Why Expats Should Move Final Salary Pensions To QROPS

Expats could rearrange their finances and become instantly better off if they made some sensible financial decisions.

Saving tax and other charges is not about being wealthy, but being sensible with whatever money you have.

First look at income tax. Anyone with a UK pension gets 25% from their pot tax-free and tax is taken from the rest before they get it. That may be in regular payments, a one-off lump sum or as and when the money is needed.

An expat with a Qualifying Recognised Overseas Pension Scheme (QROPS) can make an instant tax saving.

Tax-free upgrade

A QROPS offshore pension comes with 30% of the pension pot tax free and tax taken from the rest at the rate the retirement saver pays income tax in the country where they live.

That is an instant upgrade of a fifth on the tax free lump sum.

The average pension is around £38,000 with a 25% tax free payment of £9,500. If that same fund was in a QROPS, the 30% tax free payment would be £11,400.

And there is no cut-off on the tax free amount other than the payment cannot be more than 30% of the pension fund.

Expats juggling with the best time to take their pension payments because of foreign currency rates rising and falling can have a QROPS pay direct into their local bank in one of several major currencies, such as Australian or US dollars.

Under the limit

Paying straight into a local bank also means no add-on fees for the cash transfer as well.

Some final salary pension savers are also finding that employers offering cash buy outs are pushing them dangerously close to the £1 million lifetime allowance.

Any fund breaking the limit faces a tax penalty.

Several IFAs are reporting clients with pensions of £30,000 a year or more have offers of around £1 million to leave their final salary scheme.

The risk is smashing the limit, but with a QROPS, as long as the fund is less than the lifetime allowance on transfer, once the money is offshore, HM Revenue and Customs (HMRC) no longer penalises retirement savers for putting too much cash into their pension.