Frequently Asked Questions about Pensions
To the reader:
Please note these are generic answers to the most frequently asked questions. The answers are by no means exhaustive, nor do they constitute or should be construed as advice. It is imperative that you seek the advice of a qualified wealth advisor and/or an authorised financial service provider who would be able to advise on your specific circumstances.
Q: Can I move my pension out of the UK?
A: Yes, the most popular route would be Qualifying Recognised Overseas Pension Schemes (QROPS)
Q: What is a QROPS (Qualifying Recognized Overseas Pension Scheme)?
A: A Qualifying Recognized Overseas Pension Scheme (QROPS) is any scheme recognized by UK HMRC as meeting standards and conditions equivalent to a UK pension. QROPS allows you to transfer your current ‘frozen’ pension into a different HMRC approved scheme in a jurisdiction outside the UK. This offshore HMRC approved scheme will still be under UK pension rules and reporting requirements.
Q: What are the key benefits of a QROPS Pension Transfer?
A: Very broadly, these are some of the benefits: Tax efficiency, ability to consolidate multiple pensions into one, options with regards investment choices and simplified estate planning.
Q: What happens if I go back to the UK or elsewhere?
A: QROPS were specifically designed with expats in mind. That means that it is globally recognized and is therefore portable. You are able to access it from anywhere with most of the same benefits applying.
Q: If I leave it in the UK, what will happen?
A: In a nutshell, nothing. Your pension will still act as it was initially set up to do. The most significantly impacted areas would relate to growth and benefits to be derived when you do finally retire such as tax efficiency, succession planning, etc.
Q: “Can I bring the whole pension to South Africa and cash it in and use it to buy property or invest here?”
A: “Current UK legislation allows access to your pension at age 55, so you are not able to access your pension before that age. All QROPS jurisdictions have to mirror the UK access age, so unfortunately you won’t be able to access it before age 55. With regards to bringing it to South Africa, it may not be best to do so, as your benefits would be converted into Rands (ZAR) and considering the weakened Rand and its instability over the past decade or two that would not be recommended.
Your Pension will also now be governed by South African Pension laws which have the following rules:
- Subject to South African inheritance Tax
- Subject to SA Income Tax, currently between 18% & 41%
- Access only to our SA based Funds/Investments
Q: Can I transfer to a QROPS once I have taken an annuity?
A: Not at present. This is currently under review and may change in 2016
Q: Can I transfer a UK state pension?
A: Unfortunately a state pension cannot be transferred into a QROPS. However, having a QROPS does not affect your entitlement to a UK state pension.
Q: What are the Fees / Costs?
A: The fees are variable and determined by a number of factors, like fund size, jurisdiction and recommended structure. We have negotiated the best rates for our clients from our various product providers. By law, we are obligated to provide full transparency and disclosure of all fees you are liable to pay. No recommendations are made until after a comprehensive needs analysis has been carried out as well as all information on the existing scheme has been obtained. Carrick does not charge any entry or exit fees on investments.
Q: Will transfer to a QROPS attract any tax?
A: No, the transfer to a QROPS plan is tax free and also does NOT attract any penalties or deductions for transferring. This however could be impacted by the LTA (Life Time Allowance) that is applicable on amounts over 1.25 million Pounds. It is best to chat to your advisor about how LTA affects you.
Q: How does Carrick make their money?
A: Carrick makes their income through business agreements with the various product providers we partner with and does not come directly from a client’s investment. As with fees, all commissions are fully disclosed
Q: What kind of returns will I get?
A: Returns are always based on risk – the higher the risk, generally the higher the returns. Investment recommendations are always made taking the following into consideration:
- Appetite for risk (by means of a risk profile analysis)
- Individual circumstances based on a full needs analysis. For example:
- No of years to retirement
- Income needs in retirement
- Current provision vs required income in retirement. For a moderate risk profile: 4-6% net of fees. Moderate to high risk profile: 6-8% net of fees.
Q: Will my Current Company contributions continue to be paid if I move to a QROPS?
A: This would be specific to your current company’s rules on contributions. A more detailed explanation can be given once we receive all the information from your pension company.
Q: Will I still be entitled to a lump sum?
A: Yes, you are entitled to take a Pension Commencement Lump Sum of up to 30% with a QROPS. This is exempt of tax.
Q: What will happen to my QROPS upon my death?
A: One of the benefits of a QROPS is that it allows you to nominate your own beneficiaries, therefore all remaining assets would be transferred to your nominated beneficiaries upon your death. Your beneficiaries may receive similar benefits with regards tax.
Q: What is the minimum age I can draw on my pension and what amount?
A: Access is from 55 years old at which time you may take up to 30% as a lump sum. This is exempt of tax. The remaining funds need to be used to provide an “income for life”.