Hello and welcome to the latest edition of my ‘Week in Review’
QROPS (Qualifying Recognised Overseas Pension Scheme)
One type of case we get asked to help with a lot are overseas pensions – we have had two such enquiries/cases this week.
As people’s jobs, families, lifestyles etc can take them anywhere in the world, it means that can also lead to them having built up pension benefits in other countries
When it comes overseas pensions, there are several things that need to be checked before we can even get to the Critical Yield Calculation (CYC) stage.
Amongst other things, we must first communicate with the scheme and establish whether the plan in question is a true overseas pension, or whether it is an overseas savings plan.
The answer will determine whether the replacement will be treated as a pension transfer, or whether investment replacement guidelines should be followed.
Some overseas schemes will not allow a transfer to a UK pension scheme, or there may be restrictions on the receiving scheme. For this reason, we must obtain all discharge papers, legal agreements and any other relevant forms that would be needed for the transfer at the very start of the process and have these checked by the Pensions & Technical (P&T) team.
P&T will check that the paperwork does not contain any clauses regarding ongoing obligations, which St. James’s Place would not be able to accept.
If P&T are happy with the wording in each document, we must get a written confirmation from them and keep this on file. A case would not be approved without this.
When the additional checks are completed and once we have all the necessary ceding information, we can run the CYC and start the suitability letter. At this point, there is still one important issue to get right – lifetime allowance (LTA).
When dealing with overseas pensions, we often see that these were originally set up by a transfer from a UK pension scheme.
You will remember from your J04, J05 or AF3 that a transfer to a qualifying recognised overseas pension scheme (QROPS) is a benefit crystallisation event (BCE 8) which uses some (or all) of the client’s available lifetime allowance.
However, even if BCE 8 has taken place, the funds may not actually be crystallised in the traditional sense, meaning that, if transferred back into the UK pension regime, the pension pot will still need to be subject to no less than one BCE.
For this reason, we must check that the client has sufficient LTA remaining.
When the next BCE takes place, the client may qualify for an enhancement factor to their LTA to acknowledge that part of their standard LTA was used for the transfer to the QROPS, but that the client has not actually drawn any benefits yet.
The enhancement factor, where relevant, will be based on the actual transfer value that is eventually brought over to the UK. In order to benefit from the enhanced LTA, the client must make a claim to HMRC no later than 5 years after 31st January following the end of the tax year in which the transfer is made.
Then, to establish how much LTA the client has remaining, we must consider any other BCEs that may have taken place (e.g. taking a DB scheme pension or crystallising other funds via drawdown).
Any such previous BCEs will have to be revalued in line with any increases to the LTA since they took place to allow us to accurately show how much of the enhanced LTA is still remaining.
Even where the client is not looking to take benefit from the overseas pension immediately upon transfer, these checks must be carried out because St. James’s Place will only consider a transfer in from an overseas pension scheme where such a transfer does not (or is unlikely to) create a liability to a LTA charge.
Fortunately, things from this point are not too different from a domestic transfer.
This week, our team started using Qwil Messenger and I have to say, it looks like a really exciting piece of software, that is going to give so much peace of mind to Partners and their clients.
It does not take too long to get clients set up and it is really easy to use.
All chats and shared documents are within a secure environment; however, any key information still needs to be exported and uploaded as client contact in iBusiness or a Partners CRM system, but Qwil also makes that easy to do too.
We are really looking forward to using this fully and helping our Partners to get it set up for their clients.
The chasing team hit a little bit of a stumbling block this week, when L&G did a system update which meant we could not get information from them whilst their systems were affected. However, the update should help L&G to get on top of everything and help their staff who are working remotely, therefore we hope to see an improvement once sorted and information flowing from them again soon.
Other providers are slowly getting back to where they were earlier in the year, with only one or two now still seriously affected by Covid-19.
I hope you find this update useful and please do not hesitate to contact me should you wish to discuss any of the services we provide.