UK Pension Transfers to India QROPS
Each year, tens of thousands of Indians return to India from the UK to resume their careers, to further their career progression, or perhaps to start a new business. The majority of these returning Indians will have UK pension assets, which they will be keen to transfer to an India QROPS scheme, or perhaps another pension scheme which can offer better returns than
In today’s market, there are a lot of options available to the returning Indian who has a UK pension which they want to transfer to a QROPS scheme in India.
Pension flexibility for Indian residents – QROPS or SIPP?
In 2015, the UK government announced wide ranging changes to the UK pension system, and in particularly, how a pension holder could access their pension fund after the age of 55. As of 5 April 2015, a resident of India who is a member of a Malta QROPS scheme can access 100% of their pension pot from the age of 55.
The UK government has announced (via a Statutory Instrument published on 19 December 2014) that it will offer full pension flexibility to QROPS schemes. This follows on from the new flexible pensions regime introduced for UK pensions in the 2014 Budget.
The requirement to use 70% of the QROPS pension fund to provide for an income for the life of the member was removed. In addition, in order to be recognised as a QROPS by the HMRC, retirement benefits must not be payable before the age of 55.
In short, by removing the ‘70% rule’, QROPS members were able to withdraw up to 100% of their pension fund out of their QROPS at the age of 55, offering the possibility of complete pension freedom.
In addition to empowering retirees by giving them control over their own pension pot, it finally ends the uncertainty over the status of the previous India QROPS schemes.
QROPS schemes were always intended to mirror the UK system, and through these changes after April 2015 the UK has effectively ‘cleaned up’ the industry by removing from the official QROPS list schemes which were never true and legitimate QROPS in the first place, such as HDFC Life’s Immediate Annuity Plan.
Indian QROPS Schemes
Traditionally, when an Indian citizen returned to India from the UK, they would transfer their UK pension into one of the Indian QROPS schemes, such as Exide Life, HDFC Life, or one of the other Indian schemes on the market.
That changed in 2009, when it became possible to transfer their pension to a scheme based in Malta or Gibraltar, and now it is possible to transfer frozen UK pensions into specialist international SIPP pension schemes. These international SIPP pensions offer the same flexibility of investment choice and drawdown as a Malta QROPS pension previously did.
SIPP Pensions for Indian Citizens – Leave your family a lasting legacy
One of the biggest benefits of a SIPP pension transfer is the ability to pass on your wealth to your loved ones after you pass away. Whilst no-one wishes to think about financial matters in the context of death, many people find peace of mind knowing that they have arranged their financial affairs in a manner which maximises the benefits for their loved ones. Transferring your UK pension into a QROPS or a SIPP can mean that you leave a legacy to pass on to your loved ones.
No Need to Purchase an Annuity with an International SIPP Pension
A big advantage of a QROPS (and now an international SIPP) pension is that there is no obligation to purchase an annuity with your pension pot (if you have a money purchase pension scheme), unlike the pension rules in India. With an annuity, after you and/or your spouse passes away, the annuity ends, and there is nothing left to pass on to your family.
Instead, with a SIPP or QROPS in India you can draw down an income, and when you pass away, all the remaining funds are available to pass on to your loved ones.
This is why so many Indian residents who have acquired UK pension rights previously chose to set up a QROPS in jurisdictions such as Malta, to avoid the strict UK and Indian pension rules.
Final Salary Pensions
In addition to the uncertainty over whether your final salary pension will be still be paid when you are eligible to receive it, another factor to consider for Indian residents with final salary/defined benefit pensions is that when you pass away, your spouse (if she is still alive) is only entitled to half of the value of the pension.
And then when she dies, the pension payments stop, and there is nothing left to pass to your beneficiaries. Therefore, if it is important for you to leave a legacy for your beneficiaries, you may wish consider transferring your final salary pension, such as a civil service pension or a teachers or NHS pension into a QROPS or international SIPP pension scheme which can offer you significantly more flexibility.
No pension flexibility for Indian QROPS schemes
It should be noted that the flexible pension drawdown rules will not apply to India QROPS schemes. Whilst the new UK QROPS rules have set out the framework under which the flexibility rules apply, local legislation where the QROPS is domiciled must also already allow (or be amended) to allow flexible drawdown. Indian pension legislation requires members to purchase an annuity with their pension fund, and therefore members will not benefit from enhanced drawdown flexibility.
Therefore, if you transfer your UK pension into an Indian QROPS scheme, such as the Exide Life Golden Years Retirement Plan, you will not be able to access 100% of your pension pot at the age of 55.
In addition, the UK government has also restricted the flexible drawdown rules to schemes which are domiciled in the European Union (this provision was added in March 2015, via Statutory Instrument 2015/673).
The result of this restriction is that to benefit from this flexibility, a UK pension must be transferred to a SIPP pension based in the UK