Since it was given the green light back in 2006, the Employer-Financed Retirement Benefits Scheme (EFRBS) has been a popular strategy for long-term financial security. Here are 6 reasons you need advice on your EFRBS.
1) Unregistered
By being separated from HRMC, an EFRBS is taxed differently from other pension schemes. For example, an EFRBS should pay tax on its investment income, whereas registered pensions are exempt. Further, some of the advantages of a traditional approach, such as corporation tax relief and grant exemptions, are removed.
2) Offshore Exposure
Separation from HRMC means the EFRBS will usually be in an offshore location. As such, there is increased complexity in governing laws, tax implications and possible changes to pension rules you may not be aware of. In addition, the EFRBS could be in a location deemed to be a tax haven and could lead to penalties against the pension scheme.
3) Save More
One benefit of an EFRBS is there is no lifetime allowance cap. Registered pension schemes are subject to caps and limitations, accompanied by high levels of tax. For instance, going over the Pension Lifetime Allowance (LTA) – currently £1,073,100 – can result in a tax bill of 55%. Therefore, for higher earners with large UK pensions, a well-set-up EFRBS could be a useful method of saving more for retirement.
4) Retirement Age & Withdrawals
EFRBS may carry different retirement ages to UK or other international pension schemes. It’s important to know when you can access the funds and how, so your plan for retirement can be optimised… that early retirement may become more of a reality.
5) Lend and Borrow Money From The EFRBS
Savings schemes that lack flexibility often do not maximise the potential of the fund. Being able to borrow from an EFRBS offers the possibility of pursuing investment opportunities, or it can help to navigate stormy weather. In situations such as the pandemic, for example, an EFRBS offered a lifeline for many individuals as they could take a loan against the value of their assets in the EFRBS.
6) Potentially Tax-Inefficient
Given the offshore nature there is a risk in government targeting the scheme for its complexity and potential for unfair tax benefits. Although it is rare, this has seen some people facing significant HMRC bills. It may be sensible to look to transfer to a different product, which is recognised and suitable for your circumstances.
Closing Thoughts
Pension schemes should offer a sense of comfort and preparedness for the future, but they can turn into headaches if they are not planned and managed with care. It really pays to have highly experienced financial strategists to ensure that your decision-making is optimised. For more information about how Arlo International can help, please get in touch with one of our financial specialists.
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