Securing the best possible retirement income as an expat needs some careful financial planning.
The obvious solution is often the Qualifying Recognised Overseas Pension Scheme (QROPS), which is a specialist offshore pension for expats.
Between 10,000 and 20,000 expats switch their UK pension pots to a QROPS scheme every year.
The scheme started in April 2006, and since then around 115,000 expats have moved £120 billion offshore under the auspices of a QROPS pension under the supervision of HM Revenue & Customs.
But why should expats consider a QROPS?
QROPS features and benefits for expats
Here are some of the features and benefits of a QROPS pension:
- Flexible investments – A QROPS pension offers an expat a much broader basket of investment choices than a standard UK onshore pension.
The QROPS investment platform varied between providers but is likely to offer more funds, more currencies and more commodities than any British pension.
- Currency volatility –QROPS pay benefits in a choice of major currencies, reducing the problems of having to chase rates when converting a payment in Pounds to your local currency.
Matching currencies for pension benefits and local spending generally means more spending power in retirement and lower transfer fees.
- Inheritance tax –QROPS pension funds are outside the UK inheritance tax regime, so any unspent money goes untaxed to your loved ones outside the UK.
If the beneficiaries live inside the UK, under certain circumstances, they may pay some tax on the money they inherit.
- Income tax –Unlike UK pensions, QROPS benefits are paid gross of income tax. Any liability depends on your tax status in the country where you live as the pension payments are taxed locally.
- Pension freedoms –some QROPS providers are including flexible access for the over 55s on the same basis as UK pension providers.
Malta is the only financial centre offering flexible access, although providers in Guernsey, Gibraltar and Guernsey have indicated that they will include the service soon.
SIPP instead of a QROPS
QROPS are not suitable for every British expats – for those who still have ties with the UK, a self-invested personal pension or SIPP may present a better choice than transferring to a QROPS, as some expats can still save for retirement and benefit from tax reliefs as if they were still home.