Your IndustryMar 8 2013

The pros and cons of Qrops/Qnups for clients

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“Qrops are great in the right situation – but a disaster if advised incorrectly, as would a UK product sold to a Qrops candidate in the situation where a Qrops was actually the best solution,” Geraint Davies, managing director of Montfort International.

“Anybody who is a candidate for Qrops must get quality advice,” he insists, “and first timers [advisers] should always be supervised.”

He suggests that advantages inlcude better tax rates in some jurisdictions and that if a client has a Qrops and lives in the UK then 10 per cent of any income drawn should be tax exempt.

A potential major disadvantage is not being able to return the scheme to the UK and that some overseas tax regimes impose contributions limits, while others tax schemes in the accumulation phase.

Amin Malik, director of Delta Financial Management, adds further benefits for clients:

• no restrictions to fund size for funds accumulated in Qrops;

• higher contributions can be paid to Qnups without reference to the annual allowance;

• the lifetime allowance does not apply to fund growth in Qrops or Qnups;

• Qrops/Qnups that are properly constructed and managed would be able to be invested virtually free of UK taxes and are mostly not subject to UK inheritance tax;

• Qrops providers no longer have to refer to HMRC once reporting requirements ends thus giving greater control and flexibility;

• Qrops members would no longer have lump sum death benefits referred to unauthorised payment charges once reporting requirement ends;

• higher lump sum withdrawals as only 70 per cent of funds in Qrops/Qnups will have to be designated for the provision of income for life; and

• there are a number of jurisdictions to choose from and individuals can decide the most suitable area to meet with their needs and objectives.

Mr Malik also suggests an equally long list of drawbacks for individuals:

• cost and fees are expensive and may be prohibitive;

• contributions to Qnups do not attract tax relief and employers’ contributions are not advisable as HMRC may apply unauthorised payment provisions to the Qnups;

• while charging structures for UK registered pension schemes are now clear and transparent, the same may not apply to overseas jurisdictions;

• having to wait until the reporting period ends for transfer to Qnups.

• withdrawals may be subject to local additional taxes in the country in which individuals are resident for tax purposes;

• the risks and implications of the Qrops losing its HMRC recognition;

• selecting reputable and competent advisers may be more difficult compared to advice on UK registered pension schemes especially if the advisers are unregulated;

• Qrops and Qnups are unregulated as far as the Financial Services Authority are concerned and hence individuals may not have access to investors’ protection and compensation schemes; and

• Additional probates may be required other than the one needed in the UK before death benefits can be distributed to nominated beneficiaries.