Table Of Contents
- What You Must Know About QROPS In Johannesburg
- QROPS In Johannesburg Explained
- Who Does QROPS Apply To?
- What Are The Benefits Of QROPS?
- When Would It Be Unwise To Transfer To A QROPS?
- Retirement Planning Johannesburg: Diseases And Injuries
- What Are The Different Types Of Pension Fund
- What About A Private Pension?
- Tax Relief With Private Pension
- How My Private Pension Work
- Benefits Of Private Pension
What You Must Know About QROPS In Johannesburg
A Qualifying Recognized Overseas Pension Scheme or QROPS in Johannesburg is an overseas pension scheme that meets the requirements of HMRC, which receives the transfer of UK pension benefits with no authorized payments.
The scheme was founded in April 2006 to help simplify the pensions and allow pension holders in the UK to access their money in their country of residence.
South Africa has more than 200,000 UK expats and the numbers are increasing every year.
Speaking to these expats you will realize that the most common source of their concern is not whether they will find happiness in their new country, but rather the financial implications associated with move to a new country.
Because many of most of the expats are retirees, the most important consideration is centered on retirement benefits and making the best decisions that will increase the benefits of the pension.
Make sure to check our in depth article about QROPS South Africa Transfer.
QROPS broadly mirrors how a UK British Pension Scheme operates, which means that you will receive a retirement lump sum.
Qualified and highly experienced financial advisor will work with you to ensure that your funds are transferred into a QROPS scheme.
A good service will advise and arrange QROPS UK pensions for its clients from around the world.
QROPS In Johannesburg Explained
Basically, it refers to a pension scheme established outside the UK and it is meant to take UK pensions of people who have emigrated from the United Kingdom for good.It was not until 2006 that QROPS came into existence.
It was the same year that the British Government made a decision to revamp its pension regulations.
As part of the revamping, the system was simplified and codified to mean that it was possible for a British pension to carry it with him or her when they decided to move overseas for good.
QROPS was deemed as a necessity in order to house the new EU legislation which stipulated that pensions should also move freely between European Union countries, just like other services and goods.
Who Does QROPS Apply To?
QROPS is designed individuals who have UK pensions and will be moving or have moved outside of the UK for good.
While you can transfer into this facility at any time, you will not see the main benefits until you have become a non-UK resident at least 5 full tax yeas.
The reason for this is member payment provisions in which a member is under obligations to abide by UK pension rules for at 5 years of being a non-resident of the UK. After the elapsing of this rule, the pension rules then revert to the host nation rules.
It is a requirement by HMRC (Her Majesty’s Revenue and Customs) that it is notified of any transfers and distributions from the pension fund for 10 years from the date of transferring into the QROPS.
Do you know all the details about UK Pension Plan? If you want to learn more make sure to check our detailed article.
Clients will enjoy better flexibility in investment and drawdown choice if they transfer assets into a QROPS administered in Malta.
This is as there is no need of ever buying an annuity and also clients can pass down their pension funds to chosen beneficiaries after they die.
What Are The Benefits Of QROPS?
No Requirement To Buy An Annuity.
Did you know that not long ago, 75% of British pension had to be spent on buying an annuity, which guarantees income for the rest of your life.
The only disadvantage is that the yields are low, and when you die, your pension fund won’t be passed to your family and loved ones.
Outdated pensions often default automatically into annuity at some point. But you can avoid this by transferring your pension fund into a QROPS. Upon your demise, funds that you have not used as income are passed onto your family.
Wealth Is Easily Passed On.
When transferring your pension fund into a QROPS, you will be required to nominate your beneficiaries. This makes the process of passing wealth to your loved ones faster, easier and less stressful.
Avoid Up To 45% Of Inheritance Tax.
Even if you are living overseas, if HMRC establishes that Britain was your country of residence at the time of your death, your British pension will be taxed.
The pension will be subject to a 45% tax charge. This deduction does not apply to a QROPS scheme where your UUK pension funds are passed to your family free from tax.
Tax Free Lump Sum Of 25%.
Flexibility And Increased Income Drawdown.
When you have not been living in the UK for five years and you transfer your pension into a QROPS scheme, you will enjoy the benefit of flexible income drawdown rules.
The Government Actuarial Department (GAD) rates are used to calculate the drawdown amount on British pensions. The rates are currently at the lowest.
QROPS jurisdiction rules allow the trustees to employ a different calculation then the United Kingdom GAD. The scheme also helps you avoid UK incomes taxes which can be 20% to 50% depend on the amount of the fund.
Are you wondering what does a QROPS Brexit mean For UK Expats in South Africa?
One of the ways in which QROPS schemes are superior to UK pension schemes is in their investment freedom.
To draw attention to the differences; UK stakeholder pensions have very low investment charges, but they don’t have investment freedom.
On the other hand, traditional UK personal pensions offer a wider choice of funds compared to stakeholder schemes, but come with hefty charges, especially on outdated plans.
Note that these UK pensions are run by insurance companies. This means that you are investing your fund in small portion of funds that either run by the insurance company itself or that it is interest in.
Johannesburg has good working infrastructure and favorable working condition which is good for expats from other countries.
It is important that you find good financial advisers that are experienced in providing advice of UK pension holders residing in Johannesburg and willing to transfer their funds to QROPS.
When Would It Be Unwise To Transfer To A QROPS?
There are situations in which you would be ill-advised to join a QROP scheme. These include:
- When your UK pension is significantly small (about £100,000 or less)
- When you are not yet decided of never coming back to the UK again
- When your UK pension scheme is very good, like one that is offered to employees of NHS. It is better left intact than converting into a QROP Scheme.
This is because doing so would mean crystallising benefits and turning them into defined contribution scheme.
As a matter of fact, retirement planning in Johannesburg is much easier than most countries.
The government is, however, planning to create a compulsory social security system that includes retirement benefits for all citizens.
The first and third pillars are the private savings and welfare-based old-age pension.
The second pillar requires the employed citizens to contribute to state fund, which gives them a minimum benefit upon retirement.
This has been greatly inspired by the country’s need to support the elderly.
The country’s move to establish a second pillar would certainly relieve the pressure on the social old age pension scheme.
While 50% of employed citizens belong to a pension fund, many of them don’t save enough in retirement funds when moving jobs. Most of them work for small companies that don’t have pension funds.
Although the government has been looking for ways to ensure adequate retirement savings, there are fewer chances that it would end tax benefits on voluntary savings as a means of improving social pensions.
The government may, however, introduce restricts on tax deductions.
The government wouldn’t force all citizens to invest their pension in a single fund.
While all citizens are allowed to contribute to private schemes, they are likely to be obliged to pay the country’s social security scheme, either by cross-subsidization through differential taxation or specific allocation of as section of their retirement funding contributions.
The government has made retirement planning in Johannesburg very easy. Expats can also transfer pension through QROPS in South Africa.
Employees with provident fund can cash in their full fund after retirement. It is likely that the government may introduce certain measures that require provident fund members to purchase annuities upon retirement.
This would be followed by preventing employees from accessing their pension or provident funds before retirement.
The issue resulted in a disagreement in the 1980s and is still an issue for trade unions that believe workers should be given access to their pension contributions.
Retirement Planning Johannesburg: Diseases And Injuries
The Compensation for Occupational Injuries and Disease Act compensates for worked place illness and accidents caused by dangerous working conditions.
It applies to all employers, and casual and full-time workers who get work-related diseases because of work place accident or who are disabled, injured or killed or become ill.
This, however, excludes workers who are partially or totally disabled for a minimum of three days, domestic workers, anyone on military training and any worker who is guilty of misconduct.
What Are The Different Types Of Pension Fund
Pension fund or superannuation fund is any scheme, fund or plan that provides retirement income.
Income tax deducted from pension fund is usually paid back by the Government.
They are very important to the stock market where large institutional investors can be found.
The money is usually invested in a set of themed funds, much like retail funds, operating specifically for retirement savers.
These are placed together in a portfolio, benefit from being tax free and low charges.
These funds are usually run by asset managers and insurance companies. In 1997, ABI (Association of British Insurers) introduced sectors as a new system for the classification of pension funds so that financial advisers and consumers can compare them.
The sectors set clear criteria that must be met followed by funds that wish to belong to the sector.
ABI sectors have more than 8,000 pension investment funds, with £700 billion in assets.
There is a wide range of funds you can invest in. They are placed into sectors and they include:
If you have a hard time to understand all the details, you can aways search for professional help with UK pension planning.
While this is the least risky type of asset, they can still decline in value. They include cash and cash alternatives:
Cash basically means a number of short-term deposits that are similar to building society account.
Cash alternatives are interest generating investments that are issued by banks, governments and other major institutions.
Mixed asset funds include a range of assets such as corporate bonds, equities, property, gilts and cash.
These funds are diverse, which means that they spread the risk of your savings.
If one asset declines in value, the reduction could be offset by another asset that is performing well.
This way, your overall value of the investment may not decline.
This type of pension fund is issued by the United Kingdom and international companies as part of their strategy to help them borrow money.
They are riskier than gilts, which are UK government loans. An explanation to this would be companies are likely to fail to repay the loan compared to the United Kingdom government.
The only advantage is that they offer a higher return rate which lances this risk. Corporate bonds with the highest risks offer the highest returns. They are known as high yield bonds.
Gilt bonds are issued by the UK government for a fixed term. They are low risk pension investment bonds.
What About A Private Pension?
A private pension can be defined as long term investment that’s meant to help you save some money for your retirement.
If you don’t have workplace pension then getting a personal pension is a great way to start saving for retirement.
Tax Relief With Private Pension
A pension provide will claim tax relief at the basic rate and include it to your pension saving.
Those who are higher tax payers will need to claim additional rebate through their tax return.
You can also choose where you want your money to be invested from differ funds that will be offered by your pension provider.
You can choose to make one off payments when you want or invest money regularly.
If you go for the one off payment of £10,000, you can make a monthly payment of £20. You can also invest a minimum monthly payment of £200.
This option allows you make a one-time payment of £1,000.
If you take certain types of retirement benefits, your money purchase annual allowance will be reduced by £10,000.
You will also have an annual allowance of £40,000, but no more than £10,000 can be paid into money purchase pensions, leaving you with a balance of £30,000.
You cannot carry forward unused annual allowances to increase the £10,000 MPAA.
There is a wide range of funds you can choose from. It is important that you choose funds that are most suitable for you depending on how you perceive risk and your retirement goals.
The pension provider will invest your payments in the funds you choose.
Note that the value you investment may go up or down regardless of the funds you choose.
The value of your pension fund may also be less than the initially investment amount.
If you’d like more information on QROPS in Johannesburg, make sure you dont miss our in depth article “QROPS Explained“- all you need to know on QROPS.
Benefits Of Private Pension
Up to 25% of pension fund can be claimed as tax free cash. Buying a retirement income product with pension money automatically reduces the amount you have to spend on it.
There are no upfront payments for setting up a pension plan. And, you don’t have to pay anything if you are planning to change your investment fund.
It is important that you talk to a financial adviser to help you choose the right pension plan for you.