Options for expat with UK pensions

Marine_life

We have lived overseas for some time but during our years in the UK we had contracted out and my wife had one small additional fund. We have not been contributing since leaving the UK and we now need to start thinking about what we will do with those funds.

The funds are as follows:

1. Me - Transfer value per last statement £45,000 (retirement age 65)
2. Mrs ML - Transfer value per last statement £37,000 (retirement age 60)
3. Mrs ML 2 - Transfer value per last statement £16,000 (retirement age 55)

So just under 100k in total.

Given that my wife will be 55 in less that 18 months its time to start giving this some thought.

A couple of questions:

1. What is the relevance of the retirement date we originally set?
2. We will likely NEVER need the money from these schemes so can we defer the benefits indefinitely (what would happen if one of us died for example and we had never accessed the scheme).
3. Should we at some point think about taking part out as a TFLS and if so when? Is that impacted by us living abroad?
4. Given we are not UK resident I assume we would be taxed on any amounts we take as "pension"?

Any thoughts appreciated

stephennt

Have you considered moving these pensions overseas into a QROPS plan? That might simplify things for you, especially tax, etc.

ex-pat_scot

Initial thoughts:


1. assume these are DC pots.
2. nominal retirement date is utterly irrelevant. It is used in any illustrations you get. it would also be used if you are in a Lifestyling investment strategy - whereby the asset mix is gradually throttled in a 15 year glidepath up to your nominated retirement date, out of equities and towards cash (25%) and bonds (75%).
In practical terms, it has no relevance for you.
3. there's no requirement to access the funds.
4. you could take 25% PCLS (ie tax free lump sum) at any time from Age 55. Tax free for the HMRC perspective. NB German tax authorities may view this money as income and tax it.
5. If you die, then current rules allow pension fund to be distributed to beneficiaries, who pay income tax on any money taken out of the fund (I believe). Ie you can gradually draw down funds as you choose, to make best use of your tax bands.
6. sorry no idea about how you would be taxed on withdrawal of funds yourself. There will be a double tax treaty with Germany, whereby any tax you pay in the UK would be offset against German tax on the same income.


A few further questions for you to consider.


1. why leave these in the UK, if you are never planning to return?
It would make more sense to transfer these into your German pension scheme, via QROPS. It would make planning and tax much simpler in the future for you.


2. if you leave the funds alone, then you could consider the costs of Mrs ML's funds and transfer the higher cost one to the lower cost provider.


3. What about UK state pension? I''m presuming you spent some of your working / student lives accruing NI credits and will also have the problem in the future about a partial UK pension.


I have family in CH and it's very messy for them with partial income and assets sitting in UK, CH and elsewhere.

Marine_life

stephennt wrote: »

Have you considered moving these pensions overseas into a QROPS plan? That might simplify things for you, especially tax, etc.

To be honest not in detail as i had always heard as a rough guide that the costs of transferring made it uneconomical if the amount was under 50k but that could be just hearsay.

Marine_life

ex-pat_scot wrote: »

Initial thoughts:


1. assume these are DC pots.
2. nominal retirement date is utterly irrelevant. It is used in any illustrations you get. it would also be used if you are in a Lifestyling investment strategy - whereby the asset mix is gradually throttled in a 15 year glidepath up to your nominated retirement date, out of equities and towards cash (25%) and bonds (75%).
In practical terms, it has no relevance for you.
3. there's no requirement to access the funds.
4. you could take 25% PCLS (ie tax free lump sum) at any time from Age 55. Tax free for the HMRC perspective. NB German tax authorities may view this money as income and tax it.
5. If you die, then current rules allow pension fund to be distributed to beneficiaries, who pay income tax on any money taken out of the fund (I believe). Ie you can gradually draw down funds as you choose, to make best use of your tax bands.
6. sorry no idea about how you would be taxed on withdrawal of funds yourself. There will be a double tax treaty with Germany, whereby any tax you pay in the UK would be offset against German tax on the same income.


A few further questions for you to consider.


1. why leave these in the UK, if you are never planning to return?
It would make more sense to transfer these into your German pension scheme, via QROPS. It would make planning and tax much simpler in the future for you.


2. if you leave the funds alone, then you could consider the costs of Mrs ML's funds and transfer the higher cost one to the lower cost provider.


3. What about UK state pension? I''m presuming you spent some of your working / student lives accruing NI credits and will also have the problem in the future about a partial UK pension.


I have family in CH and it's very messy for them with partial income and assets sitting in UK, CH and elsewhere.

Thank you - that's very helpful.

Yes they are both DC pots.

I also have an old defined benefit pension pot in the UK which will stay where it is as the transfer value is way below the value of the pension (the transfer value is about £50k but the project BD is about £11k per annum).

Yes, we also have state pensions entitlements which we confirmed a few years ago and both myself and Mrs ML have around 19 accrued years in the UK plus we will have the years (about 15) that we have accrued in Germany.

Our tax situation is a little complex in that we will retire to Austria, we've researched quite a bit around the state pensions and basically what happens is you apply in the country where you are retired and they then accumulate your various pension records and pay out the highest entitlement.

Any ideas on where to start looking for a reputable QROPS advisor?

JAG61

Hi there

Take a look at this list it may be a good starting point for you but these are the QROPS schemes not the transfer companies.

https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-pension-schemes-qrops/list-of-recognised-overseas-pension-schemes-notifications#austria

I live in another country and I am currently moving a DC to a local QROPS and my husband transferred a couple of years back. We used a Local transfer company. The company assessed Tax implications and recommended a QROPS scheme via a Local Financial Adviser. A scheme can lose its QROPS status which is a risk. I believe HMRC allows you to withdraw 30% at 55 plus go into capped drawdown BUT rules within the country may not allow this amount to be withdrawn at 55 or even the scheme. Plus rules can change. You need to look at any UK tax you pay transferring out and any tax moving it in to the new country our Transfer company advised of implications prior to moving the funds. When you reach 55 you may need help with the draw down calculation and 30% withdrawal our transfer company supported during this phase. Our Transfer company keep abreast of any changes and guide us accordingly. The Schemes will look after your reporting to HMRC.

My advice would be pick a transfer company who is going to still offer guidance after the transfer .

jamesd

Capped drawdown is no longer a UK thing for money entering drawdown. Current UK "flexible drawdown" rules are up to 25% tax free lump sum and the remaining 75% to be taken at any time as income taxable in the year it's taken. A QROPS scheme will have its own rules, though.

There are UK schemes that will open a new pension account for you, AJ Bell has one. They will pay to a UK bank account only, though, so you'd need to open one of those if you don't still have one.

UK law is that on death before age 75 the whole pot can be paid to anyone as a tax free lump sum. From age 75 it can go into a pension pot in their name and they can take it out as taxable income whenever they like. UK law also says that if you are diagnosed as having less than a year to live you can take the whole pot as a tax free lump sum while still alive, you don't have to repay anything if you live a long time instead of dying.

Marine_life

Thanks for the replies.

We do have a UK bank account.

If we decide to take the TFLS is it as simple as writing to the pension company and telling them we want to do that?

jamesd

Depends on the firm, ask. Many will have online methods, others will either not offer income drawdown or will only do it if you transfer to another of their products. More will offer the UFPLS option, a 25% tax free 75% taxable split of a lump sum. Taking any of the taxable portion reduces your annual allowance for UK pension contributions from £40k to £10k for life but that probably doesn't matter to you.

The options are there but firms aren't required to offer them if they don't want to and quite often don't on their older product versions. But they will have transfer out options if they don't.

FatherAbraham

Marine_life wrote: »

What is the relevance of the retirement date we originally set?

It will be important if any part of the pension pot is invested in a fund which is temporarily blocked for withdrawals, such as some real-estate ("proprty") funds following the Breferendum - withdrawals as part of planned retirement will be permitted, else not.

It will be important if any part of the pension pot is invested in a with-profits fund, since early withdrawals may incur a market-based adjustment.

Any lifestyling option (target-date asset reallocation) on the pension pot will use the declared retirement date to trigger the onset of modifications.

Any projections you have received from the provider will have been based on the declared retirement date.

Warmest regards,
FA

FatherAbraham

Marine_life wrote: »

Should we at some point think about taking part out as a TFLS and if so when? Is that impacted by us living abroad?

This is a question about German tax law (you are tax-resident in BRD, I presume), and in my opinion it would be extremely foolish to rely on the opinion of non-experts for this particular point.

You should consult your local tax advisor, because getting this bit wrong would be expensive.

Warmest regards,
FA