10 Reasons Not to Transfer Your Pension to a QROPS
1) With the new UK Budget rules, you should soon be able to access your entire pension at 55
2) No need to buy an annuity anymore under UK rules
3) Your pension is protected with the Pension Protection Fund
4) If you have a final salary pension, it gives you some certain benefits and increase in line with inflation.
5) They are likely reducing the 55% tax upon death whilst in drawdown
6) Government is to block public final salary scheme transfers, and possibly private ones too
7) Small pension pots can now be cashed in, so no need to transfer out
8) Keeps your pension in GBP under UK government protection
9) Your pension is kept in the UK under UK tax rules, so there is no issue if you return to the UK
10) A final salary scheme gives me a guaranteed amount and rises with inflation each year
10 Reasons to Transfer Your Pension to a QROPS
1) At the moment, you can only access your entire pension pot if it is paying you an income of at least 12,000 GBP per year. Even though you may be able to access your entire pension in the UK at 55 in the future, you would still pay your highest marginal rate of tax on your pension income which is currently 20% – 45%. Under a QROPS, you can reduce your income tax on pension income to 2.5% or even 0% depending on where you retire to.
2) Under a QROPS you can choose to take an annuity or choose income drawdown. It is in your hands. You can take 150% GAD rate as an income or take no income from your pension pot and pass the whole pot on to your beneficiaries. It is your choice.
3) The pension protection fund in the UK only pays out if your company becomes insolvent. There are also other flaws in the scheme which the Financial Times exposed. Under a QROPS, you could park the whole lot into equities, gold or silver funds, bond funds, a mix of these or just hold it in cash if you are worried about security. Furthermore, if you invest via an offshore wrapper in the Isle of Man, 90% of any cash in the wrapper is protected if that financial institution goes bust.
4) Whilst final salary schemes are aligned with inflation, inflation is very weak at the moment. Upon death, normally around half of a final salary is passed on to the spouse in the form of income whereas under a QROPS, your partner or named beneficiaries would get a 100% cash lump sum.
5) They are likely reducing the 55% tax upon death whilst in drawdown, but it could be reduced to 40% to match inheritance tax. Most QROPS avoid all tax upon death and you can pass on 100% of your pension to anyone you like.
6) Government is to block public final salary scheme transfers and possibly private final salary schemes too. This is because the government can’t afford to pay out the transfers if there is a massive wave out. The government is trying to grow its way out of pension liabilities. This may be the last chance to transfer your final salary pension offshore before the budget in April 2015 as it takes 3 – 6 months for a transfer.
7) Small pension pots can now be cashed in. If you have a pension pot of around 30,000 GBP, you can take this at 60. Smaller pots are often best left where they are or moved into a low cost SIPP (Self Invested Personal Pension). For larger pension pots, best advice is to seek out a QROPS specialist who can undertake a transfer value analysis. Ask your adviser for a TVAS.
8) If you live in the Caribbean or many other developing countries, your pension could be better serviced moving to the USD. More than 65% of all currency in the world is denominated in USD via US treasuries. If you retire abroad in Europe, you could be better off transferring your pension to EUR. This will protect your monthly or quarterly pension income fluctuating with the exchange rates. The GBP has lost 36% of its value against the EUR over the last 5 years.
9) A QROPS can help you avoid 55% tax upon death in drawdown and avoid income taxes of 20% to 45%. A QROPS gets you out of the UK tax net and out of any future changes in the UK tax code. Different governments have different ideas about how to tax pensions. The latest move by the UK government to “liberalise” pension rules has been done to raise nearly 3 billion GBP in taxes over the next five years.
10) Final salary schemes are dead. Only 13% of such schemes according to a 2013 survey. As far as protection, a final salary schemes’ protection is usually capped at around 2.5% per year. It uses to be linked to the Retail Price Index (RPI), but many companies now link it to the lower measure, the Consumer Price Index (CPI). One of the reasons the government is blocking public final salary schemes to transfer out is that due to weak inflation and therefore weak interest rates, that is providing high valuations for transfers out to a QROPS or SIPP.
Many final salary schemes are from successful companies with strong balance sheets. But, many companies, such as British airways for example, have a pension debt higher than their market cap!
Whatever your circumstances, you need to talk to your financial adviser about the options available and ask them for their Transfer Value Analysis Service (TVAS) before you decide to do anything.