Pension jargon explained

 

Pension experts love acronyms and jargon, but the meanings are not always clear to the uninitiated, so here are a few important pension terms explained:

 

Annual allowance


An individual’s maximum annual contribution to a pension. The annual allowance is £50,000 for the 2010-2011 tax year. 

 

Benefit crystallisation event (BCE)


A benefit crystallization event is taking a benefit or payment from a pension. This triggers a test that calculates the total amount of benefits you have drawn against the total lifetime allowance (LTA) available at the time.


If the BCE is more than the LTA, tax is charged on the excess amount.


Lifetime allowance


The limit on the value of retirement benefits that you can draw from approved pension schemes before tax penalties apply.  That limit is called the Lifetime Allowance.

 

The Lifetime Allowance is £1.8m in the 2010-2011 and 20011-2012 tax years, dropping to £1.5 million in 2012-2013.

 

Lifetime allowance charge

 

Tax arising from taking pension benefits that are more than the lifetime allowance.  Tax is charged at 25% or 55%, depending on whether the BCE was the payment of a lump sum.

 

Qualifying Recognised Overseas Pension Scheme (QROPS)

 

A has to satisfy certain HMRC requirements, including:

  • The scheme manager must tell HM Revenue and Customs that the scheme meets the rules and should provide evidence to HMRC where required
  • The scheme manager must undertake to tell HMRC if the scheme ceases to meet the rules and must report any prescribed information requirements imposed by HMRC.

Qualifying Non-UK Pension Scheme (QNUPS)


Similar to a QROPS – all QROPS are QNUPS but not all QNUPS are QROPS. The difference is a QROPS is based in a tax jurisdiction that generally has a double taxation treaty with the UK that lets HMRC impose reporting rules on the provider.


A QNUPS does not have to meet this condition. 


Finding offshore financial advice and QROPS for ex pats

 

British ex pats heading overseas to live and work need to think about cutting ties with their UK financial advisers. And need to look at moving their pension overseas via a QROPS


Many UK independent financial advisers do not have the qualification or experience to help ex pats.

 

Despite a lot of talk about a single financial market, the EU is still splintered in to national financial zones policed by individual regulators who lay out their own rules and guidelines.

 

That means a British IFA cannot work in Spain or France unless they meet the regulatory requirements of those countries.

 

Add to that different financial and tax rules, with country-specific products like pensions, investments and insurance designed around the rules for local nationals, and the headache of gaining good financial advice can be a real problem for an ex pat.

 

The answer is looking for an international financial adviser with the qualification, skills and experience to represent an ex pat’s best interests.

 

Before committing to any financial adviser, an ex pat should ask some searching questions:

 

   Confirm who regulates the adviser - and don’t just take their word, check their registration details out with the regulatory body as many ex pats have lost money to charlatans and fraudsters

   Make sure they are independent - the best deals come from independent advisers who can shop around the whole of the market. Tied advisers who just give advice about a specific provider or small number of providers are not worthwhile

   Look at the costs - do not pay upfront fees and ask for a written breakdown of set-up fees and ongoing charges before signing any contracts.


QROPS for ex pats are sector attracting some dubious advisers because of the big numbers involved in pension fund transfers, which generate big commissions and fees.

 

Regulators in Spain and the Middle East in particular are leading crack downs against unqualified advisers.

 

Rather than a hit-and-run adviser, most ex pats want a long-term financial relationship with a skilled and trustworthy firms who can deliver cost-effective results for QROPS, investments, protection and health.