India QROPS schemes – an overview for Indian residents
Every year, thousands of doctors, nurses, IT workers and other Indian professionals return to India from the UK to further their careers. Most of these workers will have a UK pension, and in most cases it will be advisable to transfer the pension into a QROPS scheme.
The advantages of an India QROPS transfer for the vast majority of Indian residents who have worked in the UK are varied and many, and we have discussed the benefits of QROPS previously. However, having decided to transfer your UK pension into a QROPS scheme, the next task is to choose the most suitable QROPS solution.
What is the best India QROPS scheme?
There is no right answer to the question of the best QROPS scheme in India, as the right QROPS plan will depend on the individual’s personal circumstances, financial goals and objectives, their knowledge of the financial markets, and the size of his or her pension pot.
This is why it is essential to seek independent QROPS advice in India, as only a truly independent QROPS adviser in India can properly advise you on all of your options. What may be a suitable QROPS jurisdiction, and QROPS scheme for one person may not be suitable for another.
How do I choose the best QROPS in India?
There are several factors which need to be considered when deciding upon the most suitable QROPS jurisdiction for a particular client. Below are some of the factors which need to be considered.
We acknowledge that every client is different when it comes to their knowledge of the financial markets, and how much control they either want or need in relation to the selection and ongoing management of their QROPS pension in India.
Most clients prefer to leave the management of their pension to the experts, and do not want any input into how their QROPS pension is managed. However, some of our clients prefer to take an active role in how their funds are invested – perhaps they have specific investment requirements, such as investing in Indian investment funds, or commodities (such as gold or silver).
QROPS Adviser Group will discuss these investment needs with each client, and provide advice on the most suitable QROPS jurisdiction accordingly.
Size of the tax free lump sum
For some clients, the most important priority for the QROPS pension in India is to maximise the amount of the tax free lump sum they can access at retirement. Other clients, on the other hand may be interested in maximising the amount of income they can draw down as an income.
Some QROPS schemes allow higher levels of tax free income to be drawn at retirement, and so this will impact on the advice given as to what is the most appropriate QROPS scheme for the Indian resident in question.
The size of the QROPS pension pot
This is an important factor when deciding upon the most suitable QROPS scheme, as there are often restrictions in relation the minimum pension size for some QROPS schemes. In general, anyone with a pension transfer value in excess of £25,000 is able to transfer their UK pension into a QROPS scheme. However, certain QROPS schemes and investment available to residents of India require a transfer value in excess of £100,000.
Again, QROPS Adviser Group will advise you on the most appropriate investment scheme for your India QROPS plan.
Different QROPS Jurisdictions for residents of India – an Overview
Contrary to what many Indian residents have been told by local India QROPS providers and agents, a returning Indian with a UK pension is not obliged to transfer their pension into a local scheme such as SBI, ING Vysya or HDFC Life.
In many cases it will be better for the Indian resident client to utilise an overseas QROPS, which are also known as ‘third party’ QROPS – so called because the QROPS is based in one jurisdiction, but the scheme member resides in another jurisdiction, such as India. Third party QROPS offer significantly more flexible options for the investor than a local Indian based QROPS scheme, which still requires an investor to purchase an annuity with their pension proceeds.
In theory, there are literally hundreds of different QROPS jurisdictions to choose from. However, in practice that number is limited to 3 or 4, as a result of the flexible pension rules available in those jurisdictions.
What follows is a brief overview of the leading QROPS jurisdictions for residents of India:
Gibraltar QROPS for Indian Residents
Gibraltar QROPS will be the favoured jurisdiction for the vast majority of Indian residents. With a very low tax rate of 2.5%, Gibraltar is a very attractive proposition.
Gibraltar’s investment rules offer complete control over investment choice and currency denomination, and a Gibraltar QROPS is perfect for an investor in India who wants to take more control over their pension fund.
Malta QROPS Schemes for Residents of India
Malta has become a very popular choice for QROPS schemes over recent years. Malta offers similar investment flexibility as Gibraltar and is a full member of the European Union, which provides additional security and comfort to investors.
Following the ratification of a revised Double Taxation Treaty between Malta and India in February 2014, we would now recommend Indian residents to transfer their QROPS pension into a scheme in Malta. Previous to this new treaty, Malta was not be the best solution, as a withholding tax of up to 35% could have been applied on all distributions of income. This is more than would be payable in income tax in India, and therefore in most cases, other jurisdictions, such as Gibraltar or New Zealand, would have been more suitable.
New Zealand QROPS Schemes
QROPS schemes based in New Zealand have zero withholding tax, which means that residents in India receive their income from their QROPS pension completely tax free in India (although income tax may be payable to the Indian tax authorities).
Another unique feature of the New Zealand QROPS plans is that a scheme member is allowed to take 100% of the investment growth of the pension completely tax free, in addition to the 30% of the transfer value.
Local India based QROPS Schemes
In addition to the choice of overseas QROPS schemes which most of our India based residents choose to transfer their UK pension into, there are a number of local India QROPS schemes which are available. QROPS schemes in India are administered by insurance companies, such as ING Life, HDFC Life, SBI Life, and Max Life. As such, they do not offer the investment choice or flexibility that overseas QROPS schemes can offer to residents of India.
A key distinction to make in relation to Indian QROPS schemes is that they have to abide with Indian pension regulations, which means that scheme members are obliged to purchase a poorly performing annuity with the proceeds of their pension fund.
As a result, overseas schemes based in jurisdictions such as Malta are generally favoured over local QROPS schemes in India.
Importance of Independent QROPS Advice
Finding your way round the maze of different QROPS jurisdictions, plan providers and investment options, and choosing the right QROPS for you is a task best left to the professionals. QROPS Adviser Group are completely independent, and are not restricted to recommending just one jurisdiction, or one plan provider.
QROPS Adviser Group will take the time to learn about your personal financial situation, your retirement goals and objectives – and then find the right QROPS solution for you.