Lump sum withdrawal
Currently, UK pension law allows for any retired direct contribution pension saver to withdraw 25% of their total pension fund’s value in a single lump sum without incurring any tax or crippling fees; for those with direct benefit pensions, the process is a little more fraught, but ultimately, with the right planning, it is possible to withdraw a tax-free lump sum.
However, for expats with a Qualifying Recognised Overseas Pension Scheme , the case for making a lump sum withdrawal is even more compelling. This is because by making a QROPS transfer you become eligible to withdraw up to 30% of your fund’s value without incurring any tax liability.
Given that making lump sum withdrawals offers unparalleled financial freedom and flexibility, it is easy to see why so many expats, whether they are based in France, Portugal, Gibraltar, Germany, Norway, Spain or elsewhere, choose this option.
After all, if you have been working all your life it can seem strange that the fruits of that labour should be tied up out of your reach, with you having seemingly no power to spend. Against this background, making a withdrawal can be very empowering; suddenly it seems like the money really is yours.
Being able to make plans for the lump sum can be life-changing. What people choose to do with the cash is of course entirely up to them, but for many it presents an opportunity to invest in property, to purchase luxury goods, or to offer financial help to children or other family members. For bolder and more enterprising souls it may even fund the beginning of a new business venture.
Furthermore, making a lump sum withdrawal can make good financial sense as it may allow you to repay your debts, helping you save money on interest and lender charges.
Yes, lump sum withdrawals have many persuasive attractions and advantages, but despite this making a pensions withdrawal may not be the right route for everyone. Below we take a look at some of the advantages of keeping your pension intact.
The advantages of leaving the fund untouched
Making a lump sum withdrawal may not be the wealth management option that is right for everyone; some people may wish to consider that leaving the fund untouched can bring the following benefits:
- Unlike savings accounts and most other assets, pension funds do not attract any inheritance tax liability
- Pension funds remain tax free even if they experience a significant growth in value
- It is possible to withdraw from a pension fund at a later date
- It is possible to transfer a UK-based pension fund into a QROPS
- Unlike savings and most other assets, pensions are not accounted for as part of state benefit means tests
- Pension funds offer security for those whose spending needs are minimal
Of course, keeping money in a pension is only going to be the right option in some circumstances. For many expats, particularly if they are looking to start a new life abroad, making a QROPS withdrawal will enable them to meet the inevitable costs that come with settling in a new country. What a person chooses to do will largely depend on their circumstances and their attitude to risk.
For example, many decide that reducing income tax by keeping the all their funds in a QROPS is the option for them. Further attraction might be found in the ability to do this without the need to purchase an annuity.
Whatever the case it need not be an “either-or” situation. By using a QROPS, savers retain access to the possibility of withdrawing a 30% lump sum, while drawdowns can be planned with an individual’s income needs in mind.
All QROPS questions answered
If you have any doubts or questions about what to do with your pension, your QROPS or your regular savings, Blacktower specialises in expat financial services and can help you make clear and confident plans for your future. Get in touch with us today.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
In the UK, the first week of October is National Work-Life Week, which encourages employers and employees to look at how they can improve their well-being at work and strike a healthier balance between family life and their job. The aim is to help reduce stress among a company’s workforce by offering more flexible ways of working, allowing workers to have time for other priorities in their life.
Anyone with Gibraltar wealth management concerns will almost certainly be dipping into the very depths of their patience presently as they await resolution of their status during the protracted and uncertain times of Brexit negotiation.