QROPS Pension Advice
QROPS: stop look and listen
As long as you have the right advice, getting a QROPS pension should be as simple as crossing the road. All you have to do is stop, look and listen.
Stop
The first thing to bear in mind is whether you want to stop paying UK income tax if you are living abroad. As an expat, you have a unique opportunity open to you – a Qualifying Recognised Overseas Pension Scheme. QROPS were brought in during 2006, and enable members of UK pension schemes who live abroad to transfer their pension assets to approved foreign schemes.
Not only are QROPS exempt from UK income tax, but most are also exempt from UK inheritance tax. Accordingly, they may offer the chance for some serious IHT planning.
You will of course fall into the tax regime of the new country you inhabit, but choosing the country that you live in is something that is under your control.
Look
Does a QROPS sound tempting? If it does, now is the time to look around for a solution to your retirement planning needs. Or more accurately, now is the time to look around for someone to find that solution. An independent QROPS adviser with access to the whole of the market is ideally placed to sort through the thousand or so available QROPS products and find one that meets your needs.
When looking around for a QROPS, you may want to bear in mind:
- the tax implications of where it is based. Guernsey is a popular QROPS destination because it is tax neutral and does not demand tax on pensions. Instead, the tax is left to the country where the investor resides;
- the flexibility the QROPS offers you. Does your QROPS offer you the chance to take lump sums as and when you want to? Does it allow transfers in and out of particular assets? These are questions that are may be important to you if you are planning to chop and change the assets that you want your pension scheme to own; and
- what currency is the QROPS held in? One of the disadvantages of continuing to have your UK pension scheme is that currency fluctuations can lead to uncertainty about how much your pension is actually worth.
Listen
Now that you are considering the options that your QROPS adviser has put in front of you, now is the time to listen to his advice about which one to pick. On one hand, it may be tempting to go with the QROPS that offers the cheapest fees available. After all, in your retirement you may be on a fixed income and therefore concerned about keeping costs down.
However, there are other issues to be weighed against this. For example, your QROPS adviser may have a view on the tax efficiency of the proposed schemes, and the likely performance of a particular product. Accordingly, you may wish to consider a number of issues before you take the plunge.
QROPS Pension
Offshore Pension Scam Secrets Revealed
Offshore pensions, including QROPS Pension, mean big bucks for pension providers and advisors overseas, and some of them are prepared to play dirty tricks to get their hands on your cash.
A simple web search returns thousands of pages of offshore pension information – and some is more than dubious.
The fuss centres on special offshore pension schemes called a QROPS Pension – that is short for Qualifying Recognised Offshore Pension Scheme.
HM Revenue and Customs (HMRC) agreed that UK expats retiring overseas could transfer their UK pensions in to a QROPS pension to make accessing their money simpler.
HMRC has a list of ‘approved’ providers and has already banned UK pension companies from transferring cash to any of their counterparts in Singapore.
Tax authorities on Guernsey have also had to review their QROPS pension rules after pressure from HMRC over loopholes that allowed expats to draw out their entire pension fund tax-free.
The scammers’ strategy is based on the QROPS five-year rule – basically this says that any QROPS pension provider receiving cash from a UK pension scheme has to report any cash withdrawals to HMRC for the first five complete tax years of the scheme.
If the investor is found to have taken out more than 30% of the entire fund, then a tax penalty of 40% can be levied for an unauthorised withdrawal plus up to an extra 15% in surcharges.
After the first five complete tax years, the QROPS provider does not have to make any report about the benefits paid to HMRC unless the investor has returned to live in the UK.
This gives the dark side of financial advice a window to work in that is closing a little more every day.
Some advisors suggest that investors can draw down the entire pension fund tax-free – that is a good incentive to someone who might have to pay a 55% tax penalty on a £1 million pension pot.
The trouble is a lot of unscrupulous advisors say wait for the five tax years to tick away and then transfer your QROPS on to another tax jurisdiction – HMRC will never know because the QROPS provider has no obligation to tell them unless you have gone back to the UK.
In return for this advice, the investor often pays high fees and charges to his or her advisors.
The problem is they are making their money from the fees now and leaving the investor to face the music should the HMRC find out, because the investor has the tax liability to report and pay the tax, not the advisor.
Other firms come up with complicated trust schemes; similar to those that had Guernsey rethink tax policy at the behest of HMRC.
The QROPS investor sinks all their pension cash in to a trust and then collapses the trust and takes all the money out tax-free.
Again the advisor picks up their fee and leaves the investor to explain what has happened to the taxman.
The truth about QROPS is they are designed to give an expat the same tax benefits while living overseas, as he or she would gain from investing in a UK pension.
It is fair to say a QROPS also gives an expat some extra benefits over a UK pension scheme –
- The requirement to buy an annuity is removed
- Freedom to invest in a wider range of markets, products and currencies is built-in to a QROPS
- With good estate planning, because the pension fund does not buy an annuity, the fund can be passed on to the investor’s family and loved ones
The problem with QROPS is greed. Investors don’t want to pay tax and if someone can persuade them they can take their cash out tax-free before retirement age – for a fee of course – then a lot are only too willing to listen.
In the end, honesty is the best policy and taking quality QROPS pension advice from an experienced UK regulated QROPS pension advisor is the way forward avoiding the scams, rip-off artists and outright crooks who take their fees and run.
In these days of technology, international money laundering collaboration and double taxation treaties, investors trying to con the taxman out of his dues only have a limited number of places to hide.
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