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Beating The Lifetime Pension Savings Cap With A QROPS

If you are an expat worried about breaking the £1 million lifetime saving cap on your pension, then now is the time to think about switching to the Qualifying Recognised Overseas Pension Scheme (QROPS).

One of the little-known benefits of a QROPS is the fund is outside of the UK lifetime allowance for pension savers.

While former Chancellor George Osborne may have set a £1 million maximum on lifetime savings aggregated for all the pensions someone holds, the lifetime allowance does not apply to expats with QROPS pensions.

There is a trick – any UK pension or several consolidated pensions grouped together must pass the lifetime allowance test before transferring offshore.

Penalties for breaking the limit

Providing the total fund does not exceed £1 million, HMRC will not demand any tax penalties.

These penalties come to 55% of the fund size that is over the cap.

The lifetime allowance also increases each April by a statutory amount, which is generally the consumer price index rating for the previous September. For April 2017, this should be 2.5%, taking the allowance to £1.025 million.

But once the fund is in a QROPS, forget about the lifetime allowance as the money can grow without any penalties.

This QROPS pension trick is important for expats with large funds to those about to pick up an enhanced golden goodbye from an employer.

How QROPS work

An executive expecting a £30,000 a year pension taking an offer to leave a final salary scheme can easily pick up a multiple offer of 30, making the cash off £30,000 x 30, or £900,000. Investment growth can soon tip that through the lifetime allowance ceiling.

QROPS are pensions managed by HM Revenue and Customs (HMRC) from the UK but based in one of 40 offshore financial jurisdictions.

They operate in a similar way to an onshore SIPP pension, with a choice of managed or self-managed investment options.

Almost 1,300 QROPS are listed by HMRC, but expats should take professional advice from a suitably qualified IFA who will customise a pension that matches the saver’s financial circumstances.

QROPS are available for most countries – and with 108,000 transfers involving £8.8 billion during the past decade, they are a vital part of an expats retirement toolkit.

QROPS Information and Guidance

For more information about QROPS and the benefits it provides, complete the Get Advice form on our main website:

#lifetime #allowance 

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The total deficit of FTSE 350 company pension funds increased 2.2% in January to £140 billion ($175.5 billion), show data from consultant Mercer's pensions risk survey.

The funded level was 83.6% as of Jan. 31, according to calculations using Mercer's data. That compares to 84% as of Dec. 31 and 90.7% as of Jan. 29, 2016.

More UK companies are expected to adjust capital or cut dividends to fill growing holes in final salary pension schemes this year. The discovery of huge pension deficits at Tata Steel and collapsed retailer BHS in 2016 caused scandals and drew attention to the widening gap between the assets held by such schemes and the money they owe to pensioners.

British government bonds, or gilts, have been the main assets of defined benefit or final salary pension schemes. But years of low UK interest rates and a flight to safe-haven investments after Britain's June vote to exit the European Union have depressed yields, leaving shortfalls.

Several companies have taken steps in recent months to finance the deficits. Specialist plastics maker Carclo cut dividends, printing firm Communisis reduced its capital base and fund manager Rathbone raised capital. With FTSE 100 company pensions schemes now only 88 percent funded as at Jan 27, 2017, according to consultant Aon's pension risk tracker, compared with 98 percent at end-2015, more companies are expected to follow suit.

“There are real concerns as we move forward into 2017, particularly around inflation, and trustees and sponsors should take every opportunity to understand their risk exposure and seek to manage it in line with their objectives and in line with the level of risk that the sponsor can support,” said Alan Baker, U.K. DB risk leader for Mercer, in a statement accompanying the data.

Mercer's data relate to about 50% of all U.K. pension liabilities.

Separate data by JLT Employee Benefits show FTSE 350 company pension fund deficits grew 125% over the year ended Jan. 31 to £108 billion. The funded status was 87% at the end of the month, down from 93% as of Jan. 31, 2016.

JLT said the total deficit of all U.K. corporate pension funds increased 87.9% to £263 billion for the year ended Jan. 31.

The consultant revised its data for January 2016 following constituent changes of the FTSE 100 index and other factors, including a downward revision of JLT's best estimate longevity assumptions, which had a positive impact on figures, said Charles Cowling, director at the firm. An update of December 2016 figures were not available by press time.

The funded status of all corporate pension funds was 85% as of Jan. 31, compared to 90% as of Jan. 31, 2016.

The 100 largest companies in the U.K. saw their deficits more than double over the year, up 130% to £92 billion. The funded status of these pension funds was 87% at the end of the month, compared to 93% as of Jan. 31, 2016.

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#uk #pension #deficit #qrops #rops

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