Benefits of a QROPS Transfer for Indian Residents
QROPS Pension transfers to India can offer a UK pension holder who has returned to India and permanently left the UK with a number of advantages over a traditional UK pension scheme. In this article, we'll cover some of the most significant advantages - although it should be noted that all of these benefits will not be relevant for everyone - and some benefits will be more relevant than others. In order to ascertain whether a QROPS transfer to India is suitable in your circumstances, it is essential that you seek specialist, independent financial advice from an adviser who has experience of advising expats on QROPS transfers.
Some of the benefits of QROPS are as follows:
Some of the benefits of QROPS are as follows:
- The opportunity to take a 30% tax free lump sum. The UK pension rules allow a maximum of 25% tax free lump sum (known as the 'Pension Commencement Lump Sum'). Depending on the jurisdiction of your QROPS, the maximum lump sum payable can be as much as 30%.
- No requirement to purchase an annuity. For many expats who have left the UK and approaching retirement age, this is one of the biggest benefits of a QROPS transfer. The flexible pension rules in some of the most popular QROPS jurisdictions, such as Malta, Gibraltar and the Isle of Man do not impose a requirement to buy an annuity after a certain age (whereas in the UK you have to buy an annuity by the age of 75 in the UK).
- Pension income can be paid gross. Depending on your chosen QROPS jurisdiction, your pension may be able to be paid gross, in contrast to the UK where you pension would be paid net of 20% tax - which you may not be able to recover, depending on where you like.
- Inheritance tax saving. In the UK, your remaining pension may be hit with a 55% tax charge. This is completely be avoided within a QROPS, thus leaving more for your loved ones.
- Avoid problems with underfunded final salary schemes. This is a feature of QROPS transfers to India which is often overlooked by advisers. Final salary schemes were traditionally seen as 'gold plated' pensions, which shouldn't be touched at any costs. however many of the pension schemes of FTSE 100 companies are massively underfunded, and there is no guarantee that these pensions will pay out the pensions which they have promised their employees and former employees. As people live longer, the pension schemes have to pay pensions for longer, which inevitably means that there is less money n the pot for the remaining scheme members. We are already seeing that most large companies have stopped new employees from joining final salary schemes. it remains to be seen how many of the current schemes in place will retrospectively change their plan rules to mean that the current benefits to be paid to future retirees will be less than they had first thought. This is of particular concern for members of the NHS pension scheme, as this scheme will become underfunded by 2015, at which stage further changes to the scheme mayy be required. Thus many Indian residents have transferred their NHS pension into a QROPS plan to avoid these potential problems. By transferring your pension into a QROPS scheme you can avoid the uncertainty of these potential problems, and retain 100% control over your pension fund.
- An additional benefit of transferring a final salary pension such as the NHS scheme into an Indian QROPS scheme is that you can preserve a legacy for your loved ones. With a final salary pension, once you and/or your spouse has passed away, the payments on the pension stop, and there is nothing left to pass on to your beneficiaries. However, with a QROPS pension, any remaining pension fund can be passed on to your loved ones, free of UK inheritance tax.
- There is a significantly greater investment choice with a QROPS. With your UK pension, there may be restrictions as to what your pension may or may not be able to invest in. However, with a QROPS, there is a much wider investment choice.
- Depending on where you are resident, you may end up paying less income tax on your pension.
- An Indian QROPS pension plan such as HDFC Life or Max LIfe is not subject to a LIfetime Allowance, which means that there is no upper limit to what you can save in your pension. In the UK, the LTA is currently (2013/2014 tax year) £1.5 million, and this is due to reduce to £1.25 million next year. Any pension above that will be hit with a 25% tax charge.