QROPS Guide 2018
Contact us today for a fee-free initial discussion regarding your QROPS advice needs; be that starting a new QROPS or helping to better manage the QROPS that you’ve already got. We’re fee based, not commission based thus you can rest easy knowing that we’ll be acting in your best interests at all times. With more than 10,000 clients all over the world and more than 30 awards won, there’s no better firm to help you with your UK Pension Transfer to QROPS advice.
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A QROPS – (qualifying recognised overseas pension scheme) is an overseas pension scheme. HM Revenue & Customs (HMRC) has permitted the transfer of a UK registered pension scheme to a jurisdiction outside the UK, on the basis that the QROPS adhere to strict rules to allow for QROPS status to be sustained – thus UK tax laws have set out a detailed criterion that needs to be fulfilled before applying under the scheme of QROPS. That includes: the foreign jurisdiction should maintain same or equivalent standards as of the UK pension and the pension cash cannot be accessed until the pension holder has reached the age of 55.
The QROPS scheme gained prominence after the new pension rules were introduced by HMRC back in 2006. Every fortnight HRMC issues ‘ROPS’; a list for qualified schemes. Money cannot be transferred to a Pension scheme that is not part of the list.
People living overseas or prospective expats may opt for the QROPS when –
- They want to receive their pension in the country they plan to retire
- They want to keep a track of changes in the taxation laws and other regulatory changes that are taking place in the residing country – holding the pension locally may better facilitate achieving this objective
- They want to convert secured pension benefits (final salary pension) to flexible pension benefits
A QROPS can provide a mechanism for an individual to better manage their pension fund investments. It allows for the combining smaller pensions into one large fund. Taxation death benefit advantages over and above that of a UK SIPP remain, most notably the possibility for beneficiaries to receive a tax free lump sum even if the pensioner dies beyond the age of 75. In the case of a UK SIPP, beneficiaries to a pension are taxed at their marginal rate where the pension holder dies after the age of 75.
Of course, the suitability of a QROPS will always be dependent upon country of residence. An informed, qualified financial adviser will assess the personal and financial position of the expat to analyse the suitability of QROPS in the country specific case.
POTENTIAL BENEFITS OF QROPS
- Pension income will not be assessed for UK income tax.
- Pension fund investments (or switches between investments) will not attract capital gains tax.
- QROPS not subject to UK IHT or tax on beneficiaries even where death occurs beyond the age of 75.
Management of funds
- Allows for management of pension assets in accordance with individual investment needs
- Global funds can be assessed; diversified portfolios can be built on varied asset classes with specific investment themes accessible e.g. ethical investments.
- Flexibility with respect to the available investment options with limited constraints.
- Avoidance of exchange rate fluctuation where a currency conversion is made.
- Availability of 30% tax free lump sums payment under the scheme of QROPS as compared to 25% in the UK at the minimum pension age.
- Elimination of the requirement of investing in an annuity plan or accept scheme pension.
A Typical QROPS fee structure maintains the following cost tiers:
- Trustee QROPS Fees– Initial upfront plus annual fee
- Basic Platform Charge– Generally a percentage of the invested fund on a per annum basis.
- Commission charges– A percentage of the invested fund on a per annum basis over a period of certain years – which funds initial adviser commissions of up to 15% of fund value. QROPS are available with zero commissions, however, zero commission structures are seldom used by international financial advisers (AES International work exclusively on a non-commission basis)
- Ongoing Fund charges– The underlying cost of mutual funds, ETFs, etc. on a per annum basis
- Ongoing adviser charges– Usually a percentage on per annum basis depending upon the provision of pro-active services.
QROPS charges and fees should be transparent, however, they very seldom are. Where possible, always choose to work with a fee-based financial adviser, providing advice on QROPS.
THE OVERSEAS TRANSFER CHARGE (OTC)
The OTC was introduced on 8th March 2017 in the spring budget by the UK Government. The OTC is charged at the rate of 25% on specific transfers to and from QROPS. There are some complexities to the OTC, therefore it is recommended that professional financial advice is sought in order to ensure that your transfer does not result in a 25% tax charge.
KEY EXPAT QROPS CONCERNS
Although thousands of people have already chosen to transfer to QROP schemes globally, expats are recommended to take legal and financial advice before initiating pension transfers to QROPS. Common issues or concerns in this respect can be related to:
- Lack of transparency in fees charged
- Hidden commissions
- Lack of proper genuine, independent guidance on the merits of utilising QROPS
- QROPS failing to generate expected investment returns (a very common issue – often due to the hidden costs and charges which drag on investment returns)
- Uncertainty about their interaction with local taxation rules in the foreign country.
These problems can be addressed by:
- Proper structured guidance from qualified (and regulated) financial advisers.
- Making use of the appropriate QROPS jurisdiction (or indeed making use of a UK SIPP).
QROPS AND THE LIFETIME ALLOWANCE
A transfer to a QROPS is a Benefit Crystallisation Event (BCE) thus if someone is close to the Life time Allowance, a QROPS can be used as part of a client’s Lifetime Allowance mitigation plans by virtue of the fact that the pension will never again be tested against the LTA – irrespective of how much it grows in the future.
We’ve just touched on some of the key areas that anyone considering a transfer to QROPS should be aware of. If you are considering transferring your UK pensions to QROPS, or indeed have already transferred your UK pensions to QROPS and are not satisfied with the investment returns that have been generated, speak to us. As fee-only, non commission, fully qualified advisers you can rest assured that we will act in your best interests at all times.
Contact us using our contact box on the right and we will endeavor to get back to you within 30 minutes.