Qrops or a Sipp, what’s best for expats
Scrapping the need to buy an annuity for pension savers has set off a scramble to keep retirement funds under the control of UK investment firms running self-invested schemes.
SiPPs (self-invested pension plans) are popular with hands-on pension savers, especially those who can switch ownership of business premises in to the fund.
One of the drawbacks was the pension scheme member had to buy an annuity before the age of 75 or face swingeing tax penalties.
From April 6, 2011, this requirement is scrapped.
Many onshore pension firms now claim this gives parity between a SiPPs and a QROPS for expat or other offshore pension savers.
A QROPS is not necessarily the best pension option for every expat, but regardless of the government ditching annuities, a QROPS still outguns a SiPP in many areas:
Tax-free lump sum withdrawals
New tax law changes in the Isle of Man and Guernsey should let some QROPS investors take up to 30% of their fund as a lump sum without tax – and in New Zealand, some investors could take even more.
A SiPP generally allows a 25% lump sum withdrawal.
Currency exchange fluctuations
A SiPP is designed for the UK pension market and generally pays benefits in Sterling, which can mean scheme members suffering a loss on currency exchange rates or having to time their transfers to minimise bank costs.
QROPS pay out in a variety of currencies – including Euros and US dollars.
Scope for investments
The same HM Revenue and Customs rules apply to pension fund investments for both pension schemes – except QROPS scheme managers have the flexibility to invest in a wider range or markets and currencies than their SiPP counterparts.
Estate planning issues
A QROPS automatically places any unspent pension funds outside of UK jurisdiction for inheritance tax – pension providers are waiting for final clarity on the taxation of unused SiPP funds, but at this time, only funds that are not subject to paying any benefits look to escape IHT. Speak to Qrops.net for further information about this area
Taking the Qrops v SiPP argument back to basics, the main consideration has to be a SiPP was simply not designed as a pension savings product for expats, and often the biggest argument for maintaining a SiPP offshore comes from a pension provider who does not want to lose management of the investment fund. A Qrops pension is defintely the better choice