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 European
legislation and competition from regulatory jurisdictions outside
of the UK are making HMRC’s grip on pension assets seem increasingly
weak. For people who plan ahead, there could be quite clear advantages
relating to larger tax free cash entitlements from their pension
funds along with lower income tax rates. Once someone has lived
out of the UK for 5 years then there are no reporting requirements
needed to the UK about their pension funds and there are significant
capital gains tax advantages. The Isle of Man is removing its requirements
that pensions be used to buy an income at aged 75. Residual funds
on death after aged 75 will be taxed at 7.5% in the Isle of Man
rather than the punitive 82% on those alternatively secured pensions
in the UK. Tax free cash is likely to be 30% of the total fund rather
than 25% in the UK. Pension income will be subject to 18% local
tax when they are in payment. Offshore institutions are not aggressively
after UK pension assets presently- but they will be in the next
few years- especially Brits looking at moving Abroad of which there
are at least 16 million.
Special schemes called QROPS ( Qualifying Recognized Overseas
Pension Schemes) have been introduced and officially recognized
by the taxman. The advantage of transferring a UK pension
into a QROPS is clear. If you are non resident in the UK for at
least 5 complete tax years ( or know that you will be ) your UK
pension funds can be transferred without tax deduction and ultimately
drawn without UK tax consequence once the 5 year period is up. As
this is a relatively new area of expatriate pension planning it
follows that a certain level of caution should be exercised. Therefore
it seems prudent to leave the funds in the QROPS for 5 whole years
and then withdraw whilst non-resident. You have to take into account
local tax requirements which is why it is essential to take professional
advice relating to your chosen country of residence.
Brits who emigrate should consider moving their pension assets into
overseas schemes because they will now not be subject to inheritance
tax, after the Budget in March 2008 set out plans to restore IHT
protection to savings in overseas pension schemes. This is good
news for people who retire abroad and take their pension pot with
them. Expats naturally want to take their pension pots with them
to get access to benefit rules abroad , for example, Australia which
allows you to take your pension pot as lump sum. At least 500,000
pensioners in the UK pay higher rate 40% tax and 3.6 million working
British people pay the higher rate. Of an estimated total UK population
of 12.2 million pensioners in 2010; 9.8% are predicted to leave
the country to spend their retirement abroad. By 2012 there
will be around 800,000 people approaching aged 65 and generally
they will be asset rich and pension poor- with their asset being
a UK property they have been paying interest on for over 30 years.
It is these particular types of people that will be looking at selling
up and moving out of the UK. 10% of the UK population could retire
abroad by 2020, which is a considerable portion of the at retirement
market. The proportion of the population aged 65 and over is projected
to increase from 16% currently (11 million) to around 22% (15 million)
by 2031. These people will have insufficient pension funds to live
comfortably in the UK for example but do not want to reduce their
lifestyle. The state system in the UK is already at breaking point
and by 2020 it will be seriously underfunded due to the ratio of
workers to retired people. The UK government are actually predicting
that most people will need to work until they die because of the
above problems. Nearly all of the 39% of the 360,000 people that
went into UK private residential care in 2007 sold their own homes
to pay for it. The bottom line is that most retired people in the
UK that go into LTC- lose most or all of their assets due to spiralling
LTC costs. Emigration is the obvious choice with better quality
care.
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