What does this mouthful means?

Qualifying Recognised Overseas Pensions Scheme (QROPS) are a relatively new invention. In April 2006, the UK tax authorities approved that former British tax resident and British Expatriates could move their pension benefits to QROPS. The authorities improved their stand early this year, and since then, a steady increasing number of expat – and advisers – are seizing this opportunity.

What are the benefits of a GROPS?

• No UK income tax on the pension benefits after you start drawing (whereas most UK pensions are taxed at source – even if you are resident overseas in most cases)
• You have the option of draw-down directly from the fund  (means you don’t have to lock everything into an annuity)
• Upon death, the fund balance can be passed to your realatives – Spouse, children, etc.
• You can be actively involved in the management and strategy of your pension fund at all times
• Any death benefit to your estate can now fall outside UK IHT
• You can combine multiple pensions into one single scheme, thus saving considerable admin costs
• Tax Free cash element can now be 30% of the fund, subject to the jurisdiction for the QROPS (instead of 25%)
• You can take benefits from age 55 (instead of 65)

Sounds great doesn’t it?

Yest it does. It actually is one of the few expatriate tax schemes which is really popular with everybody. The benefits are important, and most can benefit from it. But you still need to go through your estate to evaluate whether it is beneficial to you or not.

Once instance where you may be better of staying in the British system is when you have subscribed to a pension plan with benefits such as guaranteed annuity rates which were subscribed when interest rates very high – or at least much higher than lately.

Should you wish more info, do not hesitate to drop me a line

This week extract from my Economist reading is the trouble with pensions article. It is on the lengthy side for an Economist article; yet its reading is, as always, a breeze. The subject describes the main pension system we find worldwide. Sometimes defined-benefit schemes will be supported by companies (UK / US), sometimes by government (France). The defined-contribution one is the preferred one for expats as it is seen as more flexible.

The article is on the pessimist side. Its conclusion speaks for itself.

When it comes to pensions, the buck has been passed from employers to employees. But too few workers realise how much they need to contribute to guarantee a decent retirement or feel confident enough about how to invest their funds. This will not lead to the headlines about bankrupt pension funds that marked the decline of the DB scheme. But it will be bad for many workers all the same.

My two cents worth: The only solutions to this problem is financial education. We need to help people realize the impact of their non-choice and lack of expertise in this area, and help them get the right attitude toward finance: pro-active! We need to start teaching our kids about personal finance from a young age, help students in high school and universities to make rational financial decisions (who said credit card?), and help workers and entrepreneurs allocate a slice of their regular income so that they not only pay todays bills, but also prepare for tomorrow’s ones.

There are two things giving me hope:

1. More and more people awakening to these facts – taking actions and planning ahead. Good examples are JD, Trent, and all their followings
2. There definitely is a strong increasing market need for my expertise