QROPS Pension Transfers Expert Advice for Expats Provided by Live Work Abroad

(EMAILWIRE.COM, April 14, 2012 ) Maryport, UK -- There are a plethora of companies offering QROPS advice on the internet, and it is difficult to have a session on the internet without seeing links to QROPs advice articles. So, what are QROPS and what should expats know about secondary QROPS rules?

The acronym stands for Qualifying Recognised Overseas Pension Schemes and they have been available since 2006 when HMRC ( Her Majesty’s Revenue and Customs) implemented a number of changes to pensions’ legislation in order to simplify UK pensions. QROPS provide a vehicle, for those with UK pensions (either private or company schemes), into which these pensions can be transferred.

There are a number of jurisdictions across the World that offer QROPS pension transfers and the list of the schemes that are recognised is available on the HMRC website.

However, people would be well advised to read the wording on the website. Being on this list does no infer HMRC approval, despite what a lot of websites might say, as there is no approval process. This is an extract from HMRC’s website -

“Publication on the list should not be seen as confirmation by HMRC that it has verified all the information supplied by the scheme in its application. If a scheme has been included on this published list in circumstances where it should not have been included because it did not satisfy the conditions to be a recognised overseas pension scheme, any transfer that has been made to that scheme could potentially give rise to an unauthorised payments charge liability for the member”

Furthermore, generally speaking, the QROPS providers do not give financial advice to the public and so the public would normally need to speak to a financial adviser.

Some of the basic rules are as follows (and these are subject to some tweaking with some new rules expected to come into force on 6th April 2012):

• 70% of the transferred funds must be used to provide an income in retirement.

• Income for life. HMRC do not refer to an annuity but refer to the idea of an annuity and state that income “is payable until the member’s death or until the later of the member’s death and the end of a term certain not exceeding ten years. For example, a payment would not be considered to be made as an income for life if 50% of the fund was paid out one year and the other 50% in the next year.”

• Anyone that transfers their pension will need to sign an acknowledgement that they understand that they understand the tax implications of the transfer.

• The reporting period, whereby payments to members must be reported to HMRC within 5 full tax years of that member being tax resident in the UK, is to be extended to 10 years after the member transferred out of their former UK pension scheme.

• Local residents of the jurisdictions where the QROPS is based must be treated the same way for tax as non-residents that transfer their pension monies to that jurisdiction.

• Benefits cannot be accessed prior to the age of 55

What are the potential benefits?

There are numerous benefits including greater investment freedom, no Inheritance Tax charges on death for UK domiciled expats, no 55% tax charge upon death during retirement (as is the case for UK retirees who have not bought an annuity), and protection against creditors.

QROPS can avoid the possibility of being “double taxed” on income for expats should they reside where there is no Double Taxation Agreement with the UK when they retire. An extremely important issue is also foreign exchange, adverse currency fluctuations can cause havoc to retirement income.

In summary, QROPS should deliver the right pension at the right time, in the right currency, in the right format, at the right tax rates taking account of the right tax residency at retirement. It should make sure that the right money goes to the right people upon death before or during retirement.

What steps should an expat take when considering what to do with a UK pension?

The starting point is an analysis of the UK pension and what benefits it offers. Whilst the simplification rules for pensions came out in 2006, for those that have benefits accrued prior to this date it is important to understand the previous pension regimes and there are quite a few of them. Expats should look at what guarantees are provided by the existing schemes, especially private sector and public sector final salary schemes, and should ask the adviser to provide an analysis to calculate whether the transfer value offered is realistically going to benefit them, should a transfer take place. Once transferred, these guarantees are lost.

An in-depth understanding of UK pensions is essential. Therefore, it is important for expats to always make sure that their advisers have professional pension qualifications relating to pension transfer advice (i.e. G60/AF3 ) and should ask them to provide evidence of this, if need be, and always check their backgrounds and experience (the internet now provides the opportunity for people to do some research into people’s professional past).

LinkedIn may be useful to look at past experience, as may the FSA (UK Financial Services Authority register, only started in 2001) website to see if they have any UK experience and a hint of what that was, and the Chartered Insurance Institute’s member page to see if that shows up any qualifications.

It may also be a good idea to make sure the advisers are regulated in the country where they provide advice (if that country requires it – all the EU countries do!). A little due diligence by an expat can save a lot of problems later.

Should the expat and adviser agree that a QROPS is the way forward, then it is important that the monies transferred are properly managed by an appropriately qualified and regulated investment manager, which may not necessarily be the same as the financial adviser.

Future Provision

Of course, all of this relates to pension funds that have accrued in the past. It is probable that the majority of expats will not get a full state pension and will have to rely on private savings, pensions and possibly ongoing earned income in old age. It is important that the gap between the current provision and future needs is bridged and this can be the subject of a future article.

Expats should ask the adviser if they provide a fee charging structure for their service, instead of just commission only, and should not forget to make sure that the amount of commission/fees is agreed before proceeding with transaction. Advice is not free and expats should steer away from advisers that suggest it is. If a financial product offers the adviser commission, it reduces the potential returns of the investment accordingly.

For more information on all aspects of living abroad, visit http://www.liveworkabroad.com/category/live-abroad.

About liveworkabroad.com:

Live Work Abroad is a website dedicated to helping anyone with an ambition to move abroad to work. It includes tips, advice, news and information on all aspects of moving and living overseas. It also provides information for expats on financial matters, including QROPS pension transfers.

Live Work Abroad
Phil Byrne
(175) - 666 - 2441
info@liveworkabroad.com