Otto The Squid

Beg to differ that ROPS are missold?

The UK has a large number of DTAs where the pension can be paid gross, if the DTA allows. The first port of call is to look at the DTA. If, for some reason, the DTA between the UK and the host country works badly for tax, at that point look at the ROPS jurisdictions and the DTA with the ROPS and the host country.

I see little evidence of offshore salesmen looking at the UK DTAs as a starting point, given that the pension starts in the UK in the first place.

And, the other thing to watch is that those ROPS jurisdictions that offer low/no tax at source may have the tax advantages wiped out by expensive, commission earning products and the poor investment knowledge of the salesman.

InVinoVeritas

Sorry, in middle of catching a plane.

I don't disagee QROPS have been mis-sold. What I disagreed with is that that there is never a case for exporting a penion. If you are planning to live in a low/no tax country then it avoids the complication of getting back tax deducted in the UK. If you are in the happy position of paying no tax in your host country, HMRC make you jump through hoops backwards before they will allow the pension to be paid out gross.

Otto The Squid

If you pay no tax on pensions in your host country, HMRC may keep the taxing rights- if no DTA, then that is that!

I saw this on the internet yesterday that shows the limited reasons for QROPS.

QROPS | Qualifying Recognised Overseas Pension Schemes


( BTW, never spoken to this firm or have any connection, just like the more objective points raised )

JonboyE

As this is the Canada forum it should be noted that in Canada a British pension is only taxed in Canada, not in the UK. There is a form you have to complete to ensure the pension is not taxed in the UK but it is hardly rocket science.

I am not a qualified financial advisor so the following is just a layman's opinion. If you have a UK defined benefit pension, and you intend to retire in the UK, then keeping the defined benefit pension is nearly always the best thing to do. If the investment fund that underlies the pension under-performs then the employer has to make up the difference. In a defined contribution (it used to be called a money purchase) pension scheme if the investment fund that underlies the pension under-performs your pension goes down.

When it come time to start collecting your pension the defined benefit pensioner knows what they will be getting as it is set out in the scheme rules. The defined contribution pensioner has to buy an annuity and is subject to the ups and downs of the annuity market. Another win for defined benefits.

The considerations are different if you retire in a different country. This is because you add in the exchange rate risk. The defined benefit pension will always pay the promised amount in £ but this does not mean you will always receive the same amount in $. There will be readers here who have seen their income rise an fall by significant amounts in the last few years.

You can mitigate this risk by bringing you pension to Canada using QROPS but you substitute the exchange rate risk with investment risk. Like a defined contribution scheme in the UK your pension will be dependent on the investment performance of your funds.

The next risk to consider is your longevity and what happens to the monies in your pension fund once you turn your toes up. If you expect to live a long life and to outlive your spouse then the defined benefit scheme will continue to pay until the day you die. If you die first your spouse may have to survive on a much reduced income - one person cannot have the same living standard on half the amount a couple can. What happens if you both die the day after you start collecting your pension?

A QROPS transfer is invested in an RRSP in Canada. If you die first then the entire contents of your RRSP goes to your spouse tax-free. If you both die the investments become part of your estate and some of it will go in tax. Your kids will get what is left. The risk here is that if you live a long life your money might run out before you do.

There is obviously a transaction cost to moving your pension - either a fee or commissions for the investments your adviser receives for placing the investments.

I don't think there is a right answer.

Tangram

You are correct Jon, you pays your money you take the risks either way.

Pulaski

I agree, there is no right answer, but people are often mislead over the value of the "benefits" they are gaining and the ""risks" they are avoiding at the expense of the risks and benefits they give up.

A defined benefit scheme has huge value, and unless it was in Russian roubles, Turkish lira, or some other unstable currency, I would recommend living with the exchange risk rather than putting it all at the risk of market value fluctuations.

InVinoVeritas

Agreed but a Personal Pension Scheme does not have defined benefits so I think it can still be worth exporting these to a QROPS when retiring abroad.

Hurlabrick

I agree with this personally.

These (and others like Group Personal Pension, Stakeholder pension etc) are 'defined contribution' type pensions. In the UK this means that basically you pay in what you like (within limits), get money added to it by the DWP (pensions relief at source), then you can start taking money out by a few different means from age 55 onwards. The 'pot of money' you build up is yours and what you take out is up to you - you will be taxed on it. How much you take, how often, when the pot runs out and how the remaining pot remains invested is also up to you!

A useful thing to know is that if you are age 55 or older in the UK, and you want to move the personal pension money to Canada via QROPs, it would be a good idea to 'vest' the personal pension in the UK first, then as part of the vesting, take 25% of the pot value as a tax free lump sum and move all the money first in the UK into a flexible drawdown with no withdrawals. Then move the UK Drawdown via QROPs into a Canadian RRIF (the Canadian equivalent to a UK Income Drawdown). That way you get 25% tax free - not something you can do in Canada when moving from an RRSP to an RRIF AIUI.

I am NOT a UK financial adviser, merely someone who has always worked in the UK Life and Pensions industry, so I have some idea of UK legislation in this regard.

Pulaski

A valid strategy, but anyone who does this needs to look at the fees. While I presume there are some "good" QROPS, there are horror stories too about QROPS with excessive fees that have greatly diminished the value of the funds invested.

Hurlabrick

Yes indeed. Easiest to Google 'QROPS' and on the first page should be a link to 'gov.uk' 'List of recognised overseas pension schemes'. Click on the 'Canada' link to see what schemes are approved.

Should be able to establish fees etc. from a Canadian Financial Adviser using that list. There are some Canadian 'household names' on the list (doesn't of course guarantee reasonable charges!). Any schemes not on the list wont be approved for QROPS transfer by the UK provider.

Otto The Squid

No QROPS are approved by HMRC, the old approval system for pensions stopped in 2006 ( UK or otherwise ).

Sometimes a SIPP may be a better option. Fees 100 GBP a year, no set up fees and a low cost platform circa 0.2 to .25% pa ( down to .1% for larger funds ) with clean fund fees and no commissions at all.

InVinoVeritas

This would tend to suggest otherwise:-

https://www.gov.uk/government/public...-qrops#history

Otto The Squid

QROPS are not approved. They never have been. This is a self-certification process where the QROPS providers tell HMRC that they meet the conditions. There has been no approval process for pensions in the UK since 2006. From A Day ( 2006 ) UK schemes became registered and non-UK schemes became recognised.

InVinoVeritas

But I remember Singapore QROPS being specifically removed by HMRC; this was appealed and lost, I think because the scheme was not open to Singaporean residents. This hardly seems like a "no approval process".

JonboyE

It is not tax-free in Canada.