QROPS guide for Indian Pension Plans (Schemes)

For Indians living abroad and planning their retirement back home in India, a pension fund is a critical aspect of that plan. What it is, is essentially a fund which you invest a regular sum of money into during your employment years in order to draw payments from once you retire. For non-resident Indians returning home, the government offers a number of tax benefits on pension schemes, depending on your plan of course. In fact, Section 80C of the Income Tax Act, 1961, covers several retirement plans and taxpayers are eligible for tax deductions of up to Rs.1.5 lakh.

QROPS schemes in India

For NRIs returning from the UK in particular, India currently has about 14 Retirement Plans from four different vendors that are recognized by the HMRC as valid QROPS schemes, each of which, like every other pension plan in India, has two phases, accumulation and distribution. During the accumulation phase, you pay premiums throughout the tenure of the plan, and the maturity benefits are saved up to be used only after retirement. In India, you also have the option of investing in market-linked plans where the accumulated sum is invested in the stock market.

Did you know that the Bombay Stock Exchange (BSE) was established in 1875, making it the oldest stock exchange in Asia? Additionally, it’s also the largest with over 5,500 listed companies and still among the top ten most valuable exchanges in the world. This is only one of our stock exchanges and India has a total of 23 where fortunes are made (and sometimes lost) by the minute. For the more cautious investors, there are also schemes with fixed benefits that are not linked to the stock markets. These schemes offer fixed interest rates of up to 10.5% with guaranteed returns.

Indian Pension Schemes

So while the UK is still dealing with an economic slowdown caused by Brexit and other factors, the last thing you want to do while moving back to India is not bring your pension fund with you. Getting back to the topic of Indian pension funds, when you’re through the accumulation phase and are ready for income distribution is when things get interesting since you have a few options of how you would like to get paid.

1. Immediate:​ This is when you decide to retire by the time your accumulation phase is done and you start receiving a monthly pension immediately. This also called immediate life annuity and while the payout is higher, it only covers your lifetime. There are also options like “joint-life” where your spouse’s lifetime is also covered, or with “return of purchase” where a death benefit is payable to a nominee as a lump sum in case of your untimely demise.

2. Immediate with 33% withdrawal:​ This is the same as immediate except when you decide to retire, instead of receiving the entire amount as a monthly pension, you decide to withdraw a lump sum of 33% immediately and receive the rest as a pension. This is a good option for someone who wants to start a small business post-retirement, or would like to invest in more lucrative options. The same single-life, joint-life, and return of purchase options are available here as well.

3. Deferred:​ This is when you decide not to retire, or for some reason to postpone your annuity and let it accumulate for a few more years. This is for anyone who wants to further build up their pension fund before the distribution phase or for anyone who just wants to continue working. The United Nations Population Division claims overall life expectancy is expected to go from the current level of 65 years to 75 years by 2050, which means more retirement years to plan for, best to plan early. The same single-life, joint-life, and return of purchase options are also available here.

To further elaborate the Single Life, Joint Life, and Return of Purchase Options:

Single Life

The annuity will be payable in arrears as per the payment frequency chosen by you, for as long as the annuitant is alive. In case of the death of the annuitant, the annuity payments will cease and no further benefits will be payable

Joint Life

The annuity will be payable in arrears as per payment frequency chosen by you, for as long as either of the primary or the secondary annuitant is alive. On the death of both annuitants, the annuity payments will cease and no further benefits will be payable

Single Life with Return of Purchase

The annuity will be payable in arrears as per payment frequency chosen by you, for as long as the annuitant is alive. On the death of the annuitant, a death benefit is payable as a lump sum to the nominee and no further amount will be payable. Upon payment of the death benefit, the policy shall terminate and all other benefits shall cease.

Joint Life with Return of Purchase

The annuity will be payable in arrears as per payment frequency chosen by you, for as long as either the primary or secondary annuitant is alive. A death benefit is payable as a lump sum to the nominee in case of the deaths of both annuitants. Upon payment of the death benefit, the policy shall terminate and all other benefits shall cease.

For Deferred Annuity, all the above is applicable except the annuity is paid after the deferment period.

Pension Transfer from the UK to India through QROPS

QROPS or Qualifying Recognised Overseas Pension Scheme, is an overseas pension scheme that is in compliance with specific guidelines and requirements set by HMRC or Her Majesty’s Revenue and Customs. Such compliant schemes are eligible to receive transfers from United Kingdom (UK) Pension Benefits without incurring any unauthorized payment or scheme sanction charges.

In April 2006, the HMRC introduced QROPS for individuals with UK pensions who are moving permanently away from the UK and would like to take their pensions with them. This means anyone who has contributed to a Registered Pension Scheme in the UK can transfer their pension fund to India through QROPS. This includes Occupational, Final salary, Defined benefit, Defined contribution, Self-invested personal pension, and Small self-administered scheme.

While a number of websites claim this process can take up to 6 months, Mr. J Noble Yuvaraj and his team of financial advisors have been helping people transfer their pensions and plan their retirement since 2008, and can get the job done in 30 days. Pensions transferred to India through QROPS avoid any unauthorized transfer penalty, loss due to currency fluctuation, and a 55% death tax in case of your demise. Additionally, it’s a lot easier to keep track of taxes and regulations back home so you can spend more time expanding your investment portfolio.

Choosing the best Pension Plan

An important fact to remember is that while a lot of schemes claim to be compliant and even feature on the HMRC official site, not all of them are, and HMRC does not take responsibility for verifying if schemes are actually compliant. This is why it’s important to contact us so we can help you select the best Indian Pension scheme that’s HMRC compliant based on your age and risk profile.

We believe every customer’s requirements are unique and deserve a tailor-made approach as opposed to an online form or template. We take great care and deliberation to ensure that every “i” is dotted, and every “t” is crossed as the guidelines set down by HMRC are quite strict and applications being rejected is quite common.