Celebrating 25 years

Read about our history

The UK Frozen Pensions Anomaly

The UK Frozen Pensions Anomaly

What we’re going to write in this relatively short article is directed to those that have worked in the UK and are now residents outside of the UK whilst having left behind a frozen pension, including those who have already moved their UK pension overseas into a QROPS. So if you’re a British expat or you come from a different country, but have worked in the UK, this is for you. If you still reside in the UK, then this is not for you as we only deal with non-UK residents. Following the 2015 budget, the UK government pension reform will lead to millions of UK pensions being locked down. If you’re a non-resident, you now have a short window of opportunity to make sure your pension isn’t one of these. Last year the UK Chancellor announced the most radical pension shake-up in decades. There will be winners and losers. The first who have been already hit are the unfunded UK Civil Service pensions. From 6th April 2015, regardless of any circumstances, these can’t be transferred anymore outside of the UK.

The UK Frozen State Pensions Anomaly

Who knows what will happen in the future, the UK Government is becoming increasingly short on money, and therefore one of the tactics being undertaken is to try and keep your pension under their control. You leaving your pension in the UK system, either voluntarily or due to further legislation, could well leave your pension in an extremely vulnerable position. For example, if the UK government decides that it needs to boost exports, then they will look at reducing the value of the Pound Sterling, and if you’re living elsewhere, then your pension income could potentially fall, with no way of stopping it. Tax rules could change. Money that you had planned to hand over to loved ones may now be heading straight to the tax man.

The UK “frozen pension” policy

Because of the “frozen pension” policy, many British expats, including those who decide to move to South Africa, will see the value of their UK pension dilute because your state pension will be frozen as soon as you retire, as your state pension will not be adjusted for inflation.

QROPS – transferring your pension

As a non-UK resident with a frozen UK pension, you can protect your pension from the cash-strapped UK government under the present rules. The UK government has started with the Civil Service, but that also includes all unfunded public services scheme such as the NHS; Teachers; Police; Firefighters and the Armed Forces. The good news is that since 2006, non-UK residents have been able to move their UK pension Benefits to a Qualifying Recognied Overseas Pension Scheme or QROPS, established outside of the UK that meets certain requirements laid down by Her Majesty’s Revenue and Customs (HMRC). So, since 2006 individuals have been able to transfer their personal and occupational pensions overseas to qualifying schemes. You are allowed to transfer your pension or pensions, as you may have more than one depending on how many jobs you had whilst a resident in the UK. Please note that you can’t transfer a UK state pension to a QROPS, but having transferred your other pensions into a QROPS, you will still be entitled to your UK state pension which will be dependent on how many years you have been contributing to your national insurance. You can potentially access up to 70% of your pension by selecting the correct QROPS jurisdiction and choosing to invest in a particular vehicle. Imagine being able to access cash from your frozen pension for whatever reason you might have by taking advantage of a loophole that may not last forever.

Ready to chat with
a specialist?

Get started

You may also be interested in

how the fatf grey list affects south africans

FATF Grey List: Should South Africans be afraid about their financial plans?

Is it true that grey clouds gather over South Africa’s economy? Recent media reports have noted that South Africa is at risk of being placed on the FATF’s Grey list...

Read more
personal tax income return in south africa

South African tax season has begun: What’s new?

The South African tax filing season for 2022 has begun with the deadlines already announced on media. Due to a number of technical issues that have arisen with the electronic...

Read more
expats moving to south africa

Moving to South Africa Expat Guide

Are you thinking about moving to South Africa? Many people refer to South Africa as the “rainbow nation” due to the country’s multinational diversity. South Africa is a country that...

Read more
life insurance cover in different life stages

Life insurance cover for different life stages

“Fun is like life insurance; the older you get, the more it costs” is a popular quote you might find when looking for life insurance cover on the internet. This...

Read more