The New Year has always been a great time to focus the mind on some of the more important issues such as how to make sure your pension planningis on track and that your retirement goals are achievable. Long gone arethe days when pension planning was simply a case of waiting for youremployer to pay up the amount due from your final salary pension schemeor for your insurance provider to commence payments from yourannuity.
Nowadays pension provision is all about choice for the majority who nolonger have the comfort of a final salary pension scheme to fall back onand that choice is not only the type of scheme in which to invest but alsowhat type of investments to make and at what level of contribution.
SIPPS
For UK residents the most flexible option to consider for pension planning isthe self-invested personal pension although for the vast majority theself-investment element is something of a misnomer as most people willbe more than happy investing in a range of collectives (unit trusts andOeics). However the option to self-invest should not be ignored,commercial property either through individual investment or by poolingresources with others is becoming more popular with schemes to invest inproperty both in the UK and overseas being promoted. Other specialistareas for investment that con be considered are direct investment intocompany shares, antiques and other collectables.
The rules are relatively straightforward you can get tax relief on yourcontribution at your highest marginal rate (contribution limit has just beenset at £50,000 for the next financial year whereas you were previouslyeligible to contribute up to 100% of your earnings). In other words for a 403 tax payer a contribution of £50,000 will only cost £30.000 from earned income. The government has set a limit to eachindividuals fund size, which was £ l.8 million but has just been reduced to£ 1.5 million. There are financial penalties for exceeding the cap and whilstthe ceiling might seem to be set at a generous level, tor a high earner intheir 30’s looking to maximise their pension contributions withreasonable fund growth this ceiling could well become prohibitive. Thereis certainly merit in reviewing current arrangements and we would bedelighted to carry out this review process with you.
One of the great advantages of a SIPP is that there is no need to buy onannuity when securing benefits. Annuities have always been seen as poorvalue and the ability to be able to draw income from your fund from age55 to 75 within a broad range set by the government actuarial department(GAD) is a clear benefit. With careful planning income levels can bestructured so as not to trigger higher rates of taxation and of coursethere is the ability take a lump sum of 25% of the accumulated fundtax free.
A flexible pension with tax free growth and the option to receive a taxfree lump sum and income to suit might seem an ideal arrangement butconsider this:
- Income taken from pension is taxed at your highest marginal rate
- A cap of £ l.5 million will only generate maximum income of £62.500 gross at retirement
- Taking a tax free lump sum triggers a tax charge of 35% on yourfund at death
- If death occurs after age 75 this tax charge is currently 82%
The government’s policy is clear. You will have benefitted from tax breaksduring the build-up of your pension (relief on contributions and tax freegrowth on the fund) and apart from the lump sum which can be accessedtax free the remainder of the fund is going to be taxed either as incomeor as an inheritance. SIPPs should be seen for what they are. anopportunity to build a lump sum to provide an income in retirementnot a means of sheltering significant assets from taxation and passingbenefits tax free to a future generation.
What is really important is to pion your pension strategy in tandem withyour other financial goals and there may be other structures more suitedto your personal requirements such as EFRBS or other plans.
QROPS
For those lucky enough to be considering retirement outside of the UKthere is the potential to transfer pension benefits into a QROPS. On theface of it the ability to be able to draw down a pension in o local currencyis interesting but QROPS has much more to offer than just a currencyhedge. Saving tax is the key to transferring too QROPS. First the tax chargelevied on o
a SIPP fund at the lime of death con be removed by transferring intoQROPS. Whether this benefit is immediate or after five complete tax yearsof residency outside of the UK is a debatable point but clearly theopportunity for a QROPS to be outside of any UK IHT charge should betaken sooner rather than later. The second tax break with QROPS comesin the way income is taxed. I have already mentioned that income is taxedat your highest marginal rate in the UK whereas taking Spain andPortugal as examples, income might be treated as o ‘temporary annuity’ in which case only a small proportion will be subject to tax. Move your residency to a different tax regime such as Gibraltar where there is no tax levied on annuity income and subject to local tax office approval all of your income from your QROPS could currently be tax free.
Powerful arguments for transferring your pension so who should considermoving their pension outside of the UK?
- Anyone considering toking up tax residence outside of UKwithin the next 12 months
- Anyone currently tax resident outside of UK
- Anyone tax resident outside of the UK who has token a lumpsum from a UK pension
QNUPS
All well and good that you can transfer your UK pension assets into onoverseas pension but what about those people who have deliberately keptassets outside of their pension plans and who would like to shelter thesefrom UK tax and local succession tax. There is some good news in thisrespect: recent legislation passed in the UK has heralded the birth ofQNUPS (qualifying non UK pension scheme) which is essentially aretirement pion for expatriates that will allow you to shelter non UKpension assets in a similar way to QROPS. With QNUPS we understand there is a clear confirmation from HMRC that assets are protected fromUK inheritance tax from day one even to the extent that should youreturn to the UK at some future date these assets remain outside of yourestate. There is no income requirement to match any level or investmentand the broadest range of assets can be included such as property, antiques and works of art. The only requirements are that by age 75 these are used toprovide an income for life with the residue being available tobeneficiaries on death. The same generous tax treatment of income willapply.
For the expatriate tax resident outside of the UK the QROPS/QNUPScombination is a powerful way of mitigating tax and sheltering assetsfrom UK inheritance tax. Our Rainbow Overseas Retirement Pion andAlpha Star QNUPS have been specifically designed to cater for theexpatriate client looking for a tax efficient and cost effective solutionto their retirement planning needs.
International Pensions
Of course it is not just retirees looking for tax efficient retirement solutions.We live in an increasingly mobile society where many people will spend alarge proportion of their working life outside of the UK and require aportable tax efficient savings solution to enable them to build up aretirement portfolio without the constraints of local taxation.
Our international pension solution does just that, offering employees thechance to build a tax free fund irrespective of where they might be located.For employers, providing this type of pension benefit con often be seen as auseful tool when it comes to recruiting or retaining key staff.
Cross Border Solutions
More than anything it is important to engage with on adviser whounderstands not just local rules but also the cross borderimplications of transferring pensions and pension assets. AtFiduciary Wealth we specialise in being able to add this crossborder element to our advice proposition so whether you arelooking for advice specific to one of our key market areas.Gibraltar. Spain. UK or Portugal or you wont to benefit from ourknowledge of international financial planning please call us in thefirst instance on +350 200 50982 or emailwealth@fiduciarywealth.gi
