UK Pension Lump Sum Allowance
UK Pension Lump Sum Allowance. Under UK pension legislation, how much can I take for a pension lump sum allowance? Under regular UK pension rules, you are allowed a 25% lump sum at the age of 55. However, if you live abroad or intend to live abroad and are there for more than 5 years, you can access more of your pension with a QROPS pension transfer.
UK Pension Lump Sum Allowance and QROPS Pension Transfers
QROPS pension transfers outside the UK: if the jurisdiction has a DTA (Double Taxation Treaty) with the United Kingdom, then local rules apply once the pension has been abroad for 5 years.
UK Pension Lump Sum. Can I get 100% Lump sum. NZ QROPS
NZ QROPS allow the largest withdrawals and flexibility when it comes to a pension lump sum withdrawal. There has been a lot written about tax avoidance, especially when it comes to applying the spirit of the law. The Inland Revenue want to make sure that any pension transfers lead to an income for life.
NZ has a DTA treaty with the UK and you may take 100% as a pension lump sum upfront, once you have been abroad for 5 years. You do not need to live in New Zealand to take advantage. You may live anywhere abroad to apply for a NZ QROPS.
However, considering the spirit of the law and the new QROPS unit which has been set up to tackle fraud, you should really consider whether taking a 100% pension lump sum is in your best interests. Really, you should only be cashing in your pension if you already have assets to provide you with a pension income or there are extenuating circumstances such as a family member or yourself has a terminall illness. The fees are also high. Most financial advisers charge around 10% to cash-in your pension. Although QROPS specialisst will charge less than half that amount. There is also an outside chance of a 55% clawback retrospectively if HMRC ever deem the QROPS as not applying QROPS rules correctly. In fact there is new draft legislation which may mean that you must live in NZ to transfer into a New Zealand QROPS and get access to the full pension lump sum.
Pension Lump Sum. Maximum Withdrawal Alternatives
For most clients, a transfer to an Isle of Man or Guernsey QROPS would be suitable and you are allowed 30% as a pension lump sum upfront. In fact, the new 50c rule in the IOM allows 30% pension lump sum upfront + 100% of any increase in the value of your fund after transfer, which would allow great flexibility for those in the higher income bracket who may want to take some of this cash to invest in property.
Examples of QROPS pension transfers:
1) Eddie is 59 and has a UK pension fund worth £80k. He has a property portfolio providing rental income already. His assets are underperforming as house prices have fallen and he does not want to lose money buy selling his property in a depressed market. As he left the UK before 2006, he transfers his pension to a NZ QROPS and takes a 100% pension lump sum. He then uses this cash to purchase another property or uses the money as emergency cash until the housing market recovers.
2) Emma is 45. She left the UK in 2000 and has no intention of ever going back. The new 50c IOM QROPS rule means that the member only needs to use 70% of his pension pot to provide an pension. She has a £200,000 pot of which only £140,000 has to be used to provide a pension income.
The original pot of £200,000 she invests in low risk funds which grow at 5% per year for 20 years, giving a £530,000 pension pot. But, only £140,000 needs to be used as a pension, meaning that Emma has £390,000 which she can take as a pension lump sum to purchase properties when she retires. Leaving £140,000 to pay her an income.
(3) The other option is that Emma decides to take her 30% pension lump sum upfront, leaving £140,000 in the pot. This grows at 5% per year for 20 years. She will have a £371,462 pot of which £231,462 can be invested in cash in to buy a property and £140,000 can be used as a pension income.
What happens if they return to the UK?
If Eddie returns to live in the UK after cashing in his 100% pension lump sum from the NZ QROPS, he is OK. There are no tax implications whatsoever in the UK or abroad.
If Emma returns to live in the UK when she is 52 and takes an income from his QROPS when she is 55, she may take up to 25% of the fund that she transferred as a pension lump sum (£50,000) and the whole of the investment growth (£81,420). So even as a UK resident Emma is able to get a pension lump sum of up to £131,420 which under current UK law is free from tax. The rest of the pension would be taxable.
For more info about how to maximise the value of your UK pension fund and get access to the QROPS schemes with the lowest fees, please email:
QROPS Pension Lump Sum Allowance article by QROPS Specialists.UK Pension Lump Sum Allowance by Richard Malpass