Written by Professor Robert Anthony, Anthony & Cie
French Property News, December 2008
Transferring your pension funds into an overseas scheme may bring an unexpected windfall, reports Robert Anthony.
Do you know what is in your pension scheme and its transfer value? Do you know how your money is invested?
Do you know how your money is invested? Did you know that if you intend to leave the UK within two years or have already left for tax purposes, the UK tax authorities allow UK pension rights to be transferred to a QROPS–Qualifying Recognised Overseas Pension Scheme. The funds are generally transferred in cash, although it is possible to transfer other assets.
The pension scheme to which the assets are transferred needs to be approved by the UK inland revenue. Under most international tax treaties, non-government pensions are taxable in the country in which you are a tax resident. After you have lived overseas for five years, the UK relinquishes its interest and the assets can be more liberally invested.
Protective measures are in place to ensure you are not badly advised. If you are being advised on a transfer of your pension, the funds will be placed into a custodian bank account held by a pension management company that has been approved by the UK inland revenue. The bank and fund managers will help with the nature of the assets held.
In addition, a financial advisor will advise you independently. They must hold an investment advisor’s licence, issued by the financial monetary authorities of each country. A UK financial advisor can advise in the UK but not elsewhere without extra approval. So a UK IFA can’t advise in France without an approval (insurance brokerage licence does not cover financial advice). A CIF (Conseiller en Investissements Financier/Adviser in financial investments) is licensed to operate via membership of an authorised body approved by the AMF (Autorité des Marchés Financiers). Only those properly registered can be covered by professional civil responsibility insurance. In addition, they must have carried out certain training to ensure their advice is in the client’s best interests.
The UK revenue monitors the companies it has approved. Some have lost their approval due to not respecting UK rules. Personally, I don’t see a transfer of one’s pension as an opportunity to look at tax loopholes, as the money is there to protect your retirement. I do, however, see a good opportunity for a more hands-on management of the investment in the funds, with improved transparency on costs and hopefully better returns.
Obviously, there is also an aspect of materiality. If the value of the pension is under £100,000, an open architecture may not be as appropriate as a simple managed contract. I won’t go into individual cases and technical details here, but it’s important to bring to attention a few points.
Protected rights can be transferred if the QROPS wishes to accept them. In certain circumstances, benefits in payment can also be transferred. Care is needed where Americans are concerned though, as it may not be possible. The existing plan should reviewed as to the terms and conditions in the policy. Care is needed to ensure the individual’s unused lifetime allowance does not exceed £1.65 million in 2007/2008 tax year and before putting anything into place, a declaration is made with the UK inland revenue to register the transfer of the pension tax free, which gives the pension plan enhanced protection. There is flexibility on retirement age between 50-75. There is no obligation to buy an annuity. Tax is applied in accordance with the rules of the country of residence. After five years out of the UK, the benefits on death no longer apply to UK rules and are transferable to family members.
In conclusion, an audit of your pension will let you know the transfer value and the possibilities. You may find that your pension has a much higher value than you realise and, with good management, could bring you an unexpected windfall in a troubled financial market. Control your future or at least know if you are in control.
• Substantial tax advantages and savings
• No requirement to purchase annuity
• No limit on fund size
• Outside lifetime allowance
• Flexibility when benefits can be taken
• Investment flexibility
• Open to all nationalities
• Succession planning
• Transparent fee structure
• Professional adviser interaction
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