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What advisers can do to protect clients and mitigate risk

This article is part of
Guide to Qrops and Qnups

“The main thrust of Qrops and Qnups is to provide relevant retirement benefits,” says Amin Malik, director of Delta Financial Management.

“If advisers focus on this and employ strategies that basically mirror the benefits structures of UK registered pension schemes then transfers to Qrops/Qnups can work in the individuals’ best interests.

“The role of advisers is to consider the most suitable outcome for their clients. It is therefore incumbent on advisers to consider Qrops/Qnups where suitable.

“To do the opposite and not even consider Qrops/Qnups for potential suitable individuals because of fear, risks or negative perceptions of Qrops may be as bad as giving inappropriate advice,” he says.

The key to ensuring an appropriate outcome is that advisers manage their clients’ expectations and structure Qrops/Qnups within the permitted rules published by HMRC together with exhaustive due diligence.

Mr Malik points out that even if the Qrops were subsequently removed by HMRC from its published recognised list, properly managed Qrops would nonetheless offer their clients the safety and comfort they seek.

As an example, he cites a Qrops in Hong Kong which had their HMRC approval revoked in April 2011. “HMRC announced that they were reviewing each transfer to the Qrops on its own merits.

“The Qrops that were established in ‘good faith’ as part of the provision of retirement benefits were not met with the unauthorised payment charges.”

Similarly, when Guernsey was removed by HMRC as a recognised area for Qrops existing members were able to remain in those Qrops without being subject to HMRC tax charge.

But, if payments were paid that were considered as unauthorised then the unauthorised payment charges would be applied.

Therefore it is necessary for advisers to document suitable advice for contributions to Qnups so they can illustrate the ‘good faith’ nature of the pension planning.

“Hence excessive contributions to Qnups should be avoided. Traditionally, having a pension equivalent to two-thirds of salary is acceptable,” Mr Malik advises.

“Because of funding restrictions this is often not achieved through normal pension savings via UK registered pension schemes.

“Advisers can therefore consider utilising Qnups to meet with a funding shortfall in such an example whilst keeping the advice within the ‘spirit’ of pension provision that is proportional to their clients’ wealth and the level of retirement benefits.”

He recommends it is good practice for the advisers to document such advice and supporting materials.

As a final warning, Geraint Davies, managing director of Montfort International, says: “Don’t get clients into these products unless you have taken advice independent of the provider.

“You also need to know what happens when benefits are withdrawn. It’s fine to take a client into a Qrops, but what are the consequences of when benefits are paid - such as retirement, death or disability - in not just the jurisdiction where the scheme operates, but the tax rules of the country of actual or proposed residency.”