FAQs2020-06-05T13:20:46+12:00

FAQs


This is by no means an exhaustive list of FAQs to consider when transferring to a QROPS. If you cannot find the answer you are looking for, then please contact us and we will be pleased to help you.

What is a Qualifying Recognised Overseas Pension Scheme, QROPS?2020-06-03T12:05:38+12:00

Since 6 April 2006, Her Majesty’s Revenue and Customs (HMRC) has allowed individuals to transfer their UK pension funds to Qualifying Recognised Overseas Pensions Schemes (QROPS).

A Qualifying Recognised Overseas Pension Scheme (QROPS) is a pension scheme, outside of the UK, that has been registered by the HMRC to accept transfers in from a UK pension scheme.

Basically, these regulations are designed to ensure that people who no longer live in the UK can only transfer their UK pension funds to overseas pension schemes that have comparable rules to UK pension schemes.

Without that registration with HMRC, an overseas pension scheme would not be allowed to accept a transfer from a UK pension scheme, however, the responsibilities of the QROPS does not end with just registering.
On the 6 April 2012, the HMRC amended and also introduced some new QROPS rules. The new QROPS legislation has introduced limits on the amount of the lump sum that can be withdrawn from a QROPS to a maximum of 30% of the scheme fund value. Also the QROPS reporting responsibility period has been increased from 5 years to 10 years from the date the UK pension funds were transferred to a QROPS.

In addition, the  QROPS rules provide that at least 70% of a member’s UK tax-relieved scheme funds will be designated by the QROPS scheme manager for the purpose of providing the member with an income for life. The pension benefits payable to the member (and any associated lump sum) must be payable no earlier than they would be if pension rule 1 in section 165 Finance Act 2004 applied, this being age 55.

This reporting is in place to ensure that any payments made to an overseas pension member, whose pension funds have been transferred from a UK pension scheme, were receiving benefits broadly in line with what the UK scheme could pay.

Be aware of the QROPS Rules and Potential Tax Penalties:

  • A UK pension member would face a tax charge of up to 55%, on the excess of any UK pension funds transferred to a New Zealand QROPS, above the UK Lifetime Allowance;
  • An unauthorised payments tax charge will apply if the member accesses the pension benefits before the age of 55;
  • An unauthorised payments charge will apply if the member is aged 55 and receives greater than 30% of the transfer funds in the form of a lump sum, from the New Zealand QROPS, within ten years of the UK tax-relieved scheme funds being transferred to a New Zealand QROPS;
  • The QROPS has to report on any transfer made to another scheme within the reporting period. In this event, the receiving scheme has to be another QROPS.
  • The unauthorised payment charge would be 40% of the fund value, plus an additional surcharge of 15% equalling a total tax charge of 55%, and would be payable by the pension member.
Can I keep my pension in UK Pounds until the exchange rate improves?2020-06-03T12:25:03+12:00

Yes some QROPS product providers offer a pounds (Sterling) cash pension transfer service. This is designed specifically for UK pension transfers. It is a lump-sum registered superannuation scheme which is priced in UK pounds, not NZ Dollars, but still qualifies for QROPS status. It is designed for people who want to transfer their pension funds, but for one reason or another want to maintain them in pounds Sterling for the time being, before switching to another investment fund which would then be denominated in NZ Dollars.

The Pension Transfer Process2020-06-03T12:24:58+12:00

The process is initiated by the applicant completing our online enquiry form. We will then arrange for one of our Authorised Financial Advisers (AFA) to contact you to arrange a discovery meeting and discuss your individual requirements. If it is appropriate to move on to the next stage, our AFA will then arrange for you to complete a Letter of Authority, so that we can liaise with your current pension scheme product provider(s) or pension scheme trustees.

We will obtain the all necessary pension scheme information, pension fund and transfer valuations, together with the full details of the current pension scheme benefits and future pension scheme projections.

In the interim period, whilst we are awaiting for this data from your previous pension scheme provider, we will have a further follow up meeting with you in order to carry out a full needs analysis of your current circumstances. We will discuss your future retirement plans and establish your attitude to investment risk. If our advice process leads to the recommendation of a transfer of your pension benefits to a QROPS, then and only then will we offer you our advice and recommendations as to which of our New Zealand QROPS product provider panel meets with your needs and current circumstances.

British Pension Transfers Ltd will assist you with the completion of all the appropriate application forms and paperwork, submit supporting documents to the selected product provider. British Pension Transfers Ltd will conduct all necessary compliance checks and money laundering requirements.

How Long Does a UK Pension Transfer Take?2020-06-03T12:24:53+12:00

Our experience is that UK pension scheme product providers and pension scheme trustees are often quite slow with pension fund transfer information.

They regularly take a few weeks to send the initial pension fund valuations, future benefit projections, fund transfer values and the associated transfer application forms back to us.

Our experience is that we find in most cases, the transfer process takes on average three months from start to finish. However, we have had instances where some pension transfer cases have taken much longer and in one extreame case it took over over eight months.

We find that each UK pension provider or UK pension trustee work to their own individual service standards and turnaround times.

One thing that you can rely on is that we will keep you fully informed on the progress at all stage of the transfer process.

What is the Lifetime Allowance?2020-06-05T13:25:39+12:00

The UK government announced on 14 October 2010 changes to the Lifetime Allowance (LTA) for tax relief on pensions schemes. From 2012-13 onwards, the LTA for pension savings for individuals has been reduced from the initial level of £1.8 million to £1.25 million.

The LTA is £1.25m in the 2015/16 tax year.  The following table shows the LTA for past tax years.

The Lifetime Allowance – 2011/12 to 2020/21
Tax Year Lifetime Allowance
2020/21 £1,073,100
2019/20 £1,055,000
2018/19 £1,030,000
2017/18 £1,000,000
2016/17 £1,000,000
2015/16 £1,250,000
2014/15 £1,250,000
2013/14 £1,500,000
2012/13 £1,500,000
2011/12 £1,800,000

At the time of payment, a recovery charge will be applied to the value of retirement benefits in excess of the Lifetime Allowance.  The amount will depend on how the excess is paid.

If it is paid in the form of a pension, the excess will be subject to a 25% tax charge and the income will be subject to Income Tax. For example, if you had a pension fund of £1.9 million in 2006, £400,000 would be subject to the tax charge of 25% (tax due £100,000) leaving £1.8 million to provide an income.

If the excess is paid as a lump sum, it will be subject to a one-off 55% recovery charge.  For example, if you had a pension fund of £1.9 million in 2006, £400,000 would be subject to the tax charge of 55% (tax due £220,000), leaving a lump sum of £180,000.

Your pension scheme’s rules may dictate how the excess is paid – either as pension or as a lump sum.

Protecting against the Lifetime Allowance

You can protect yourself against the tax change above if you are have, or are likely to have, retirement benefits valued above the Lifetime Allowance.  There are two ways of doing this.

Primary protection

The value of your retirement benefits at 6 April 2006 will be expressed as a percentage of the £1.5m Lifetime Allowance and that percentage will continue to be exempt from the recovery charge. So, if you had retirement benefits valued at £2.25m on 6 April 2006, you will always be able to have 150% of the limit, whatever level it is, and only incur a charge on the excess.

Enhanced protection

You can cease active membership of your pension schemes on or before 5 April 2006 and be exempt  from the tax charge, as long as you have already built up retirement benefits valued over £1.5m at 6 April 2006.

If you are a member of a defined contribution scheme, including (money purchase, personal and stakeholder arrangements, you cannot pay further contributions on or after 6 April 2006.

If you are a member of a defined benefit scheme (including final salary and career average schemes) you can continue to accrue benefits, but any increase will be tested when retirement benefits come into payment or you transfer.

Valuing retirement benefits

For the purposes of valuing benefits to measure against the Lifetime Allowance, all defined contribution benefits will be taken at their asset value, while pensions building up in defined benefit schemes will be valued at £20 for each £1 of pension, irrespective of the individual’s age. For all pensions already in payment, the value will be £25 for each £1 of pension.

Time limit

There was a time limit for applying for Primary or Enhanced protection.  You had until 6 April 2009 to apply to HM Revenue & Customs.  It is now too late to apply for protection.

What are the Benefits of a QROPS Pension Transfer?2020-06-03T12:24:41+12:00

Compared to a UK pension, a QROPS could offer you some or all of the following features:

  • No requirement to purchase an annuity (although you may if you wish to).
  • You are able to withdraw a lump sum of 30% from age 55 as opposed to 25% than currently available from most UK schemes.
  • If your total of transferred pension funds are less than £30,000, then all your pension funds can be released at age 60.
  • Wide investment choices – particularly useful if you want to invest in assets which reflect the currency and inflation factors where you plan to retire rather than UK biased choices.
  • If you transferred your UK pension to KiwiSaver prior to 6th April 2015. Full access to all of your funds via a KiwiSaver Plan from age 65 or 5 years from the start of a KiwiSaver plan whichever is the later. (Post 6th April 2015, KiwiSaver Plans no longer have QROPS status).
  • No potential Foreign Investment Fund tax charges.
  • There are no double taxation issues on the initial pension transfer.
  • QROPS fund valuations can be obtain on any day of the working week.
  • As the Lifetime Allowance (LTA) restrictions cease on transfer to the QROPS, there are no restrictions on the fund size you can build up. In the UK, pension funds which exceed the LTA (£1.25m) are subject to tax charges on the excess funds.
  • If you die, your family may be able to inherit your pension benefits free of UK inheritance tax.
  • No potential reduction in fund value on death.
  • You can consolidate all of your UK pensions into one QROPS Superannuation arrangement for your convenience.
What Type of UK Pension Scheme Do I Have?2020-06-03T12:24:35+12:00

To assist us in transferring your pension we need to know what what type of pension scheme you have.   Listed below are the various pension types that are commonly available.  We need to know which one applies to you, but if you can’t be sure don’t worry, we can help you find out.

Personal Pension Plan:

A Personal Pension Plan (PPP) is designed to build up a fund that is used to produce an income at any time between ages 55 and 75. These are defined contribution type pension schemes, in which no level of pension is guaranteed, but rather a fixed rate of payments are made to a fund which is used to buy a pension on retirement. Contributions may be arranged on a regular basis or as one-off payments and can be made by an employer, if applicable. Whilst a retirement age is selected at outset, within the range 55 to 75, the fund can be used to provide an income at any time after age 55. Usually, up to 25% of the fund is available as tax-free cash when the benefits are taken. The growth in the plan is free of most taxes. Contributions are made net of basic rate tax (from 6 April 2001 this includes the self employed): higher rate taxpayers will receive further relief through their tax assessment.

Stakeholder Pension:

Stakeholder Pensions (SHPs) became available on 6 April 2001 and are low-cost pensions that offer the same features as detailed under a Personal Pension Plan above. For a pension plan to be classified as an SHP it must meet standards laid down by the government. These standards include: -.

  • Charges – The maximum annual charge that a provider can impose is 1.5% p.a. in the 1st ten years and 1% thereafter. There are no initial charges or exit penalties and any extra charges must be by agreement. The 1.5%figure does not include the cost of advice.
  • Flexibility – The minimum amount that can be invested, either regularly or occasionally, into an SHP is £20 and there is no penalty for stopping and starting payments whenever you wish. An employee, whose employer offers an SHP, can arrange for contributions to be deducted direct from pay. You can take your stakeholder pension with you when you change jobs or you can switch to another stakeholder pension at any time, if you want to, without having to pay any charges for the transfer.
  • A SHP provider must provide regular information to an investor, including an annual statement detailing the amount paid in, the value of the fund and a pension forecast.

Group Personal Pension Plan:

These are defined contribution type pension schemes, in which no level of pension is guaranteed, but rather a fixed rate of payments are made to a fund which is used to buy a pension on retirement. A personal pension plan is one established under contract with an insurance company. Contributions (both from an individual and if applicable, their employer) are paid to an individual’s fund which is held by insurance company who invests the money in accordance with the individual’s wishes. Management fees are often taken from these funds to cover the costs generated by the insurance company. A Group Personal Pension Plan is just that – a group of individuals’ personal pension plans. They can be branded as an employer’s pension scheme, but in essence an employer is only required to set up the terms of the pension scheme with the provider. They may (but are not required to) contribute towards the plan themselves. Every other aspect of the plan is governed by the contract signed between an individual and the insurance company. The terms of the group of contracts are typically negotiated by the employer.

Employer Occupational Pension:

Also known as a works pension, company pension or superannuation, occupational pensions are private pension schemes run by some employers for their employees. The scheme will be run by its trustees and often provides life insurance as well as pension benefits.  Occupational pensions are governed by the Occupational Pensions Regulatory Authority (OPRA) and must comply with certain regulations. Occupational pensions are paid on top of any basic State Pension. These pension schemes work under a different set of rules to a personal pension. An occupational pension may either be contributory where members contribute to the fund or non-contributory, which is paid for by the employer.

Self Invested Personal Pension:

A Self-Invested Personal Pension (SIPP) is the name given to the type of UK-government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue & Customs (HMRC). SIPPs are a type of Personal Pension Plan. Another subset of this type of pension is the Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax “wrappers”, allowing tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. Rules for contributions, benefit withdrawal etc are the same as for other personal pension schemes.

Executive Pension Plan:

An Executive Pension Plan (EPPs) is an old type of company pension scheme that has now largely been replaced by Self-invested personal pensions (Sipps) that offer company executives and directors similar benefits, coupled with greater investment freedom and lower costs.

Pension Income Drawdown Scheme:

Income Drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and continues to benefit from any fund growth.  You generally need a substantial fund value to take income drawdown. The amount of fund varies according the rules of the pension provider, but is around £100,000.

The new income drawdown rules are as follows:

  • There is no minimum amount of income that must be drawn, irrespective of age. This means that individuals may be able to leave their pension fund untouched for as long as they like, without the necessity to drawing any income.
  • The maximum amount of income that may be drawn is reducing. The new maximum amount of income that may be drawn is 100% of the single life annuity that somebody of the same sex and age could purchase based on Government Actuary’s Department rates. An individual’s pension provider calculates the maximum income, using standard tables prepared by the Government Actuary’s Department (GAD).
  • The maximum income will generally be reviewed every three years until age 75 and annually from age 75, based on the Government Actuary’s Department rates for an individual of the same age at the time of each review.
  • Tax-free cash lump sums may now be paid after age 75 where an individual has elected to set aside or ‘designate’ funds for income drawdown at the same time, even if they decide to take no income.

Flexible Drawdown Scheme:

Flexible Drawdown will allow some individuals the opportunity to withdraw as little or as much income from their pension fund, as they choose and as and when they need it. You have to declare that you are already receiving a secure pension income of at least £20,000 a year and have finished saving into pensions.

Secured pension income means:

  • A company pension being paid to you either from the UK or from Overseas; or
  • An annuity being paid to you (from a personal pension or company pension) either from the UK or from Overseas; or
  • A state pension being paid to you either from the UK or from Overseas.

Our understanding is that secured pension income is taken as the gross annual amount of pension (i.e. before any income tax is deducted). The requirement to have a secure pension income of £20,000 might change in future to increase the level of income required.

Section 32 Buy Out Scheme:

A Section 32 Buy Out policy allows people to transfer the funds and benefits of their company pension scheme into a private fund. The scheme allows you to take advantage of the same range of benefits as your original scheme, whilst having the same individual control as a personal pension plan (PPP).The benefits of a Section 32 buy out policy are that, unlike setting up a new personal pension plan, you will be able to receive the enhanced benefits that come with a company pension scheme, together with the flexibility of wide fund management opportunities. Company policies are typically restricted to a certain number of funds, whereas personal pension plans have more choice.

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