SIPPs versus QROPS

PENSIONPLANNING

Planning for your pension is a serious business. So much so that we have seen regulatorsworldwide clamping down on so called 'pension liberation' schemes that encourage investorsto access their pension pot before the minimum retirement age, which is generally 55. Theyhave a point.

We have a global pension crisis on our hands brought on by an ageing population and peopleliving longer. And with the recent economic turmoil resulting in both governments andcompanies struggling to meet pension obligations, the upshot is it's increasingly down toindividuals to ensure they are saving enough to fund their own retirement.

Weigh up all of your options

PENSIONPLANNING

For expatriates, the good news is that they can effect asignificant boost to their pension pots by maximising anyincreased earning capacity or taking advantage of tax breaksthey may currently enjoy. In order to make the most of thesebenefits, expats need to give careful thought to the pensionvehicle they choose.

While you can save for retirement by investing in most assetssuch as equities, bonds or even property, it is often a goodidea to tuck your pension pot into a specified vehicle thatremoves the temptation to access savings earmarked for yourretirement too easily. For this reason we are comparing twopopular types of pension vehicles suitable for expatriates - aSelf Invested Personal Pension (SIPP) and a QualifyingRecognised Overseas Pension Scheme (QROPS).

Pensions are an intrinsic part of your overallwealth management strategy, so it makes senseto weigh up all of your options, especially ifyou’re planning to live or retire in a foreign country.

BENEFITSOF A SIPPSIPPs are becoming more and more popular withindividuals planning for their retirement –and with good reason.

Once the preserve of higher rate tax payers, the SIPP market hasevolved to cater for a wider range of people looking for a suitableinvestment vehicle. And while you may already be paying into anoccupational pension, if you’d rather be the one calling theinvestment shots then a SIPP could be a good pension vehicle toconsider.

There are also tax advantages. While certain assets will be subject totax at source, once placed inside the SIPP 'wrapper', any income andcapital gains on investments are generally tax free. So providing youmake the right investment choices, a SIPP offers the potential tomanage your money much more efficiently in terms of achieving yourretirement goals.

When the time comes to put your feet up and retire, a SIPP allowsyou to draw a pension from the age of 55 onwards. Once you’ve takenyour tax free lump sum of up to 25%, you can buy an annuity with therest or, alternatively, keep it invested in ‘drawdown’ to provide a regularincome in retirement. With a SIPP the main point to consider is whetheror not you’re really prepared to shoulder the responsibility of retirementplanning yourself. Plus, while set up and ongoing management costshave come down considerably, it's important to ensure that the costsyou pay justify the SIPP benefits on offer.

It's certainly not for everyone but, if you decide it is, then the controland flexibility a SIPP offers provides an excellent choice when it comesto saving for a pension.

A SIPP allows you to invest in a widerange of assets including commercial

property, stocks, shares, bonds, OEICS,gold as well as cash.

The exact list of assets that can be heldwill depend on the SIPP provider, but

generally speaking they offer a highdegree of investment flexibility allowingyou to adjust your investment strategy

to capture a wide range of marketconditions.

Pros:• A wide range of assets can be held in the SIPP• Tax advantages of holding investments in a 'wrapper'• A high degree of personal investment control• Offers the flexibility needed to capture wide range of market conditions

Cons:• Need to be investment savvy as you are responsible for your ownretirement planning

SIPPS box

BENEFITS OFA QROPS

A QROPS offers the potential to do exactly this, as it allows registeredUK pension holders between the ages of 18 and 75 the option to transfertheir company or private pension, tax-free, to an approved jurisdictionoutside of the UK if they decide to take up residency abroad.

Getting straight to the heart of a QROPS, expats warm to the potentialintrinsic tax benefits. The actual rate of income tax you will pay on yourpension income will depend upon the double taxation agreement (DTA)established between the country of your retirement and the jurisdictionwhere your QROPS has been set up. Malta has an extensive DTA listwhich is why a lot of QROPS business is going to this finance centre.

There are three ways in which DTAs usually operate. A retiree will paythe tax applicable in the country of residence and will obtain exemptionor relief from tax in the country where the QROPS is based. Or tax ispaid in the country where the income is made and the retirees receivesexemption/relief in the country of residence. And, third, the tax is deductedin the country where the income is made. This tax is declared as alreadypaid on the tax return to the country of residence and that tax paid isknown as ‘withholding tax’.

If you are an expat planning to live and work outsideof the UK for an extended period, or indeed have orplan to move abroad it makes sense that you shouldbe able to take your pension with you.

Getting straight to the heart of aQROPS, expats warm to the potential

intrinsic tax benefits

The actual rate of income tax you will pay on yourpension income will depend upon the double taxationagreement (DTA) established between the countryof your retirement and the jurisdiction where yourQROPS has been set up. Malta has an extensiveDTA list which is why a lot of QROPS businessis going to this finance centre.

There are three ways in which DTAs usuallyoperate. A retiree will pay the tax applicable inthe country of residence and will obtain exemption

or relief from tax in the country where the QROPSis based. Or tax is paid in the country where the

income is made and the retirees receivesexemption/relief in the country of residence. And, third,

the tax is deducted in the country where the income ismade. This tax is declared as already paid on the tax returnto the country of residence and that tax paid is known as‘withholding tax’.

If you return to the UK for your retirement, pensionincome is taxed at the same rate as income tax. Somecountries do not tax pensions, others have a morereduced rate of income tax to the UK.

A further key attraction of a QROPS is that it does notimpose the same limitations as a UK pension. So individualsare able to contribute above the UK annual allowance orlifetime allowance cap of £1.5m (£1.25 as from April 201).Plus unlike UK pension schemes up until recently, QROPShave never imposed the requirement to purchase anannuity.

For those who have typically accumulated more than oneUK pension, a QROPS offers the ability to consolidateseveral pensions into one, which can provide a welcomeboost to your overall pension pot. There is also the abilityto incorporate a range of assets including property, privateassets, offshore funds, global stocks and bonds. Plus thereis the option to invest in any currency.

In terms of tax advantages, there is no liability to UK taxprovided you remain abroad during your contributing yearsand, while these contributions do not attract UK tax relief,there is a 100% exemption from UK Inheritance tax (IHT)under certain circumstances. A QROPS rule also providesthe option for the expat to arrange for the fund to be lefttax free to named beneficiaries after five complete andconsecutive tax years of non-UK residency.

As with other pension vehicles you can generally draw apension from the age of 55 onwards. Depending on theQROPS provider you can also take up to 30% of thepension fund as a tax-free lump sum.

QROPS have to be approved by HMRC and so must abideby strict rules and regulations. It is therefore importantthat if you choose this pension route you deal with anadviser that understands the rules, which are liable tochange. The past few years has seen a number of QROPSbeing 'delisted' from HMRC's approved QROPS list,resulting in schemes, and ultimately investors, being fined.In addition, jurisdictions that operate QROPS are alsostrictly monitored to ensure they abide by the regulations.As recent as 2012 we have seen top centres such asGuernsey fall foul of HMRC tax rules resulting in theclosure of many Guernsey-based schemes.

The important thing to remember with any pensionvehicle is that if they promise more than a normalpension, such as the ability to unlock pension assetsbefore the age of 55 or allow you to withdraw a lumpsum of more than 30%, then tread carefully! It's anarea that regulatory authorities around the world arekeeping a very close eye on.

For those with a UK pension who plan to move overseas,a QROPS does offer a great way to consolidate companyand private pensions and maximise your tax and investmentpotential. You will need to add in the cost factors of transfercharges and annual fees, which means as a rule of thumbpension transfers of less than £40,000 are not costeffective.

But, more importantly, you need to carefully weigh up thebenefits of a QROPS against any loss of protected UKpension rights or guarantees you may have built up.

Pros:• Allow you to take your UK pension with you when moving overseas• Potential to consolidate several UK pensions in one pot• Has less limitations than a UK pension

Cons:• Some jurisdictions affected by rule changes so need to keep up-to-date

QROPS box

SIPPS ORQROPS

Both offer a range of benefits that can help grow your pension pot more

efficiently. As with any wealth management solution there is no one size

fits all. The key is to weigh up both the benefits and drawbacks of any

vehicle so you end up with a savings solution that best matches your

individual lifestyle. That way you are on a better path to achieving your

retirement dreams.

Here at Guardian Wealth Management we have a vast

range of experience and knowledge in pension planning.

Please contact us for help in putting in place a suitable

pension plan or simply want an expert overview of your

current pension plans.

There is no doubt that these two pension vehiclesdeserve consideration when it comes to planning foryour retirement.

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