PENSION TRANSFER – SIPPS AND QROPS

If you wish to perform a Pension Transfer, there are many benefits. However first it is important to decide what type of Pension Transfer is most appropriate for you.

Should it be a consolidation of multiple pensions or safe guarding the capital of a defined benefit (final salary) scheme that is your key driver, or maybe your retirement destination. What ever your circumstance there are two clear routes – either a pension transfer into a UK based  Self Invested Personal Pension scheme SIPPS or a pension transfer offshore to a Qualifying Recognised Overseas Pension Scheme QROPS.

Qualifying Recognized Overseas Pension Scheme – QROPS

A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC). A QROPS can receive transfers of UK Pension Benefits without incurring an unauthorised payment and scheme sanction charge. The QROPS programme was launched on 6 April 2006 as a direct result of EU human rights legislation with regards to freedom of capital movement.

A QROPS can be appropriate for UK citizens who have left the UK to emigrate permanently and intend to retire abroad having built up a UK pension fund. Alternatively, a person who is born outside the UK having built up benefits in an HMRC-approved UK pension schemecan move their pension offshore if they want to retire outside the UK. UK state pensions cannot be transferred, but defined contribution, defined benefit pension schemes and SSAS can be transferred abroad. A QROPS does not have to be established in the country you retire in, rather you can move your pension to a tax efficient jurisdiction and have your pension paid into the country of your choice.

Trustees operating in these jurisdictions like Gibraltar and Malta are Sovereign and Momentum.

Self Invested Personal Pension Scheme – Sipps

A pension transfer into a tax-efficient retirement savings account available in Great Britain for expats. Self-invested personal pensions (SIPPs) give individuals freedom to put their money in a wide range of investments, including stocks, bonds, mutual funds and exchange-traded funds (ETFs), unlike company-sponsored pensions, where the company chooses a short list of investment options to offer. The pension will be transferred to a trustee, I only use reputable trustees like Sovereign Group and Momentum Pensions. SIPPs were introduced in 1989 and have become increasingly popular in Great Britain because of the end of lifetime careers and lifetime final salary pensions. There are key benefits to transferring your pensions into a SIPP:

  • A SIPP as with all other approved pension arrangements, provide generous tax benefits.

  •  A SIPP will give you control of your pension, including investment decisions.
  •  A SIPP offer’s flexible options for taking an income in retirement.
  •  A SIPP will enable you to reduce your costs by consolidating numerous pensions into one pot.
  •  A SIPP will mean less administration if you consolidate existing pensions

A SIPP has the ability to purchase and hold commercial property and can therefore purchase commercial property and land from individuals, however, it is not possible for a SIPP to hold residential property, or land which is used, or suitable for use as a dwelling. You cannot, therefore, purchase either your own or any other residential property directly using a SIPP. A SIPP enables you to borrow up to half the value of the net value of the pension to purchase commercial property.

When it comes to investment decisions, there are two types of SIPPs. These are known as ‘execution only’ and ‘full’.

The execution-only SIPP is one in which the pension administrator has only one function: to execute transactions on behalf of the investor. The administrator does not give any investment advice, not responsible for the investment selection, and is basically inactive in the day-to-day operations.

The full SIPP utilizes the services of the pension administrator as a fund manager in addition to conducting investment transactions. The administrator is given the authority to make investment decisions with or in some cases where pre agreed without the investor’s direct approval.

On both QROPS and SIPPS I can provide pension advice.

natasha.rocha@holbornassets.com