There are some common misconceptions surrounding SIPPS and QROPS, particularly for expats and other foreign nationals who have left a pension behind in the UK.
So I wanted to put dispel the most common myths, to assist you to make a better informed decision for the future of your pension and where it would benefit the most.
So firstly, what exactly are these two types of pension schemes?
A SIPP is a Self-Invested Personal Pension that is a tax-efficient retirement savings account, as fully described here in a previous forum posting.
A QROPS is a Qualifying Recognised Overseas Pension Scheme, an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC).
So now it is time to dispel just a few of the more common myths that abound the differences and benefits of using either a SIPP or a QROPS:
1. That I should transfer my UK pension to a QROPS if I am no longer a UK Resident.
For most individuals this is not the case. There are now two main options for expats and other foreign nationals that have left the UK or are considering leaving the UK; a QROPS (not to be mistaken with QNUPS, which cannot receive UK pensions, or only with extremely high penalties) or a SIPP.
2. That QROPS is the best solution for non-UK residents.
Not necessarily, a QROPS is only a better solution today in very few cases and from a certain time.
QROPS were introduced back in 2006, when there were limited options within the UK for pensions.
Since the 2015 UK pension changes and the abolishment of death taxes, many of the previous advantages available only to QROPS are now available within a UK SIPP and also often with a much lower annual management fee.
Despite these significant changes, many current overseas-based pension advisory websites are still incorrectly stating that a number of advantages remain solely within the gift of a QROPS, when in fact this is no longer the case.
3. That UK SIPPs are not available to ex-pats or US residents.
This is not always the case. It is true that many of the current 500+ UK SIPPs are only available to UK residents; probably less than 1% will accept non-UK residents. However, there are specialist and established UK SIPP providers who are able to accept ex-pats, including US residents.
I regularly deal with a SIPP partner that has GBP 1.5bn under management and has worked with residents across the globe, including US residents, for more than a decade.
4. That SIPPs can only hold your funds in pounds sterling.
This is not true either. Once you have transferred your initial pension funds into a SIPP, as you would into a QROPS, you can choose to retain your funds and receive your regular payments in the currency of your choice.
5. That SIPPs are restricted in the type of investment vehicle you can use.
This is not true. SIPPs offer you a huge range of investment options from global stocks, bonds and commodities to commercial property and gold.
6. That SIPPs are subject to HMRC pension rules and changes whilst QROPS are not.
This is not the case. A QROPS is merely an offshore trust that follows HMRC UK pension rules. Ultimately, HMRC oversee both QROPS and SIPP schemes and can swiftly act to change rules and/or cancel them as they see fit.
QROPS trustees also have a legal obligation to report everything back to HMRC up to ten years after any transfer. If a person is found to have not qualified, HMRC ‘will usually pursue any UK tax charges plus interest for late payment’.
Now that I have dispelled a few of the common myths, if you are an ex-pat (or are soon to become one) and are considering the best tax -beneficial move for your pension, it might be an opportunistic time for you to consult with a team of properly qualified experts to examine your current circumstances, consider your future plans, and provide you with a clearer picture of which option is best for you!
Choose wisely, as by opting for an established UK SIPP, as opposed to a QROPS - which, sadly, many lazy or inexperienced financial advisors tend to recommend - under the proper experienced management you can benefit with the following:
- Low annual fees
- Multi-Pension consolidation
- Flexible withdrawal options
- A wide range of investment choices
- Multi-currency options for both investment and withdrawal
- The option to pay any taxes in the UK or your country of residence
- The ability to take a 25% lump sum tax free from age 55 yrs.
Finally, unlike a QROPS, a UK SIPP won’t create problems if an ex-pat decides to return to the UK, nor trigger an IRS transfer tax for US citizens. Of course, there are some circumstances in which a QROPS is still a useful option but these are now rare!