How An Overseas Pension Transfer Could Impact Your Financial Health
If you currently live or work overseas and have been offered the option to transfer out of your Defined Benefit (DB) Pension Scheme, it is important to consider whether you could be impacted by a variety of complex issues.
You may currently work for a UK-based international company, or have done in the past, which is providing you with the opportunity to transfer out, along with free financial advice – but you must question whether you will receive the best advice?
At Montfort our cross-border Financial Advisers specialise in working with overseas clients who have unique situations which affect their UK retirement schemes. Over the years we have handled many complex cases, with our assessments often advising to remain in the scheme.
Here, Geraint Davies, Managing Director of Montfort explains why he is encouraging overseas clients to seek the best possible pension transfer guidance.
Q: What challenges do advisers face when dealing with overseas clients?
A: We recognise that individuals’ financial situations are all very different – whether they live overseas, plan to live overseas, already have periods of working life spent overseas or have overseas retirement schemes. These individuals are deserving of special consideration and their chosen adviser must proceed with utmost caution as there are complex tax issues to consider. For example, a final salary scheme may be recognised as a final salary scheme in the UK but are foreign schemes in the eyes of the country in which the pension scheme member resides or hopes to reside.
Q: Without the right advice, what challenges may overseas individuals come up against?
A: Being overlooked and over simplified is undoubtedly the case in this area of specialist advice. Over the last 25 years we have seen this time and time again. At Montfort we support overseas clients and take their individual circumstances very seriously. We ensure that all complexities are taken into consideration when we provide transfer advice.
Q: What are the dangers to consider?
A: If you have made the decision to transfer out of a UK pension scheme into a Qualifying Recognised Overseas Pension Scheme (QROPS), it is important to carry out extensive research on your selected scheme. HMRC publishes a list of schemes that have stated they meet the conditions to be a Recognised Overseas Pension Scheme. However this list is usually updated twice a month and schemes can be added or removed. It is up to the adviser to ensure the legitimacy of the scheme. If you transferred to a scheme that you thought was a QROPS and it wasn’t, then you must be prepared for an HMRC tax charge of 55% and the country of residence also wanting to tax you. We know of many people who moved their pension to a Canadian scheme that was 1/not a QROPs and 2/had Canadian tax implications. If you are not a UK born person, intent on living forever in UK who has never worked overseas, then you need to challenge your adviser as to how capable he or she really is in delivering your advice and make sure it’s not just limited to pensions.
HRMC ROPS list 15th October 2019
| Country | Schemes Removed | ||
| Guernsey | 2 | ||
| New Zealand | 1 |
Q: Can individuals living overseas benefit from tax-free lump sums?
A: The UK pension reforms of 2015 allowed those approaching retirement to access lump sums from their pension with the first 25% being tax free This is sometimes the incentive for transferring out of a final salary scheme. The use of tax-free cash, however, may be the position for a UK tax resident, but not necessarily for a resident of many countries for example Australia and Spain and New Zealand and the list goes on. Tax-free cash in any pension documentation should be challenged by the individual living ex-UK.In fact, you could find it fully tax assessable in your country. This is indeed a highly specialised and technical field, yet we regularly hear of advice being delivered based upon their view that ‘it’s a UK pension, why would another country tax assess it?’ when in reality they of course can.
Q: Should a financial adviser investigate rules in other countries?
A: Pension transfer advice must factor in the other country’s or countries’ rules and regulations. To simply suggest ‘here is your advice and you must take tax advice separately from the country you seek residence in’ is not acceptable. There is good reason to not only challenge the advice, but ask why the advice has not been conjoined and what have you actually paid for?
Q: Can UK advisers work with overseas advisers with ease?
A: In the Financial Conduct Authority’s recent comments on this subject, they have made the point that advice to overseas residents may well require the involvement of an adviser in the country of member residence working with the UK adviser. However, in our experience this rarely occurs due to various factors. In recent times we have seen HMRC’s list of Recognised Overseas Pension Schemes being decimated. We saw Canadian schemes cut by HMRC from over 20 to zero and countries such as Italy and France were taken off the list never to return.There is little doubt that Overseas Pension Schemes rarely have the compliance processes in place. Therefore, it is so important to seek advice from a financial adviser who has a wealth of cross-border experience and is knowledgeable about schemes outside of the UK.
If you are an overseas resident and require specialist advice about your planned Pension Transfer, please contact Montfort today to arrange a consultation. Please call 01483 202072 or email info@montfort-intl.com
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