bakedbean

As I recall, there was a really informative topic written by quite a few people on my2home about pensions, and all that information now lost What a pity.

I am early-retired but not yet drawing a pension. I have been mithering for some time about pensions and QROPs and usually go round in ever decreasing circles just thinking about it..... but..... I have decided that I am really going to make some decisions this year 2015. I am gathering information and I thought it would be useful for others too, hence the topic.

I know that kingoflostfools and InVinoVeritas both have a few things to say about pensions, so I hope they will both stick their oar in and correct me on anything that I write incorrectly. And anyone else too.

To begin with...... this forum has a few sponsored sub-forums and one of those is an Australian company that specialises in UK pension transfers and financial advice. Obviously, the guy is a specialist for those living in Aus, so some things do not apply to us but, on the other hand, some of it does. And any Aussies reading this might like to pose some questions in that section of the forum.

I started a topic in that section asking about the Pros and Cons of QROPs. The guy, john in oz, answered and gave some really great information about UK pensions. The topic is here if anyone wants to read:
http://britishexpats.com/forum/uk-pe...s-cons-850019/
but I'm going to copy and paste the relevant bit below:

2. UK currently:

a. if you have a defined benefit scheme in the UK it is a guaranteed benefit and not reliant normally on market forces.

b. you pay tax on it and you have a current tax free threshold of 10 K GBP so small pensions normally do not get taxed however larger ones will.

c. you can currently only access 25 % as a lump sum tax free and the rest of it is converted into an annuity ongoing payment.

d. if you die your funds may be subject to death taxes of up to 55% currently.

3. Changes to UK Pensions from 06 April 2015.

a. you will be allowed to access your funds (depending on the scheme you are in) 100 % with 25 % tax free and the remaining 75 % taxed at your marginal rates. Therefore taking a large pension as a lump sum may see you incur a hefty tax bill.

b. defined benefit schemes that are unfunded public schemes will not be allowed to be transferred from april 2015 so you will be stuck in those schemes.

c. Whilst we can not predict the future - the govt has indicated those living offshore will have their tax free threshold removed so you will pay tax on every dollar earnt. They have indicated this as their intention and not before 2017. No one knows how this will affect pension payments.

d. I believe that death taxes reduce to 45% on pension from april 2015.

bakedbean

The situation here in Malaysia if you are taking a British private pension (not State pension).

I haven't done so (as yet) but, as I understand it, if one has MM2H visa, one can apply for a Tax Residency certificate here in Malaysia. That can then be forwarded to HMRC in the UK. As UK and Malaysia have a double taxation agreement, then MM2Hers can be deemed to be tax resident here and therefore receive their British private pension gross amount (without UK tax taken off). And as Malaysia doesn't tax your incoming funds, it is tax-free. Lubbly jubbly I don't think this applies to Services pensions like Army, NHS etc. Maybe someone can confirm this.

Obviously, if your pension amount is low, below the current GBP 10,000 per annum, you won't pay tax anyway.

However, note in John's writing that the UK Government is considering (not definite) taking away the tax-free threshold from expats

bakedbean

So, what about QROPs?

I have gathered a fair bit of information on QROPs. It seemed, and does seem (depending on your situation), like a good deal, but needs working out individually.

I understand that set-up costs can be quite high so, if you have only a small pension pot, it might not be cost effective.

As I understand it, if you are more than 5 UK tax years out of the UK, you can legitimately shift your pension funds out of the UK without even notifying HMRC and without any tax deducted.

So, where to place your QROPs? That is a very good question. There doesn't seem to be any in Malaysia. Singapore used to have QROPs then they were ejected by HMRC leading to a not very good situation by those who had taken out Singaporean QROPs.

The favourite jurisdictions seem to be Gibraltar or Channel Islands I think. As I understand it, and someone please correct me if I am wrong, I believe one needs to look at the jurisdiction you choose with regard to that country's rules and regulations and taxes.

From what I can make out, if you have a large pension pot (I do not) then there can be some favourable savings by shifting it out of the UK for future beneficiaries i.e. with your British pension, if you pass over, your spouse's benefits (if set up that way) will be taxable. The good ol' British inheritance tax.

NeonHippy

For general guidance on pensions and tax see https://www.moneyadviceservice.org.u...en-theyve-died which has a simple explanation. It would seem that the best way to avoid taxation at 55% is to start drawing on your pension before you are 75.

I have a defined benefits pension and when I asked the question about QROPS at the company's pre-retirement course the IFA was quite adamant that it was a bad thing to do to my index linked final benefits pension. I didn't really understand what his reasons were to be able to explain this to you but would say tread carefully if you decide to go down that route.

My impression was that QROPS are more suited to persons with a lump sum to invest to provide an annuity to avoid paying tax in the UK. As you are on MM2H and British you can already benefit from full tax relief so why reduce the value of your pot with high set up charges.

NeonHippy

For a summary of all of the UK double taxation treaties see https://www.gov.uk/.../system/.../Di...n_Treaties.pdf
The only downside to the treaty is that to benefit from full tax relief the pension must be remitted to MY. If you want to invest some of your pension outside of MY or gift it to grandchildren etc it will need to be exchanged back into a different currency. But 5% to the bank is better than 40% to the government

InVinoVeritas

I understand Gib is not a good idea as they levy a 2.5% withholding tax and there is no tax treaty with Malaysia for you to be able to get it back. I believe Malta is the preferred jurisdiction for Malaysia residents.

Fortunately with QROPS you can change jurisdiction in the future if the tax situation or your residence were to change.

bakedbean

Are you sure about that? It was my understanding that, when HMRC receives the paperwork from Malaysia, that you will be flagged up as a non tax payer and will just receive the pensions Gross. Why would it have to be paid direct to a Malaysian bank account?

By the way, I cannot get that link to work.

bakedbean

Yes that is my understanding too.

I have a lump sum but it is a somewhat small lumpy sum.

I am still slightly on the fence with my decision though I feel better informed now and I don't think I need to make any decision before the Pension changes come into force in April 2015 which was one of my concerns. So I shall probably let the decision slip by about 6 months.

What I could really do with is a crystal ball to tell me my future Has anyone got one?

NeonHippy

Try this one https://www.gov.uk/government/upload...n_Treaties.pdf but if it still won't work just google 'double taxation digest', that should work. Like you, I didn't think we needed to remit the money to Malaysia but I noticed 'note 2' on the left hand side last night. Note 2 appears on many treaties where local taxation is lower than the UK I guess it is an attempt to make sure you pay the local tax as, for instance, Thailand only taxes on money remitted to the country.

Funny thing is I've not noticed that before. I will have to com pare the current version with my archived one.

InVinoVeritas

Yes I do - one careful owner, slight damage after hitting a wall

InVinoVeritas

+1

Also at that moment the state pension amount will be frozen so no increases.

londonmilk

Hi there, just a quick question, so if i have a small amount of money to transfer back to Malaysia (say around £20K) so it will not be worthwhile to perform that via QROPs? As i understand if we transfer it direct to KWSP we will be imposed a tax up to 55%?

Do you have an indicative figure about how much QROPs charge?

In that case, is it better not to opt in to the company pension programme?

Thanks in advance!

bakedbean

Hello and welcome to the forum

Not sure if I am understanding your questions, but let me know if I've got the wrong end of the stick.

QROPs..... Err I was told you need a large pension pot for it to be worthwhile . More than 100K for sure. The set up costs are quite high I understand. Anyway not sure what you mean by transferring to Malaysia. There are no QROPs in Malaysia. You would have to choose a jurisdiction like Gibraltar, Channel Islands etc and check what the rules are within that jurisdiction. I am no expert so if anyone wants to correct me on this, please do so.

Don't know what you mean by company programme. You are working in Malaysia or.....?

bakedbean

FWIW I am now pursuing doing a UK annuity with my measly pension pots....for reasons I won't go into. (Basically hedging my bets a bit for the future)

This has thrown up some problems I didn't foresee like...... Difficult to get quotes out of anyone online. Postcode please...nope. Must be in UK...nope.

Then found that IFAs don't want to know either. Not allowed to give financial advice to Brits abroad.

It's been a real eye opener.

I have finally found a firm who are tippy toeing round the rules. They will give you quotes for annuities but won't advise (neat little dodge). But even that....only two companies would quote to a non resident Brit.

Will let you know if the company does a good job.

londonmilk

Thanks for your reply.
Yes I am currently in the UK. By company pension I mean both myself and my company are paying into my pension pot.

Transferring back to Malaysia = I am considering transferring all my pension pot back to Malaysia say in 3-5 years time, or as soon as I decide to leave UK and return back to Malaysia (either directly to KWSP or is there any other alternative that i will have?).

And if there's no way to transfer back to Malaysia, can I leave my pension pot here and access it when I am 55 years old? Or should I just don't participate in the pension programme.

You would have to choose a jurisdiction like Gibraltar, Channel Islands etc and check what the rules are within that jurisdiction. --> btw don't really get this

Thanks once again!