Life may change for lots of British expats passing their days away sipping sangria in Spanish bars as the recession aftershock forces more and more businesses in to liquidation.
The high street or industry may miss another name, jobs will go – but more importantly if the firm goes bust, it’s likely the pension scheme will go down as well. Then fixed income expats overseas are going to find they have to rely on the Pension Protection Fund (PPF) to cover their bar tabs.
The problem is the PPF is ?1.2 billion in the red already and the deficit is growing. This is made worse by pension schemes closing because that means one less member to contribute to PPF assets by way of an annual levy on the scheme but more people needing a pay out as well. So every final salary scheme closing is a double whammy for anyone expecting to live on a certain level of income.
City analysts scoff there is no immediate worry because the fund has ?3 billion of assets and is paying out ?38 million a year. Then those guys don’t have to live off a fixed income and haven’t planned their life around their pension payments. Yes, the PPF will pay out, but probably at a reduced level to the original scheme.
Sad state of affairs
The PPF also says the scheme expects to pay out ?300 million a year by 2012 and it doesn’t take a maths wizard to work out that if pay outs continue at that rate or more for too long, the fund will soon dwindle. The time has come when none of us can rely on the state to pay a reasonable pension to help us through old age and we have to start making plans for ourselves.
If you are in a final salary scheme protected by the PPF, now’s the time to look at securing your future. Benchmark the scheme against other options to see if you can transfer your pension elsewhere – and if you can is the likely return and change in benefits worthwhile.
Drawbacks of retiring on a UK pension
The drawbacks of drawing a UK pension in Spain or France, both popular places for Brits to retire, is currency fluctuation. Switching your Pound to Euros is subject to ever shifting exchange rates and can decrease your spending power.
Buying an annuity also presents a whole new set of problems with interest rates at rock bottom giving a poor return on cash in. Then men have to consider their partners. Women do not do well out of pensions because they often do not have the time at work to clock up a decent fund, so they rely on their husband’s pension to see them through.
Two factors make older women cash poor – any annuity dies with the husband and if the couple is not married, inheritance tax rules apply. This may change soon as the government has announced partners who live together may get the same IHT protection as spouses or civil partners.
Limited Parliamentary time before the next election may put paid to this depending on how many votes the government think they may wring out of legislation.
If you have UK pension rights and live overseas permanently, then a possible solution is a QROPS – short for a Qualifying Recognised Overseas Pension Scheme. QROPS are tax effective and flexible retirement schemes that wipe out most of the drawbacks of holding a UK pension.
Benefits of a QROPS
A QROPS can invest and pay out in many different currencies- including US Dollars and Euros. This removes the effect currency exchange fluctuations have on a pension’s spending power.
Retirement strategies can be planned without factoring in buying an annuity. No Qualifying Recognised Overseas Pension Scheme has any requirement to buy an annuity, which neatly moves on to inheritance rules.
No annuity means the QROPS does not die with the member and for tax purposes, the fund is outside of the member’s estate for inheritance tax, so can be passed on to any beneficiary tax-free. This resolves the problem of a man leaving his partner cash poor if she does not have enough retirement resources to support herself.
Archive for August, 2008
Now’s the Time to Protect Your Pension
Monday, August 25th, 2008QROPS, What is It?
Monday, August 11th, 2008
QROPS stands for Qualifying Recognised Overseas Pension Scheme.
These were introduced in April 2006 as part of the government’s pension simplification initiative. Prior to that date, any transfer of UK pension funds to a destination that was outside of the UK was subject to a charge to UK income tax. Investors planning to retire abroad were frustrated by this charge, which had serious consequences for their retirement budget. ?
Since the introduction of QROPS, it is now possible for members of UK pension schemes wishing to retire outside of the UK to transfer their fund into such a scheme and escape UK income tax. ?
Her Majesty’s Revenue and Customs has a list of approved schemes. These are located in foreign countries where the QROPS are recognised and regulated (and taxed, if appropriate) as pension schemes. For the first five years during which the investor is no longer a UK resident, the QROPS must report to HMRC with details of any withdrawals from the funds. If the investor wishes to return to the UK to live within those first five years, HMRC can impose a tax charge. That is why it is important to consult a QROPS adviser about your plans before you transfer your fund. However, once those first five years are up, HMRC are no longer entitled to know what, if anything, the investor withdraws. ?
Whilst the investor can look forward to waving HMRC goodbye after five years, they will have to contend with their QROPS host country’s tax regime from the moment their pension fund is transferred. ?
For example: Mrs Green is British, but always dreamt of retiring to France. She wants to transfer her pension fund to a Guernsey based QROPS but live in Provence. She carries out this plan. ?
During the first five years of her foreign retirement, Mrs Green’s Guernsey based QROPS reports back to HMRC on any withdrawals she has made. The Guernsey tax authorities might withhold tax on her withdrawals, although this is highly unlikely as they have a low tax system which does not often tax non residents. Given that Mrs Green is now resident in France, she would have to deal with the French tax authorities. However, she would have discussed the situation with a well informed QROPS adviser who would have been able to advise her about the most tax efficient place for her retirement. ?
The QROPS system is not just available to people retiring abroad – it applies when they cease to be resident in the UK. So anyone who relocates permanently to a foreign country can also consider using the provisions and continuing to work in their new location. ?
Is a QROPS just for UK citizens? ?
The QROPS system is for members of UK pension schemes. This means that foreign nationals who have worked in the UK and built up a UK pension fund can benefit from the provisions, notwithstanding that they are not UK citizens. For instance, if foreign national working for a global company has worked in the London office for two years and built up a UK pension fund, she can transfer it into a QROPS when she moves to Paris for her next position. ?
What else is there to consider? ?
QROPS may have been introduced as part of the pensions simplification initiative, but the area is by no means easy to navigate. That’s why it is desirable to take advice from a professional QROPS specialist, who can listen to your retirement plans and make judgements based on their extensive knowledge of international tax regimes. ?
Transferring a UK pension into a QROPS may not be suitable for everyone. If you have a final salary pension, for example, you might lose certain benefits following a transfer. Again, this is an area where you should take professional advice before making any decisions.? ?
Trustees of QROPS charge fees for their services which vary between QROPS providers. Make sure that you understand the fee scale of any QROPS you are using. Your QROPS adviser should be able to negotiate a good deal on your behalf. ?
What jurisdictions offer QROPS? ?
HMRC’s list has hundred of approved QROPS, offered in jurisdictions all around the world. However, the market is dominated by those places with favourable tax regimes that are well regulated and investor led. So Guernsey, the Isle of Man, New Zealand, Luxembourg and the Republic of Ireland are all popular QROPS destinations. When making a decision about QROPS, investors consider not only the tax regimes, but also the regulations governing what they can invest in, and how they can access their money. ?
Quick Bridging Loans Make The Property Dealing Easier
Monday, August 11th, 2008
Often people sell their existing property when they are in the foray of buying a new property. But the problem is that when you get the property you like to buy, it is not always possible to buy sell the old one. From where, then you will get the cash to buy the property? Well, for this emergency need, there are quick bridging loans.
These finances are available to fill the gap occurring between the selling of your current property and buying of a new one. They are always secured against the residential and commercial property of the borrower. You can borrow from ? 100000 to ? 400000 with these finances. With them, the repayment term may vary from 1 month to 12 months. You are to sell out your current property within this time frame so that it becomes easy to repay the amount for you.
These finance schemes talk of an interest only loan. It means, here you need to pay only the interest throughout the loan period while you can pay the rest amount once you are done with your selling of the current property.
The funding of these programs are available in two formats, as open ended and as closed ended. Open ended loans are those where the selling of your current property is yet to be done. Closed ended ones speak of a program where every deal of the selling and buying of your property is done.
To avail easy deals of quick bridging loans, you need to do thorough research online. It gives you the chance to get easier deals with much flexible terms and low rate loans. Also, the loan processing takes an easy route and they become super fast simply because the application process and the processing, nowhere there is a need of paper work or documentation. So, the process becomes easy, smooth and fast. Smooth and fast, these are the buzzwords in quick bridging loans that make these loans maverick with some more redeeming qualities.
