How Recent Changes Pension Rules Will Affect British Expatriates

Terry Hunter & Christopher Spiers 22.03.2011 04:24

The UK Government recently announced long awaited changes to the current pension regime, the most significant of which will abolish the requirement to purchase an annuity at the age of 75.

The new rules, which come into effect from April, will offer greater flexibility and increased freedom in retirement planning. As many British expats have accumulated pension benefits in the UK, it is important to review your situation in light of these changes.

Income drawdown.

The two main changes that will come into effect in April will be a reduction in the maximum level of income you can drawn down from your pension and the period for re-assessing this limit will revert back to three years from five years, for those drawing pension benefits under 75. Annual assessments will remain in place for those over 75.

Introduction of minimum income requirement.

A major change to the current rules will be the introduction of the ‘Minimum Income Requirement’ (MIR). Under these new rules, individuals who can prove they have sufficient income from elsewhere will be able to drawdown an unlimited amount from their pension subject to income tax at their marginal rate. They will not be restricted by the income drawdown rules outlined above and this new ‘flexible drawdown’ will offer greater flexibility in retirement planning.

Initially the minimum income requirement will be set at £20,000 per annum and it has been confirmed that annuities, final salary pension schemes and state pensions will contribute towards this MIR threshold. British expats living in Thailand with final salary pension schemes may benefit from these new ‘flexible drawdown’ rules in the future.

Inheritance Tax on pensions.

The situation will remain the same for those under 75 however for those over 75, inheritance tax will no longer be payable on a pension that forms part of a person’s estate. However, whilst no inheritance tax will be applied, any lump sum paid to a beneficiary on death will be subject to a 55 per cent tax.

QROPS

For many British expats living in Thailand, transferring your UK pension offshore will continue to offer numerous financial and estate planning benefits. Those with family here in Thailand can avoid complicated probate issues in the UK whilst enjoying a tax free pension overseas.

However, a QROPS is not suitable for everyone and you should always seek financial advice to ensure it’s the right option for you.

The effect on British expats

For any British expat who intends to retire in Thailand, it’s important to keep on top of any changes to the UK legislature. These changes can affect how you plan your retirement and it’s important that once you stop working you are able to maintain a comfortable lifestyle.

These recent reforms to the pension rules are significant and will offer greater flexibility in how a British expat can plan their retirement. Now is a good time to review your personal situation to ensure you are making the most of the options available to you.

Written by Terry Hunter & Christopher Spiers, Senior Wealth Managers at Faramond Capital Partners. terry.h@faramond.com