UK Pension after Brexit
(Please note this article does not apply to UK State pensions)
With Brexit now completed there are many concerns and unanswered questions regarding the effects on a UK pension, in post Brexit times. Within this article we will cover the key areas and implications of Brexit. As it stands there is a transitional period expected to last until the chancellors budget in March. During this time it is business as usual.
Ongoing Pension Management
Can my UK advsier still manage my UK pension after Brexit?
If you have, or had a UK independent financial advsier they should have been in contact regarding continuing to advise you on your investments. UK firms are able to advise non UK resdients via ‘Passporting’ rights. These passporting rights have now ended. As such, if you’re UK adviser does not have new permissions in place via a European regulator they can no longer manage your assets. This includes ISA’s, direct investments and discretionary fund managers when outside of a tax wrapper.
Some pension providers still allow access as a non UK resident to your UK pension after Brexit, whilst others do not. The general rule of thumb is the older pension schemes (pre 2010) tend not to allow flexible access and the more recent ones do. Also worth noting is should the pension provider offer a flexible access pension, but you are not in this scheme, then you will not be able to internally transfer to the new flexible arrangement. Therefore you would need to transfer out of your scheme in order to access the funds. Your pension provider should have infomed you to any changes including how payments are made. Alternatively contact the Pension Advisory Service.
The double taxation agreements (DTA) were originally setup outside of the European Union, therefore they are not affected by Brexit. DTA’s allow you to be taxed in the country you reside i.e France as opposed to being taxed twice , UK and France. Applying for your NT code (Nil Rate Tax Code) enables this to happen. For further information on how to apply for your NT code please visit my article here. Importantly however, some UK pension schemes do not allow for an NT code to be applied. This results in tax being witheld at source and claimed back, whilst also paying french social and income taxes.
QROPS – Qualifying Recognised Overseas Pension Scheme
A QROPS is a non-UK based pension scheme recognised by HMRC and therefore able to accept the transfer of a UK pension. The benefits of a QROPS have been well touted, a good article detailing these can be found here . With Brexit now in play the implications are still unclear as to whether a QROPS is an option, as one of the key requirements was the UK being part of the EU/EEA. Now the UK has left, you could potentially incur an Overseas Transfer Charge (OTC) of 25%. No formal decision has been made on this as yet, however it is expected that the OTC will be implemented post annual budget review in March. For a comparison of International SIPPS vs QROPS, including a review of the current internatioanl SIPP offering please click here.
The 2 key factors to consider are :
- Do you want your pension out of the UK?
- Are you nearing your Life time Allowance Limit? (LTA) – (currently £1.073m).
If the answer if yes to either of the above then it would be prudent to speak to an independent financial adviser to review your position and to understand the position on UK pensions after Brexit. A transfer can still take place, however a decision of this nature should not be rushed and the timeframe is potentially limited.
An International SIPP offers significant benefits for non-UK residents. Due to an International SIPP being held in the UK the ability to transfer to the scheme has not be affected by Brexit. Furthermore, it would allow:
- An NT code to be applied
- Ongoing management by a European regulated adviser
- Total flexible access under flexi-access drawdown
With continued volatility expected throughout 2021 and beyond, utlising the right product and advisory firm is more important than ever. An International SIPP is specifically created for non UK residents allowing greater diversication, currency maangement and flexible access. The International SIPP, in our view, is the preferred option available to European residents. For those with top value pensions or a fear of UK pension tax raid, a QROPS is (currently) still an option.
As the window still presently open, now is a good time to review your pension structure, including the underlying investments. With a new (greener) US President, Brexit and of course, Covid, diversifying your portfolio in line with your requirements and risk profile is paramount. Implementing an investment strategy today can help you achieve your financial goals whilst maintaining compliancy.