A guide to the most frequently used terms for overseas pensions
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Annuity: A pension bought from an insurance company payable for life. Previously compulsory by the age of 75 for UK personal pensions. Cannot be transferred to QROPS once bought.
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Crystallisation event: the transfer to a QROPS is a crystallisation event at which point it is compared to the Life time allowance with any additional amount taxable at 55%.
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Defined Contribution Pension Scheme: a scheme that’s final value is based on contribution paid eg SIPP also know as Money Purchase.
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Defined Benefit Pension Scheme: a scheme which provides guaranteed benefits usually based on salary and service also know as Final Salary.
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Discretionary Fund Manager: an investment manager who has been given the power to manage the investments of the fund.
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Domicile: Very basically, a person’s domicile is where they were born or live permanently. E.g. an individual is not UK domiciled if they were born outside of the UK or do not intend to remain permanently.
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Exit Fees: charges relating to moving out of a QROPS scheme.
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GAD: Government Actuary Department , used to calculate pension income which can be paid at a maximum of 120% of GAD.
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HMRC: Her Majesty’s Revenue and Customs (www.hmrc.gov.uk ). Responsible for recognition of QROPS schemes.
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IHT: Inheritance tax, QROPS schemes are outside the estate for IHT.
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Insurance Bond: a wrapper that will hold the scheme investments in one place.
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Investment manager: the company, which is authorized to invest the scheme funds.
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Jurisdiction: The country in which the QROPS is based and the legislation it must follow.
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Lifetime allowance: the cap on the size a uk pension scheme can grow to.
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Limited Fund Choice: a reduced choice of funds that will make the administration easier and usually results in lower fees.
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Lump sum: the amount of your pension fund that can be taken as a tax-free lump sum under HMRC regulations.
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Member payment: payment made by the QROPS to a member in “drawdown”.
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Multi-jurisdiction: Providers with QROPS in several countries.
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Occupational pension: a pension operated by an employer.
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Pensions ‘A’ day: 6 April 2006, when the British government radically overhauled its pensions system, when the QROPS legislation came into being.
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Pension liberation: when more of the fund is taken out than is allowed under the rules.
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Portable QROPS: schemes that can be transferred to another scheme without charges.
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Protection, primary and enhanced: the fund is protected for either being greater than the lifetime allowance or growing larger.
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QROPS: Qualifying Recognised Overseas Pension Scheme – an overseas pension scheme, into which UK pension rights can be transferred, recognised by HMRC.
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QNUPS: Qualifying Non UK Pension Scheme – a term for all qualifying overseas pension schemes of which a QROPS is one kind, it can accept personal funds and assets.
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Provider: the entity that is authorized and regulated to offer a QROPS. This will usually be the Trustee of the scheme.
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Residency: In most countries, residence (for tax purposes at least) is defined as spending more than 183 days per year there.
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Residential property: pension funds transferred from UK-registered schemes cannot be used to buy residential property. Commercial property is acceptable.
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Scheme death charge: the 55% tax on death in a UK scheme after benefits have commenced.
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SIPP: Self Invested Personal Pension – a pension plan under your control, affording greater flexibility than a standard plan.
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Tax Years: a full tax year runs from 6th April to 5th April.
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THIRD PARTY QROPS: this is where the QROPS is held in a different country to where the member resides.
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TVAS: transfer value analysis, the calculation to see what guarantees are being given up from a final salary scheme and what return would be required in the QROPS.
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UK Limits: the pension rules that apply to Pension Schemes in the UK.
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Unauthorised payment charge: the 55% tax levied by HMRC where it deems an unauthorised payment to have been made.