QROPS pension investors need to make sure they follow the rules about transferring funds in to their offshore pension to the letter or they could face a big bill from the taxman.

In the past, some investors have sent money overseas only to find their QROPS pension was not considered a bona fide scheme by the taxman – and they have faced massive tax penalties of up to 55% of the transfer fund value.

Due diligence is they key to a successful fund transfer – and an investor cannot leave this to a third party – especially if they are earning a commission or fee from the transaction.

The problem is confirming a QROPS is a ‘fit for purpose’ offshore pension scheme because no single body has regulatory control over QROPS pensions or the independent financial advisers who sell them.

This leaves grey areas that are down to the investor to check out.

• First stop is the HMRC list of providers – but inclusion on the list only means the scheme manager has informed HMRC the scheme is a QROPS and does not necessarily all the rules are met.
• Next, look at the credentials of any adviser – are they regulated and do they have a record of successful transfers to QROPS
• Look at the nuts and bolts of the scheme. QROPS transfer rules clearly state that at least 70% of the transfer fund must be used to pay pension benefits. Any schemes offering more that are not backed by regulators could seem too good to be true.
• Carefully check claims from advisers suggesting more than 30% of the fund can be taken as a cash-free lump sum because they clearly flout the rules.
• Examine the investment options – QROPS are registered pensions and although they have more flexible investment opportunities than a UK pension, putting money in to some types of assets breaches the rules.

These assets tend to be investments that could give a personal benefit to the pension saver – like residential property, art and antiques, classic cars, aircraft and yachts.

It’s true to say that QROPS offer expat pension savers excellent benefits, providing the scheme meets all the rules.

QROPS

QROPS have hit the headlines as the pension of choice for anyone with UK pension rights retiring abroad as the result of a misjudged media campaign by a pension provider.

AJ Bell is the largest independent providers of UK self-administered pensions, like SIPP and SaSS.

The company made an inquiry under the Freedom of Information Act to confirm that expats and international workers with UK pension rights were putting their retirement savings in to QROPS instead of their products because of what happens to cash in the pension after draw down on retirement

They did this quite magnificently by taking careful aim and shooting their foot right off.

Why? Because releasing the information as a non-QROPS provider, the company has highlighted the deficiencies in the UK pensions system and the advantages a QROPS offshore pension has for anyone who meets the criteria for transferring their pension funds overseas.

The fact that anyone who has a UK pension must invest their fund in an annuity or alternative secured pension (ASP) and have the prospect of losing that fund to the annuity provider or taxman on death is hardly an enticing sales pitch.

On the other hand, a QROPS comes with no requirement whatsoever to buy an annuity or any other investment product and is generally outside of the scheme holder’s estate for inheritance tax purposes.

The result is that a QROPS fund may be inherited in full and without tax in most cases through the scheme holder’s will on his or her death.

To make matters worse, AJ Bell then revealed that their research proved that HM Revenue and Customs was losing £1 million a day in tax as a result of the pension funds transferred out of the UK in to QROPS.

To most people, that’s a clincher not a downside of why to switch a pension from a SIPP or SaSS to a QROPS.

AJ Bell has managed to explain succinctly why anyone considering retirement planning who can, should transfer them to a QROPS – and to add insult to injury, will now presumably have to explain to their clients why anyone should invest in their products if a QROPS is on the table as a viable alternative.

To find out even more about the tax advantages and benefits of a QROPS in comparison to a SIPP or SaSS, then contact QROPS.net advisers, the worlds leading independent, regulated firms managing successful QROPS transfers around the globe.

Taking your pension offshore can open up a whole new world of investment opportunities for Brit expats and UK taxpayers planning to permanently live abroad.

Despite the recession’s iron grip giving low interest returns on savings and the tax man tightening up on cash earning interest in offshore bank accounts and tax havens fast becoming tax hells, one financial product still gives expats a chance to control their own financial destiny.

It’s no great secret in the expat world – the QROPS or Qualifying Recognised Offshore Pension Scheme.

The basics are simple – a QROPS is a pension scheme set up and regulated under the financial rules of a tax jurisdiction outside the UK.

Typically, an investor would look at somewhere like Guernsey, that has a solid regulatory framework and a low tax regime.

QROPS are not a get-rich-quick scam – they are recognised by HM Revenue and Customs (HMRC) as valid investment schemes and have to meet a range of criteria before acceptance in to the scheme.

That’s where the ‘qualifying’ and ‘recognised’ parts of the name come from.

The financial benefits of investing in a QROPS are extremely attractive for an expat.

A QROPS cuts through a lot of the UK pension investment restrictions and allows access to investments in overseas stock markets and funds, savings in currencies other than sterling.

Just like a UK self-invested personal pension (SIPPs). A QROPS investor can take personal control on the investment strategy based on his or her perception of risk.

Solving the annuity problem

QROPS solve two basic problems that investors hate about UK pensions –

§  The need to buy an annuity is removed

§  With proper inheritance tax plan, any funds left in a QROPs pension fund can be passed on when the investor dies.

These are two of the biggest gripes about UK pensions – the fact that investors face a hefty tax charge on their fund if they don’t invest in an annuity before they are 75 years old and that once the annuity investment is made, the annuity dies with the investor.

Transferring to a QROPS is cost-effective for those with pension funds of  £150,000 - £200,000 or more, but among the many QROPS products on the market, solutions exist for transferring or investing funds as low as £50,000.

QROPS benefits

The main benefits kick in after the investor has lived outside the UK for five years.

From then, the pension provider has no need to keep HMRC informed about the investor’s whereabouts or financial transactions.

 Of course, everyone has a responsibility to report their tax affairs in the jurisdiction where they live, but after the five years, an investor is considered non-resident for UK tax.

From April 2010, pension drawdown can start from the age of 55 – until then it’s 50.

Unlike a UK pension, the entire fund can be drawn as a single lump sum.

What you can’t do with a QROPS

QROPS are not a universal solution. Each person has differing financial circumstances and objectives.

No state pension can be transferred in to a QROPS, and you have missed the boat if you have already purchased an annuity with your pension.

Anyone considering a QROPS should take independent advice from a suitably qualified professional as other individual financial affairs may mean entering a scheme may not be beneficial.

Starting the transfer process

If you are a Brit expat or a UK resident planning to move abroad permanently for work or retirement, then you should give serious consideration to a QROPS.

Find out the current value of your pension – although this can wait until later.

Then speak to an advisor who can draw up a recommended scheme based on your personal situation or tell you why a QROPS may not be suitable for you.

What about the costs?

Your advisor will probably charge a fee for time and administration.

Your current pension providers will probably reduce the transfer value of your current fund to take account of their management and administration as well.

QROPS.net is a company who can offer Qrops schemes at much lower rates due to them obtaining preferential charging structures from Qrops providers. You can contact them by following this link about QROPS

The new scheme is likely to deduct an ongoing management fee.

Your advisor will be able to give you these figures in advance of any QROPS transfer.