Guernsey: Pension Emigration

Last Updated: 26 May 2011
Article by Roger Berry

Most Read Contributor in Guernsey, September 2018

An edited version of this article was published under the title of 'Overseas Savings' in International Adviser, Moving Abroad Supplement, May 2011

If you're thinking of moving abroad then there are potential benefits of moving your pension plan out of the UK, explains Roger Berry (FCCA), Managing Director of Concept Group in Guernsey.

The number of British citizens emigrating from the UK continues to rise. The appeals of a warmer climate, a more relaxed lifestyle and a seemingly better quality of life are understandable motives for such a move. Clearly, a review of their financial planning position is an important consideration, but why is pension planning something that should be on the 'tick list' of things to do?

A client moving abroad and breaking their UK tax residence needs to reduce their links back to the UK to a minimum. Recent tax cases have shown that HMRC do not simply look at how many days a person has been out of the UK, they look at the substance of what is really happening.

One of the things that helps demonstrate a break of UK residence is to move personal and occupational pensions out of the UK. Fortunately, in the UK, there is a system to allow transfers in an approved way to certain recognised overseas pension schemes. The transfers can be made without incurring tax charges in the UK and open up a variety of potential benefits to those who are leaving or have left the UK.

The system that provides for these transfers requires the receiving offshore scheme to meet certain requirements laid out by HMRC and if those undertakings are met the scheme is called a Qualifying Recognised Overseas Pensions Scheme or QROPS.

Qualifying Recognised Overseas Pension Schemes (QROPS)

It has technically been possible to transfer to a QROPS since A-Day (April 2006). However the QROPS market has only really gathered pace over the last few years. Advisers now tend to have a far clearer understanding of this structure and are now more confident to make recommendations to suitable clients. So, what are the potential benefits of transferring to a QROPS?

Figure 1:

Potential Benefits of a QROPS

Less than 5 complete tax years as non UK resident

More than 5 complete tax years as a non UK resident

1. Ability to manage investments

1. Leave residue of pension on death to loved ones

2. Consolidation of multiple pension funds

2. No tax deducted on death, in UK or Guernsey

3. Income paid gross

3. Flexible income options, taking into account the circumstances of the member

4. Remove pension pot from the UK control and ever changing rules

4. Loan facility available up to 30%, prior to taking benefits

 

5. 30% pension commencement lump sum available

 

6. Ability to manage investments

 

7. Consolidation of multiple pension funds

 

8. Income paid gross

 

9. Remove pension pot from the UK control and ever changing rules

 

Figure 1: Summary of the potential benefits of a Guernsey based QROPS

Where will the pension go?

Transferring UK pension assets into a QROPS arrangement does not mean the QROPS scheme must be in the same country an individual plans to emigrate to. In fact a large proportion of QROPS arrangements are administered from the offshore finance centre of Guernsey.

After being in the market from day one, Guernsey has arguably established itself as the QROPS 'centre of excellence'. Established QROPS providers now provide intermediaries with excellent technical and administrative support. Guernsey providers have generally adopted a very cautious and prudent approach towards QROPS business, operating within the spirit of QROPS and the intentions set out from HMRC.

Guernsey, located in the Channel Islands, has recently launched a Code of Practice for QROPS providers, the committee behind this was Chaired by myself. The voluntary Code sets out the standards expected from providers when conducting QROPS business. This should help to provide harmony for users of Guernsey QROPS and keeps Guernsey on the leading edge of QROPS development and regulation.

The local pension legislation in Guernsey cements it as an attractive jurisdiction to administer QROPS. After five complete tax years of non-UK residency, a member of a Guernsey QROPS will be entitled to take up to 30% of their pension fund as a pension commencement lump sum ('PCLS'). Furthermore, income is also paid gross and there is no tax deducted in Guernsey following the death of a member, meaning the residual fund would be passed on in full to the nominated beneficiary of the member. Compare that to a UK registered pension such as a SIPP, where a 55% charge falls due on death if the pension is in payment or the member is 75 or over.

'As cheap as SIPP's'

There has seemingly never been a better time to transfer a UK pension into a QROPS. With market developments and increased volumes that a select few providers now possess, the fees are lower than they have ever been. Concept Group Limited are the providers of the Aurora QROPS plans, offering transparent and low-cost solutions within the QROPS marketplace. Concept Group pioneered the development of QROPS in Guernsey and their success has provided significant economies of scale, this has enabled the firm to reduce the fees across both their Aurora Quantum and Aurora Libertai schemes, allowing them to offer what are believed to be the best priced open architecture QROPS solutions available in the marketplace today.

With a fee structure that now resembles a UK SIPP, rather than a bespoke offshore pension solution, clients can benefit from all inclusive fixed price annual fees as low as £845 pa. With no add on costs for time or percentage fees based on values and the ability to take on a second "spouses" scheme for only £500pa the Concept Group are confident the Aurora QROPS range will continue to offer the most competitive QROPS solution for clients.

Even compared to UK SIPP prices, this is competitive and with the recent reduction in maximum drawdown by 20% in SIPPs (which can be avoided in a QROPS) there has never been a better time to consider a QROPS if a client is leaving or has left the UK.

And what to beware of?

Some providers may offer a seemingly low 'headline' formation fee. However, this fee may actually cover very little. Each transfer-in will then incur a separate fee. There are also instances whereby funds of a higher value are penalised with ad-valorem based charges. Ensure an understanding of the total overall cost for transferring UK pension assets before proceeding.

It is also important to check to see if there will be any additional fees for actions such as taking a Pension Commencement Lump Sum ('PCLS') or drawing benefit. Add-on fees for these simple transactions are commonplace from many providers and cause frustration for advisers and their clients alike.

Make sure there are no time spent fees for talking to the provider. The fees for the Aurora plans include all the costs one would expect to be covered for a pension scheme. This includes general administration fees through to technical and business support.

In conclusion

Moving a UK pension plan, even if in benefit payment, can not only provide significant financial benefits, its likely to be more flexible than its UK counterpart and actually helps demonstrate a break of UK tax residency. But ensure proper advice on the transfer is taken and locate a scheme that acts prudently, well within the rules.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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