Moving abroad can offer an excellent retirement, but not all pension plans are designed with beaches and palm trees in mind. In order to maximise your private pension, it may be beneficial to make a few strategic financial changes to your portfolio.
Keeping a UK Pension
Many individuals retiring abroad opt for the straightforward option of keeping their money in a UK pension scheme. There are several benefits to this. Firstly, it is effortless, and digital banking makes accessing the money easy. Secondly, the money is taxed at standard UK rates, so financial management feels familiar. However, many countries demand additional tax, so the area of residency can make a significant difference to the value of the fund. Often, experienced financial advisors will be able to find more rewarding solutions.
Moving The Pension To a Different Scheme
Retiring abroad is popular, so a chocolate box of choice is available regarding alternative pension and investment schemes. The general aim of each is to separate the funds from UK taxation, although there are many ways of doing this. The most popular is to transfer the money to a Qualifying Recognised Overseas Pension Scheme (QROPS), which are HMRC approved pensions that are free from all UK taxes. However, QROPS are not one-size-fits-all solutions. For instance, individuals working with very large sums may benefit from an Employer Financed Retirement Benefit Scheme (EFRBS), which have no upper financial limit, and which are free from regulator control. Other options include a Funded Unapproved Retirement Benefit Scheme (FURBS) or a Qualified Non-UK Pension Scheme (QNUPS), both of which balance risk with high levels of financial autonomy.
Which Is The Right Overseas Pension Scheme For Me?
When it comes to selecting the most beneficial overseas pension strategy, the situation needs to be examined on a case-by-case basis. For instance, many investors find a QNUPS particularly attractive because it is entirely free from UK inheritance tax, meaning that retirement in a country such as Bulgaria with a QNUPS can eradicate the headache of inheritance tax altogether. Conversely, retirement in France can easily result in a 50% inheritance tax bill. Therefore, every avenue needs to be explored in detail with a professional international financial advisor who has in-depth knowledge of the benefits and drawbacks of each approach.
What About Lump Sums?
Withdrawing funds as a lump sum can be a strategic move when retiring abroad. Each pension option has its own rules in this regard. For instance, under a QROPS scheme up to 30% can be withdrawn tax free, whereas an EFRBS lump sum will be taxed as income and will also be vulnerable to legislative changes overseas. It is also worth being aware that although a pension commencement lump sum (PCLS) may provide you with a tax-free lump sum in the UK, not all countries recognise this as such, which may lead to an eye-watering tax bill if you are not aware of the local rules. Therefore, the appropriate strategy needs to be determined on a case-by-case basis, with the most beneficial solution being one that minimises tax in every relevant jurisdiction.
What Next?
At Arlo Group, we are experienced at guiding expats towards a future of financial security. The perfect strategy depends upon your personal circumstances, so to ensure comfort in your retirement, please arrange an appointment with one of our wealth management consultants.
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