Expats have two options when transferring a pension – moving to a SIPP or a QROPS. Both run to a similar blueprint. But a SIPP is a UK based pension, while a QROPS is a specialist offshore pension. The difference between the two is tax.
An expat who is UK tax resident or who plans to return to Britain after a stint abroad generally looks at managing their retirement cash with a SIPP.
An expat who is resident in another country and is unlikely to return to the UK will more likely opt for a QROPS.
SIPPs for expats
SIPPS are ideal for expats temporarily outside the UK because while the saver remains UK tax resident, they also pick up tax relief on their pension contributions, a perk that permanent expats must forego.
It’s important to remember that while Brits abroad for any reasonable time are likely to call themselves expats, the factors that make someone an expat or not are where they call home and where they are tax resident.
SIPPS are like a QROPS as they can come as managed or self-managed products with a wide range of investment opportunities and a 25% tax-free lump sum.
QROPS and the overseas transfer charge
Permanent expats who cannot move to a QROPS because they would face the 25% overseas transfer charge on the value of their fund might consider a SIPP for their pension savings.
QROPS are considered tax-efficient for expats who have permanently left the UK.
In the 2016-17 financial year, 9,700 expats switched £1.22 billion to a QROPS.
They come with all the benefits of a SIPP, such as a shelter from UK inheritance taxes and access to an extensive range of investments.
QROPS also offer up to a 30% tax-free lump sum and the option to drawdown funds in a local currency to avoid foreign exchange fluctuations.
Pension freedoms for expats
SIPPS and QROPS also come with pension freedoms, allowing access to money in the fund from the age of 55.
Although most SIPPS have this facility, typically, only certain Malta QROPS have flexible access as a matter of course.
Any expat living in the European Economic Area (EEA) who has a QROPS based in the bloc can transfer their pension to a QROPS.