When QROPS (qualifying recognised overseas pension schemes) were introduced back in 2006, their potential should have been immediately apparent. Here was a solution to effectively free up the pension pots and the wealth ambitions of thousands of Britons living, working or planning to retire abroad. However, when has anything associated with pensions ever been that simple?
The scandals that have plagued this entire corner of the financial services industry have served to taint any legitimate amendments and improvements made to pensions, such as the introduction of QROPS. People find it very difficult to trust changes to pension rules or those who offer advice about retirement financial planning as a result.
Unfortunately those associated with the QROPS industry haven’t exactly helped. As we highlighted in our recent report ‘QROPS: Legitimate Offshore Pensions Not Tax Avoidance Solutions,’ those who have attempted to flout the rules and/or manipulate them for unacceptable means have resulted in QROPS pension warnings becoming common. If you want to avoid the threat of losing over half your pension pot by getting it wrong when you transfer your pension offshore, what should you do?
QROPS Pension Warning – What Can Go Wrong?
If you get the transfer of your British pension wrong, you really do risk losing up to 55% of it to the taxman. This is not an empty or ‘worst case scenario’ threat…
The reality of this scenario was highlighted when HMRC block banned all QROPS in Singapore, and hundreds of expats were believe to have been affected in exactly this way. I.e., apparently they received a demand from the taxman for between 40 and 55% of their pension pot because they had ‘illegally’ transferred it.
Those who had taken the advice of financial planners and moved their British pensions into schemes invested in Singapore discovered that they had inadvertently moved their money into non-qualifying schemes.
Imagine if that happened to you!
HMRC gave no warning that it was going to de-list all schemes in Singapore because they failed to meet their strict and clear qualification rules (as defined in Section 150(8) and Section 169 of the Finance Act 2004.) As a result they gave pension scheme holders no chance to rectify the problem by instead moving their money elsewhere for example.
HMRC was heavily criticised as a result, because the vast majority who moved their money to Singapore allegedly did so in good faith, on the basis of what they believed was ‘best advice.’
However, the way HMRC saw it was that Singapore was clearly not a qualifying jurisdiction according to the very clear rules in place. Therefore anyone who had moved their money to a scheme in the jurisdiction had done so knowing that they were benefitting more widely than they should have.
The handling of this entire situation sent a shockwave through the QROPS industry, and made expats much more suspicious of these perfectly legitimate, and often hugely beneficial schemes as a result.
Once again however, it was a case of bad advice being given, and people trying to bend or extend the rules.
The Latest QROPS Pension Warning from HMRC
The latest jurisdiction to come under the taxman’s scrutiny is Hong Kong…however, expats should take heart from the fact that HMRC has made an ‘unprecedented’ offer to members of a banned Hong Kong QROPS by offering to exempt members from the 55% tax charges.
Why? And why the difference between how they have handled those invested in Singapore and those invested in Hong Kong?
Well, according to industry commentators, it’s believed that if a QROPS transfer was done for an unquestionably valid reason then HMRC will treat a policyholder fairly – but if there is any suspicion that a transfer was made or a jurisdiction was picked in an attempt to get round the rules, the taxman will come down hard on scheme members.
Latest Illegal QROPS Activity to Avoid
Despite the fact that there are many legitimate gains and advantages that you can potentially benefit from if it is deemed appropriate for you to transfer your British pension into a QROPS, as we highlight in our beginners guide to QROPS, some always want to see how far they can bend the rules.
The latest illegal QROPS related activity to be aware of apparently relates to some advisers suggesting expats transfer their pension into a QROPS that allows them almost instant access to their funds.
So-called ‘smash and grab’ QROPS are being promoted by unscrupulous salespeople apparently – and it’s just one more pension warning for expats to be aware of.
How Can You Protect Your Pension?
The bottom line for expatriates is ensuring that their pension is correctly invested to suit their current financial and taxation status, and to benefit them most significantly when they come to retire.
Therefore, QROPS can be ideal solutions for many expats…
But, how can you ensure you get the right advice, that you choose the right jurisdiction, and that any scheme you select remains on the right side of HMRC’s rules?
Despite the fear created by all the QROPS pension warnings mentioned, the fact of the matter is, if you seek best advice from a legitimate financial adviser you’re likely to be on the right path. What’s more, if you make sure that any QROPS identified as potentially suitable for you meets HMRC’s qualification criteria, you’re doing the best due diligence you can.
If you go to the International Pension Simplification section on HMRC’s pension FAQ, you can read all about how schemes are reviewed and accepted by the Audit and Pension Schemes Services (APSS). You can even download the application form that a scheme’s manager has to compete to register their schemes as a QROPS.
The Qualifying Recognised Overseas Pension Scheme Form APSS 251 lays out the rules for qualification such as: “At least 70% of a member’s UK tax-relieved funds will be used to provide an income for life.”
In taking the time to do this research so that you understand how a QROPS has to work to meet HMRC’s rules, you will be in the best position possible to review the suitability of any advice you’re given by a financial adviser.
Finally, in our report ‘why offshore financial planning is critical when retiring abroad’ we explain why expats really do need to review their pensions.
Despite QROPS pension warnings, qualifying recognised overseas pension schemes can be the best way for expats to invest their retirement savings.
Obviously you need to ensure you get best advice from a qualified, regulated, experienced, recommended and independent financial adviser before you make any final decision – and you can back up the advice by doing your own due diligence into any scheme suggested.