Most expats will be planning or hoping to retire early. To make sure you can afford to stop working when you want, you will need to have thorough retirement planning in place and for most people this will mean creating and contributing into a pension.
Offshore Investments & Pension Planning
While expat salaries tend to be at the higher end of the scale, very often the package does not include a pension scheme as this is not a statutory requirement in many countries. Even where s pension does exist, an expat’s working situation tends to be changeable and may not last a lifetime, so to continually start, stop and freeze a pension when you move will create a major headache and erode pension capital when it comes to retirement.
Specific schemes exist to help expatriates with their retirement planning requirements. Expatriate pension plans are not the same as UK private pension schemes. There is normally no minimum age to start drawing income, or where there is it can be as low as 50.
The retiree may be able to take possession of the entire asset in cash if need be.
Planning your retirement using offshore financial products may hold significant benefits for British Expats living overseas.
The Benefits of an Offshore Pension Plan
A non-UK resident drawing an income from a UK pension will have to pay UK tax on that income unless they live in a country whose double-taxation treaty has a pension-specific clause. Furthermore, tax breaks that were available in the past are becoming increasingly limited. Restrictions have been placed on higher-rate tax relief for those whose income is GBP 150,000 or more and for those whose total pension savings exceed GBP 20,000.
An offshore pension plan has none of those restrictions.
The lump sum issue can be problematic too. With a UK pension scheme, you can withdraw a lump sum of up to 25 per cent tax-free on maturity, typically when you are 65. With an offshore scheme, however, you can withdraw 100 per cent tax-free. On top of that, you can typically withdraw the money when you wish, at a present maturity date, with zero penalties.
Freedom and Flexbility
With an offshore retirement pension, you have freedom and complete control. As it acts like any other investment vehicle, you are free to move money about within it, change where your money goes and withdraw your full pension upon maturity. Contact our team for expert pension advice, including tips on how and where to invest your money.
Your UK pension plan isn’t in fact your asset; you simply have a small share of a large pot. You have to share the financial prerogatives and risk profiles of perhaps hundreds of thousands of people. Moreover, you don’t know what you’ve invested in or why.
With an offshore retirement plan or pension, you’re in control. Together with your specialist financial adviser, you’ll carefully formulate a portfolio strategy to suit both you and the market. Your portfolio will comprise award-winning mutual funds, and the allocation of your investments will change with the market so as not to lose precious gains. It’s not uncommon for the same contributions to be worth three times more on maturity in an offshore plan than in a UK pension plan.
Your UK pension doesn’t form part of your estate. This means that you can’t pass it on because you don’t legally own it. After your death, your spouse might receive a reduced income but your UK pension will disappear; there will be nothing to pass on to your children. On the other hand, an offshore pension can generate a significant lump sum which, if managed correctly, will generate a good income while preserving your capital. You could either pass on this capital or wrap it in trust to provide an income to your relatives forever. Contact our team for personalised pension advice.
UK Lifetime Allowance Charge
With an offshore pension plan, you can build up as much of a retirement fund as you like. Because you are able to properly diversify your investment across asset classes, it may well be the only retirement plan you’ll ever need.
Whereas the UK government will tax you on anything above GBP 1 million, with an offshore plan you can build up a pension fund to whatever amount you deem necessary.
With a UK pension, you’re restricted to just GBP, meaning you run a currency risk if you retire abroad. With an offshore retirement plan, however, you’re able to invest in any currency of your choosing.
Deciding on Your Pension Requirements
What features are important to you with regards to your pension? These are some of the most common requirements we encounter in working with our clients:
- increase or decrease your premiums
- pause your premiums
- choose a policy in the currency of your choice
- pay your premiums by credit card or standing order
- the security of the plan to match or exceed that of the UK
- reassess risk levels as you near retirement
- assign beneficiaries to your policy for easy transfer
- option for withdrawal of cash midway through the plan
- invest ad hoc lump sums to boost your pension.
Get in touch to discuss your preferences and requirements with one of our pension specialists.
UK Pension Transfer Solutions Historically, British expatriates with UK-based pension plans have had very few options but to remain in their existing scheme. This left them with little control over their investments and payouts. In many cases, their investment, currency choices and benefit options are now inappropriate given their current country of residence.
Following the introduction of new pension rules in the UK, these problems can now be addressed through the use of a QROPS (Qualifying Recognised Overseas Pension Scheme) established outside of the UK and recognised by Her Majesty’s Revenue and Customs (HMRC) to accept all UK pension savings.
QROPS represents, for many, a highly attractive, tax-efficient retirement planning option.
Once an individual becomes an expatriate, their UK pension schemes typically become frozen, meaning that no further contributions can be made. In addition, the investment strategy is in most cases a standard one and certainly not tailored to the individual.
By the age of 75, UK pension plan holders must buy an annuity so they lose ownership of the investment in return for an annual payment, which can then be subject to UK tax. On death, a spouse or widow’s pension can be up to half the original sum and upon their death the benefit often cannot be passed on to children or other beneficiaries.
Rather than a domestic scheme in your country of residence, a QROPS plan can be based in a neutral fiscal jurisdiction where the relevant pension rules allow significant advantages and greater flexibility.
The Benefits of QROPS
The key benefits of a QROPS include:
- No requirement to purchase an insurance company annuity which means you retain control of the pension assets.
- The ability to pass on remaining pension assets to nominated beneficiaries on death.
- A wider choice of acceptable investments offered over UK plans.
- Greater flexibility around the level and manner of income payments which can be taken from the plan.
- The underlying investments and income payments can be denominated in a choice of currencies to reduce the risk of currency fluctuations.
- Where held offshore, income payments made without the deduction of UK income tax with income tax payable as appropriate in the jurisdiction in which it’s received.
With QROPS, your pension is not just a retirement income anymore. Its flexible structure in terms of investment content, benefit type and asset distribution brings a new dimension to its use in financial planning.
A QROPS will generally offer the following:
- benefit payments
- optional tax-free lump sum
- lifetime annuity
- regular drawdown
- succession options
- an income for spouse or dependants
- payment of the proceeds to a trust(s) for named beneficiaries
- payment of the proceeds to an international pension plan(s) for named beneficiaries
- retention of the assets in the plan for distribution at a future date but within two years of the member’s death
- winding up of the plan and payment to the member’s estate
- winding up of the plan and payment directly to named beneficiaries.
The ability to control structured income payments and distribution gives you a new dimension for succession and estate planning. Also, the plan has no cap on contributions and distribution of assets is currently not subject to UK inheritance tax (IHT), which makes the QROPS an efficient vehicle for providing income and passing on assets to dependants.
Pension Risk Management
Managing your pension portfolio requires more attention than a traditional UK-based pension scheme, but the benefits far outweigh the negatives. The key here is adapting your portfolio allocation regularly to suit your needs, and this will be a periodic discussion topic for you and your Forth Capital adviser.
It usually makes more sense for a young person starting a pension scheme to take more risk than someone who is about to draw their pension. Indeed, an early-stage retirement fund has much more time to recover from a steeper dip than one that is nearing maturity. Over the longer term, higher-risk strategies may provide greater returns, though the volatility of the value will be higher. Closer to retirement age, your adviser will look to reduce risk, lowering volatility and by doing so locking in the gain you’ve made over the last couple of decades.
Your adviser will understand risk management, have experience of cultivating risk strategies, keep up with new products and services and thoroughly research your options for you.
What to do Next?
With years of experience collaborating with some of the world’s leading pension providers and financial institutions, Forth Capital is in the best position to offer retirement plans that meet its clients’ changing needs throughout the many stages of life.
Working with Forth Capital
When working with Forth Capital, you are guaranteed to receive impartial advice with no obligation on your part, and confidentiality is assured. Our expert advisers will give you advice that is individually tailored to your needs and inform you of the perks and pitfalls of the pension plans available to you.
In addition to providing pension advice, our team is equipped to advise you on education planning, international tax and pension transfers to help you achieve – and surpass – your financial goals.
Contact a member of our team to start discussing your situation and financial objectives today.