The recent changes in the UK government’s tax-free allowance for QROPS (Qualifying Recognised Overseas Pension Scheme) transfers has understandably left many people wondering about the best way to safeguard and grow their retirement funds. For anyone looking to make informed decisions about where to invest now, whether to boost personal pensions or go directly into investment platforms with a manager, there are key points to consider for this and IHT

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1. Re-evaluate Your Retirement Goals and Tax Exposure

• Impact of Tax Changes: With the 25% tax-free element now abolished for QROPS, the tax efficiency of transferring a UK pension to an overseas scheme may no longer be as attractive. For those who planned to use this route for tax-efficient growth or drawdown, the changes demand a fresh look at other options that balance tax efficiency with growth potential.

• Tax Implications for Direct Pensions: Contributing to a personal pension in the UK can still offer substantial tax relief, depending on the individual's income level and tax bracket. For many, the immediate tax relief available on pension contributions can provide a more straightforward path to tax efficiency.​

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2. Personal Pension Contributions – A Potentially Secure Route

• Tax Relief on Contributions: In the UK, personal pensions offer tax relief at your marginal rate (up to certain limits). 

• Annual Allowance: The annual pension allowance (currently £60,000 for most people) allows for significant growth over time, especially when combined with tax relief. Reviewing your contribution levels in light of your current tax bracket could make a personal pension a powerful, tax-efficient vehicle.

• Investment Flexibility: Many personal pensions now provide a range of investment options, which can be managed either directly or through a professional advisor. This allows for tailored growth strategies within the pension structure.​

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3. Investing Through Platforms with an Investment Manager – Tailored and Transparent

• Flexibility of Access: Unlike pensions, funds held on an investment platform don’t have withdrawal restrictions tied to retirement age, which can be ideal if you anticipate needing funds earlier. This flexibility can make platform investments appealing for those who want to manage their cash flow in retirement on a case-by-case basis.

• Control and Customization: Working with an investment manager on a direct platform gives you access to professional management and potentially a wider variety of investments, including global equities, bonds, and alternatives. With more direct oversight and customization, you can have a strategy tailored to your risk profile and goals.

• Potential for Higher Costs: Investment platforms with a manager generally involve additional fees, which can impact returns over time. However, for those who prioritize a bespoke approach, these costs can be worthwhile.​

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4. How to Decide – Balancing Growth, Flexibility, and Tax Efficiency

• Age and Retirement Horizon: Younger investors may benefit from prioritizing pension contributions to maximize tax relief, as they have more time to allow compound growth. Older investors or those closer to retirement might want a balance between pensions for tax efficiency and platform investments for flexibility.

• Investment Risk and Return: Personal pensions are designed for long-term growth with tax efficiency, making them ideal for investors with a moderate-to-high risk tolerance and long investment horizons. In contrast, direct investments on a platform, with professional management, can be adjusted based on market conditions and changing personal goals.

• Exit Strategy and Inheritance Planning: Never has this element been so important to understand the options available to you.

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Conclusion: Combining Both Approaches Can Diversify Benefits

Ultimately, there is no one-size-fits-all answer. Combining a well-structured personal pension with direct investments on a managed platform may be the most effective approach. This diversification allows you to capitalize on the tax benefits of pensions while leveraging the flexibility of managed investments. With the recent changes to QROPS, it’s more critical than ever to consult a financial advisor to evaluate your unique circumstances and optimize both tax and growth potential.

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Next Steps for Clients

If you’re unsure about the best path, consider the following:

• Review your annual allowance and assess whether maxing out personal pension contributions might offer tax-efficient growth.

• Assess your liquidity needs to determine whether the flexibility of a platform investment suits your future financial plans.

• Consult with an investment manager who can help tailor a diversified strategy that matches your risk tolerance, retirement horizon, and new regulatory landscape.

Staying informed and proactive can ensure your retirement funds are working as hard as you do, adapting to changes to protect and grow your wealth in the best way possible.