A Qualifying Recognised Overseas Pensions Scheme is one of the first options to reveal itself when an expatriate starts to research the best way to handle their pension savings, pending a move overseas. Many within the expatriate community already have them, while some considering a future move abroad may be actively looking into taking one out.
However retirement pension planning for those who are intending to live and work overseas is a very complex area and while a Qrops can provide greater flexibility for overseas workers in terms of investment choices and the payment of benefits, some aspects do require far closer examination in order to ensure their total suitability.
By definition a Qrops will not only allow its member to move their UK pension to another country, and in doing so benefit from the tax advantages they can offer, but it will also provide a freedom of movement which will better suit those who may find themselves having to change jurisdictions, sometimes several times throughout their career.
These benefits will see many expatriates having already converted their pension to a Qrops in order to take full advantage of the added flexibility they allow, while many more will doubtlessly be considering doing so especially with the value of the current market now expected to grow from £5bn to £10bn in the next three years.
However, as with many financial products, a one-size-fits-all approach does not exist. A Qrops is not for everyone and people need to be aware that things can, and sometimes do, go wrong.
One of the biggest potential pitfalls from a Qrops can come from exit penalties and transfer fees that can be attached to such a scheme, and which can often be hidden in the small print. Some Qrops providers are not particularly transparent when it comes to stating their transfer fees, and so these can come as a nasty shock should the need to transfer the funds to another jurisdiction arise.
For example, anyone previously in a Guernsey-based Qrops will know all about the need to transfer when such schemes become prohibited, and in the case of Guernsey some of those affected will have already experienced some fairly eye-watering exit and transfer fees.
There are however some providers on the market which do not charge any exit or transfer fees, and in order to locate these specialist assistance and support from an independent expert, such as The Qrops Bureau, is recommended.
Another potential pitfall associated with a Qrops is the commission that is often payable by the investor for the privilege of holding one. Traditionally Qrops have offered pension investors a choice of offshore bonds, however, with the landscape shifting and the relationship between the two now changing as we move more towards a multi-platform offering, the use of an offshore bond can expose the client to two separate layers of charging – one for the top wrap, the Qrops, with a second on the offshore bond itself.
By using a platform these costs can be significantly reduced while still providing the client with exactly the same tax advantages available through a Qrops.
Using a platform is one of the most efficient ways of investing within a Qrops as not only will many clients already have become used to the functionality that a platform can offer while living in the UK, but a strong existing affiliation towards a particular platform may already exist. Investors should also be given access to more than one platform.
Another area that people should also be wary of is the choice of jurisdiction itself, and to make sure that it is suitable for their specific needs. It is worth emphasising at this point that the jurisdiction that people are moving to does not have to be the jurisdiction in which their Qrops is held, as long as the scheme follows the rules stipulated by HM Revenue & Customs.
In terms of third party jurisdictions, Malta and Gibraltar are within the European Union, both are considered to be well regulated and are names that people know and consider trustworthy within the industry.
It is also worth emphasising at this point that Qrops schemes are not regulated by the FCA because, by their very definition, they fall outside of the UK’s jurisdiction.
The FCA has been scrutinising the UK Sipp market for some time now, including analysing the underlying investments, in particular in relation to Ucis or esoteric investments. The FCA has also sought to introduce new disclosure requirements for providers, as well as advisers, in relation to transacting these types of investments within Sipps. However the FCA’s objectives for protecting clients’ pension pots could still fail as those that are minded to do so could look to circumvent the new rules by simply transferring their funds into a small self-administered scheme or Qrops – something that should neither be allowed nor tolerated.
I strongly believe that there could be more of a joined-up approach applicable to both UK and overseas schemes. In the meantime, and in the absence of such a joined-up approach, I would strongly urge advisers and clients alike to seek out jurisdictions and Qrops providers that operate similar regulatory standards to the UK, including those providers that also have a UK presence.
So in summary, obviously the main reasons for moving funds left behind in the UK to a Qrops still remain the same: the potential to avoid the 55 per cent death tax for any clients that have been resident abroad for five or more years, as well as the mitigation of any currency risk by having the Qrops denominated in the same currency as the country where the client is resident.
However they do have their potential pitfalls and the biggest mistake that can be made is to assume that they are the right product for everyone who is looking to move or retire abroad.
Adam Wrench is head of product and business development for London & Colonial.
BOX OUT
One of the first ports of call should be the HMRC website where you can check that your proposed Qrops is listed. However it is also worth emphasising that HMRC does state that the listing of a Qrops on its website should not be seen as a recommendation under any circumstances. Due diligence is still essential and you should always carry out your own investigations.
Key points
Some aspects of Qrops require far closer examination in order to ensure their total suitability.
A potential pitfall associated with a Qrops is the commission that is often payable by the investor.
There could be more of a joined-up approach applicable to both UK and overseas schemes