It is common knowledge that you need to save some extra money for your retirement to account for stuff getting more expensive. In fact, Michael Caine the famous British actor has an interesting quote that goes: “Save your money, you’re going to need twice as much in your old age as you think.” Now in order to protect pensioners from inflation that drives the prices up and the value of money down, the UK government has put in place certain “guarantees” or safety locks to ensure increasing prices don’t translate to a loss in purchasing power for pensioners. These safety guarantees are referred to as the Triple Lock and were introduced in 2011 by the Prime Minister at the time, Mr. David Cameron. As the name suggests, the Triple Lock ties the State Pension to two variables and one baseline component, the highest of which will translate to an increase in the State Pension.
So the two variables are the rate of inflation and the average increase in earnings, and the baseline is 2.5%. What this means is whichever is the highest is how much the State Pension gets increased to. For example, if inflation is 10%, and average increase in earnings is 4%, the State Pension increases by 10%. However, if inflation is only 2% and average increase in earnings is also 2%, then the State Pension will increase by the baseline component, which is 2.5%. While a lot of pensioners feel the State Pension is not enough to maintain their current standard of living post retirement without additional private pensions, a lot of people also feel the Triple Lock system is unsustainable due to the high levels of inflation in the UK economy.
What’s even more disturbing is the fact that many feel like the Triple Lock could lead to a collapse of the entire State Pension system, leaving millions of pensioners with no source of income. That being said, however, the intentions behind the Triple Lock or good, of course. If inflation is too high, pensioners get a matching increase, if inflation is low but people are making more money, pensioners get to enjoy the economic benefits, and if neither is above 2.5% pensioners still see an increase in their earnings. These locks were put in place because pensioners are the most vulnerable to economic shocks and are unable to take additional jobs or work extra hours in the face of such difficulties. The current State Pension is about £128 billion pounds for the financial year 2023-24 and is set to reach £158 billion by 2028-29.
Many believe this to be unsustainable and that the triple lock will be removed at some point even though it will be quite an unpopular decision. This is also why the majority of people in the UK have private pensions to fall back on.
What is 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. This greatly benefits Indians who have worked in the UK and want to move back to India. Since they have made regular contributions towards a pension fund in the UK, the government allows them to transfer their pension funds to compliant pension schemes in India registered as QROPS.
When can you opt for QROPS?
You can opt for QROPS if you have a pension fund in the UK which you wish to transfer to India, under the condition that the Indian pension fund you choose to transfer to, is registered as QROPS with HMRC.