What options do I have with my Shell Overseas Contributory Pension Fund?
Words of warning
The Shell Pension Scheme, the non-UK scheme being the Shell Overseas Contributory Pension Fund (aka SOCPF), has consistently been targeted by scammers due to the lack of advice requirements to transfer away. Unlike a UK defined benefit scheme, this scheme does not require FCA regulated advice to transfer away.
Lack of regulation can often lead to a lack of transparency, with some advisers charging up to 7% commission: not so great for the member who is often unaware of these fees. If you have one of these schemes and require advice to transfer your scheme to an alternative arrangement, it is imperative that you deal with a reputable firm with transparent online reviews from a reputable company such as Trustpilot.
Which SOCPF schemes are transferrable?
Shell has several offshore pension schemes, however, the only scheme that is transferrable aside from the UK defined benefit scheme is the Bermuda scheme which is also known as the Shell Overseas Contributory Pension Fund (SOCPF).
What Options are open to you?
1. Transfer to an alternative UK scheme (SIPP)
You could consider transferring to a Self-Invested Personal Pension (SIPP). This is a type of UK Personal Pension but with wider investment powers. You can take up to 25% of your fund as a lump sum and can decide exactly how much to withdraw from the fund for your needs each year. Using this arrangement would allow you to vary the timing and amount of your cash and income to suit your circumstances. This is known as Flexible Access Drawdown (‘FAD’). The objective is that the amounts withdrawn will be mostly or entirely replaced by the growth in the remainder of the fund and that, on your death, the whole fund can be passed to your spouse.
The disadvantage is that a SIPP will always be subject to UK legislation and, as such, would be subject to certain restrictions such as the Lifetime Allowance, including the maximum PCLS payment and the taxation of any benefits payable on death after age 75.
The Lifetime Allowance (LTA)
The Lifetime Allowance (LTA) is the maximum ‘tax privileged’ pension fund that you can accrue within your lifetime. Any value you accumulate over the LTA will be taxed at 55% if taken as a lump sum benefit or 25% if taken as income. If the value of exceeds the lifetime allowance, any excess attracts a tax charge of 25% if it is withdrawn as an income (for instance from an annuity or a drawdown arrangement) or 55% if it is withdrawn as a cash lump sum.
Its current level in the 2020-21 tax year is £1,073,100 and the Government has stated that this will increase in future years with inflation (CPI).
An LTA calculation is triggered when a “Benefit Crystallisation Event” (BCE) occurs. Although a transfer into a SIPP is not a BCE, there are 13 potential situations where a BCE will be triggered. Most of these can be condensed down into the following:
- When you reach age 75 and have pension benefits that you have not yet drawn.
- If you transfer pension benefits into a QROPS.
- If you receive an increased income or lump sum from a pension over certain limits.
CLICK HERE for more information about the Lifetime Allowance
If you die before age 75, you can pass the whole value of your SIPP to nominated beneficiaries free of tax; the nominated beneficiaries could also draw income from it free of tax. If death occurs after age 75 then any payments will be charged at the recipient’s marginal rate of tax. You should note that these rules apply only to UK beneficiaries and that recipients in other countries may be liable to tax in their country of residence.
If your Cash Equivalent Transfer Value (CETV) is over the current UK LTA and you have no lifetime allowance protection, you would be subject to an LTA charge – perhaps several times between the time you first start taking benefits and age 75.
Your beneficiaries may also be subject to tax on receipt of any benefits following your death depending on their residency.
Finally, any Pension Commencement Lump Sum (PCLS) you might take would be limited to 25% of whatever the LTA is at the time you take benefits should you be in excess of the LTA. Should your pension be in excess of the LTA, your PCLS would therefore be reduced by transferring to a SIPP.
2. Transfer to an overseas scheme (ROPS)
The second option is to transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS).
A QROPS is an international pension scheme that can accept pension transfers. The major centres for QROPS are Malta, Gibraltar and the Isle of Man.
Benefits can be taken from age 55 with up to 30% available as a lump sum. Unlike a SIPP, a transfer from The Shell Overseas Contributory Pension Fund into a QROPS would not be subject to UK legislation. Your fund would therefore be free of the LTA and death benefit restrictions that apply to a SIPP.
However, in certain jurisdiction such as the US, you may have tax issues if you transfer to a QROPS. The Internal Revenue Service (IRS) does not recognize many QROPS as being ‘qualified’ pension accounts with the result that any transfers into or out of these accounts are taxable events that are required to be reported.
Any transfer of non-UK sourced pensions to a Malta QROPS would not be able to operate FAD which would pose withdrawal restrictions upon retirement.
You may consider using a Guernsey scheme which has tax treaties with many countries but not all, therefore making it a possible solution for some but not all members. Guernsey can only offer a Qualifying Non-UK Pension Scheme (QNUPS) which cannot offer FAD; you would have to draw a fixed income when you decide to take benefits. The earliest age at which you can take benefits is 55 whereas other options would allow withdrawals from age 50.
3. Transfer to a Malta QNUPS
You could transfer your benefits from The Shell Overseas Contributory Pension Fund to a QNUPS – and take benefits from age 50. A QNUPS avoids the significant tax disadvantages of a QROPS.
In fact, you do not have to retire to take benefits from a QNUPS. Equally, there is no requirement to purchase an annuity. You can draw benefits that include a lump sum of up to 30% of the value of the fund meaning that should your pension be in excess of the UK LTA, this tax-free lump sum could be excessively greater.
The fund can be used to provide an income stream for life. Whilst you cannot operate FAD, the amount that can be withdrawn each year will vary depending on your age, health and other actuarial considerations. As a guide, between 6% to 11% of the total value can be taken each year. This option does allow members to withdraw funds at an earlier age and offer greater PCLS options, however, FAD is still not available as it is a non-UK scheme.
Which option is best?
Should you wish to review your options, we are able to provide a complete analysis of your scheme and consider your current residency as well as your retirement residency destination to provide you with the correct advice for your retirement.
This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research.
The information provided is general information on the basis of our understanding of the current legislation as of January 2021. Should any of the information be inaccurate or misleading, we take no responsibility for any reliance placed on it. We recommend that individuals always seek specialist advice before making any decisions.
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