless reaching this age is impending and the pension holder has been outside the UK for 5 complete tax years, a SIPP offers more flexibility.
4. A UK pension holder can now access as much or as little of his or her pension as he or she desires (subject to taxes)
5. A Portuguese resident can still receive his or her pension gross of tax once residency status has been confirmed with HMRC.
6. Full-time residents of Portugal can access the favourable tax treatment afforded to pensions and pension income can be exempt from tax under the Non-Habitual Resident (“NHR”) rules.
7. A SIPP can cost as little as 20% of the cost of a QROPS, both in respect of set up and ongoing maintenance. Further, the used of investments with greater pricing transparency results in lower fees impacting investment growth and/or income requirements.
8. Should a pension holder resident in Portugal need to return to the UK for any reason, he or she would not have to unravel a SIPP, which is not the case where a QROPS is owned.
If you would like to know more about the Self Invested Pension Plan or you have any pension-related questions or concerns, we at Affinity would be very pleased to speak with you.
Affinity Global Wealth Av. Vilamoura XXI, Edifício Portal, Bloco B -1B, 8125-406, Quarteira, Portugal
T: +351 289 314 530
F: +351 289 314 520