Have you noticed how everyone’s talking about pension transfers? From the heavyweight media like the Telegraph to many expat websites, the acronym on everyone’s lips seems to be QROPS.
These so-called offshore pensions were first introduced in the 2004 Finance Act in the UK, and came into effect from Pensions A Day on April the 6th 2006. QROPS stands for qualifying recognised overseas pension schemes, and as a concept they are schemes that are backed by HM Revenue and Customs. Theoretically they are suitable for Britons living abroad or who choose to retire abroad, and who want to take their pensions abroad with them.
The rules were brought in to make pension transfers simpler for pension holders, and to make the whole transfer process more transparent and traceable for the British taxman. The bottom line for the taxman being, he didn’t want anyone who transferred their pension from the UK to take benefits they were not entitled to in the UK! Having said that, QROPS do bring plenty of potential advantages to the pension holder who’s living abroad…but at Expatra we do feel that pension transfers as a concept are being a little too heavily promoted, perhaps to the detriment of some expats.
Why You Cannot Rush Your Pension Transfer Decision
Transferring your pension to a QROPS is absolutely not a decision to be taken lightly. A great deal of research and consideration has to be done by the pension specialist you choose to review your personal position.
It’s not simply a case of saying, ‘oh yes, I’ll move my pension to a QROPS’ and then picking a scheme in any old country! Rather your pension position has to be looked at holistically before a decision can be made about whether a transfer really is the best option for you.
QROPS now exist in many nations worldwide. They exist in countries favoured by British expats for relocation such as New Zealand and Australia, they exist in tax havens like Jersey and Guernsey, and they all seemingly offer alternative benefits and advantages that makes them difficult to choose between on paper.
However, you have to look even beyond the jurisdiction in which they are based and the benefits they offer in order to determine whether you would be right to transfer your pension. Just because you’re living abroad now, or you plan to retire abroad for example, that doesn’t automatically mean a QROPS or a pension transfer is right for you.
The bottom line is that QROPS are not right for everyone.
Key Considerations to Research Before You Commit to Transferring Your Pension to a QROPS
As mentioned above, a lot of research has to go in to ensuring that a pension transfer is the right course of action for an individual.
You are very strongly encouraged to consider engaging an independent financial expert to review your position, because quite frankly, the breadth of research required to make the most informed choice is beyond that which most of us have even the time for, let alone the ability to easily research in depth.
Such an adviser will need to look at your current pension, the terms you signed up for, any penalties you may incur if you transfer, any additional benefits you may miss out on if you transfer, all future projected or guaranteed benefits and charges, as well as the costs of a transfer and the ongoing costs of a QROPS.
They have to assess any current and future benefits that you could enjoy with a QROPS, taking into account not only your current and/or planned future nation of residence, but what could happen to your pension and the benefits you enjoy from it if you were to relocate again, or even repatriate back to the UK.
There are many known factors and criteria they can assess such as defined benefits and charges – but also the unknown aspects of your future need to be explored, such as what returns you could enjoy with a given investment path, the future tax rates you may be exposed to, and your future financial position and the demands you may need to make of your pension pot.
Why Are Pension Transfers Being So Heavily Promoted?
In all honesty there’s money to be made from pension transfers. Just as any independent financial adviser working abroad may receive commission when they help a client open a savings policy or choose a particular investment path, so any adviser who helps you to transfer your pension will receive commission.
Therefore pension transfers are a new business line for financial advisers. But don’t let that fact alone put you off exploring whether a transfer is right for you – because a good adviser who takes on the job of carefully researching all your options will actually earn every penny of their commission!
As you can hopefully appreciate from what is written above about the considerations that need to go into a QROPS review, a good financial adviser will need to spend a lot of time and effort assessing whether you as an individual will benefit from a QROPS or not.
And whilst probably the majority of expats and would-be expat retirees can benefit, there are those who absolutely can’t…and in such cases an adviser will have to say that a transfer is against their recommendations, and walk away with no payment.
So, good advisers who do all the research and help you make the most of your pension earn their commission – however, because this is a new business angle for advisers, there are some out there who are overselling the benefits of QROPS. They are the ones who don’t do the research and who just ask you to sign up to a QROPS transfer with little or no exploration of your pension position and options.
Such advisers are relatively easy to spot, they make recommendations fast and loose, they don’t take the time required to go away and research everything, they don’t come back with a suitability letter laying out your entire position and all the considerations you now need to bear in mind before making a decision…and their entire focus the whole time is getting you to commit to their single recommendation to transfer to a QROPS!
How to Find Independent Advice About Pension Transfers
If you’re an expat already and you have a tried and tested financial adviser with whom you’ve happily worked in the past, speak to them about whether they have the expertise to give advice about QROPS.
Not all advisers have the skills and qualifications required to undertake the breadth of research required to make an informed recommendation.
Your alternatives include utilising a relatively new service that has been launched called Qrops Choices – this independent service has been set up by expats who themselves struggled to find decent advice.
It puts you in touch with a qualified adviser from their list of tried and tested, regulated and independent brokerages. Your chosen adviser calls you to undertake a fact find to gather all the information they need to research your options. They then go away and undertake all the research detailed above, and present you with your so-called ‘suitability letter.’
This is presented in the form of a personalised QROPS/pension analysis report, which details all the considerations covered, all findings determined, as well as the adviser’s recommendations about whether you should consider a transfer, and if so, which QROPS you should consider transferring to.
The advantages of the service include the fact it’s free and no obligation, it’s been established by expats who’ve already been in your position, and because the adviser you speak to is not under pressure of targets or commission levels for example, you’re not put under any pressure to take the advice given.
The report even presents any negative aspects of a transfer you should consider as well!
If you’ve already explored QROPS with another adviser and you’re unsure whether the information you’ve been given is right for you – Qrops Choices also offers you the chance to get a second opinion.
If you don’t already have an adviser and you don’t want to utilise the free, no obligation, expert service suggested, you could seek the recommendation of a friend to find a qualified adviser, or do your own research into whether a pension transfer will be right for you and your family, as well as your finances and your fiscal future.
Whatever you do decide, do not rush or be rushed into a decision about a transfer until you have seen all the evidence about what a pension transfer will mean for your personal financial position. You need to weigh up the pros and the cons…