There are no specific rules governing the maximum amount of pension that can be paid. However, pensions must be paid at least annually and PAYE must be operated.

The retirement income can be provided in one of four ways: -

1. Scheme pension - this is income provided by a pension scheme, or where the pension is payable by an insurance company selected by the scheme administrator.
2. Lifetime annuity - this is an annuity payable by an insurance company which the scheme member has the opportunity to choose. It is payable until the member’s death or until the later of the member’s death and the end of a guaranteed period, not exceeding 10 years.
3. Unsecured Income/Income Drawdown – this is available before age 75 and allows income to be taken on a more generous basis with rules designed to allow growth in the fund, providing the required income. The income will be in the form of income withdrawal.
   • The annual income must be within minimum and maximum limits
   • The minimum income in any year is £0
   • The maximum income in any year is 120% of the annual income which is set by the Government Actuaries Department (GAD), based upon the individuals age, and varies in line with the yields on long dated gilts.
   • The maximum pension must be reviewed at intervals of no more than 5 years.
   • A lifetime annuity or scheme pension may be purchased at any time.
4. Alternatively Secured Pension – this is a restricted form of unsecured income, available from age 75. It is subject to annual reviews to stop the funds being depleted too rapidly.
   • the annual income must be within minimum and maximum limits;
   • the minimum income in any year is £0;
   • the maximum income in all cases is 70% of the annual amount which is set by the Government Actuaries Department, but always based upon an individual aged 75, i.e. the rate does not increase with age, and varies in line with the yields on long dated gilts.
   • the maximum income should be determined at least annually on the above basis using the value of the fund up to 60 days before the review date; and
   • a lifetime annuity or scheme pensions can be purchased at any time.

Member Benefits

There is no limit on the benefits that may be provided for you under your pension. However, if the total value of your pension savings, under all registered pension schemes, exceeds the ‘lifetime allowance’ (£1.65m for 2009/10) then there will be an additional tax charge, called the lifetime allowance charge, on the excess.

Non UK residents may contribute to a registered pension scheme but you will not get tax relief on their contributions unless you were UK resident or had earnings chargeable to UK income tax in the last five years.

You can commence benefits, irrespective of whether or not you continue to work, at any time between age 50 (55 if benefits commence after 5 April 2010) and age 75. It may be possible to commence benefits earlier if you are in serious ill-health

Other Factors to consider

UK Taxation

Your benefits over and above your entitlement to tax free cash, will be paid net of basic rate UK tax (currently 20%). If you elect for no tax free cash, all of the pension will be taxed at 20%.

There is currently a double taxation agreement between UK and Malaysia which will allow you to change your tax code in the UK to allow this to be paid gross. You will have to declare it in Malaysia if you bring the income into the country

Inflation

Even in the perceived low inflation years of the last decade, it is commonly believed the real cost of living (forget government indicators like RPI or CPI) has doubled. In other words we pay twice as much for everything now than we did 10 years ago.

Irrespective of any technical pension analysis, frozen pensions incremented by Limited Prices Increase (RPI or 3% which ever is less) over the coming years are going to be wiped out by the inflation washing through the system over the next 5 - 10 years, courtesy of the recent monetary expansion by the Fed in the US & the phenomenon known as Quantitative Easing, courtesy of the Bank of England in the UK. So what will the real value of your pension be at retirement date?

What are the options?

There are three options that you can consider:

• Leave it where it is
• Transfer to a Self Invested Personal Pension (SIPP)
• Transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS)

Self-Invested Personal Pension (SIPP)

• A SIPP is a UK based pension arrangement governed by UK pension legislation.
• It is your own contract, in your own name, and you are 100% in control of its strategy.
• Capital and income can be accessed from age fifty five (2010). At this time, it will be possible to provide a lump sum of 25% tax free and based upon you still being in Malasyia a tax free income.
• The other real advantage of the SIPP is in the extent of the investment choice, meaning you can invest in a very wide range of asset types.
• A SIPP costs are based on fixed amounts to the higher the amount the lower the costs of the scheme. Most insurance based schemes are based on a percentage value, so as fund grows, the cost increases as well.
• An offshore investment bond is used as the platform

Qualifying Recognised Overseas Pension Scheme (QROPS)

• A QROPS is a Qualifying Recognised Overseas Pension Scheme that meets certain HMRC requirements.
• Generally, a QROPS must behave as if it were a UK pension for investors who have been UK resident in the previous five tax years. Also, if an individual returns to the UK, the QROPS will become subject to UK pension regulations.
• However, for investors who have been non UK resident for at least five tax years, the QROPS becomes subject to the laws of the overseas jurisdiction in which it is based (in our case Guernsey).
• Consequently, you can take income with no limits and there will be no deduction of tax at source although taxation will apply in accordance with your new country of residence (but Malaysia for example does not tax foreign sourced pension income).
• Following death any remaining fund can be paid as a tax free lump sum to the nominated beneficiaries. Legislation contained in the Finance Act 2008 corrects an error in the original legislation passed in 2004. The effect of this change is to give freedom from UK IHT on death after transferring a UK pension fund to a QROPS.
• The schemes use an offshore investment bond for the platform to construct the portfolio.

We have completed extensive research into the different QROPS providers in the market and at the moment the biggest disadvantage we can see is set up and ongoing cost. The market is very similar to the SIPP market a decade ago, and we expect these costs to drop over the course of the next few years.

• Where is the scheme located? We only use the Channel Islands at the moment due to the European directive on pensions. Other locations around the world have seen there status as QROPS provider removed from the HMRC list e.g. Singapore. The result is a 55% tax on the scheme.
• How long has the scheme been around? A proven track record in administering the pensions, not only on the initial transfer but also the ongoing reporting to the HMRC and local authorities is essential. The rules have changed over the course of the last few years and a provider who has experience in this is invaluable.
• How much does it cost? Some of the QROPS costs are far too expensive for the amount of benefits that you receive, often running into thousands of pounds. We expect the cost to come down to SIPP levels over the next few years.

Recommendation

There is no significant advantage to a QROPS over a SIPP before you start to take benefits. Therefore, given the current increased costs of setting up a QROPS, I am recommending a SIPP and a subsequent transfer to a QROPS at the time you want to take benefits should this be appropriate.

Both the SIPP and the QROP use an offshore investment bond as the platform for the investments. When you come to transfer the scheme from a SIPP to a QROP the investments do not need to be cashed in but are transferred as an inter specie transfer. This means the investment strategy does not need to be changed when the structure is changed.