Over the last few months, TailorMade has run a hugely successful series of blogs called 10 reasons to use a QROPS – Facts and myths. It has focused on the selling of QROPS by multiple websites using inaccurate or partial information to “sell a benefit” that may not exist.
We say hugely successful as they have been one of our most visited and re-tweeted series of articles, with feedback from both the public and the professional financial community who had also come across many of the issues we highlighted.
10 Reasons to use a QROPS
Outcome – Myth – Increased Investment Flexibility with QROPS is largely used as a method to get clients away from proper regulation, enabling the sale of unnecessarily expensive investment bonds, unregulated/illiquid funds or institutional structured notes (also known as structured products). Please note the common thing is that they all do is make the salesperson a lot of money through undeclared commissions.
Outcome – Myth – Unfortunately, many offshore websites that promote QROPS do not mention that there is no longer a requirement to buy an annuity at any time in the UK. Even worse, the suggestion that QROPS do not force you to buy an annuity is almost always combined with mentions of high death taxes (the abolished 82% tax on death after 75) or Inheritance Tax (the abolished 55% tax on death, and also the 1 year transition of 45% tax that has also been abolished).
Outcome – Partial Myth – QROPS have to follow significant reporting rules, HMRC has the ability to tax non-UK individuals if the status is removed and the latest rule changes will enforce trustee regulation overseas. Given all of that, then there needs to be a more robust and genuine reason for a transfer than just “Leaving UK Pension Legislation Behind”. HMRC have a long arm! For those that return to the UK, despite their pensions being offshore, their pension will be treated for tax in the UK as if it had never left.
Outcome – Myth – There may be genuine reasons for considering a QROPS but increased flexibility is not one of them! The best that can be hoped for is that eventually QROPS will have the same flexibility as UK pensions, as currently since April 2015, UK Pensions are far more flexible than most QROPS.
Outcome – Partial truth – We agree that the statement in itself in not a myth, but why is it used purely for QROPS or ROPS? Do not be tempted to “consolidate your UK pensions into a QROPS” unless you understand your objectives and a proper analysis of all the fees has been undertaken. In most historic cases, people have found out that to “consolidate your UK pensions into a QROPS” has resulted in substantially reduced pension incomes for many and they are now forming action groups.
Outcome – Partial Myth – The pension deficits in the press are giving rise to a considerable amount of poorly informed opinion and decisions; they are a convenient sales angle used to concern clients into taking an action that may not be necessary as other options including cheaper UK pensions should be considered, or leave small funds where they are; ironically transferring to a QROPS could put people’s funds at more risk with less protection than if they left pension funds in the UK. There is no correlation between the use of a QROPS and pension deficits, and one does not assist the other, and should not be sold as the only solution. Once guaranteed benefits are transferred they are lost.
Outcome – Myth – UK/British pensions are regulated according to legislation with trustees and advisers having a fiscal responsibility and pension regulators and ombudsmen and a compensation scheme to enforce protection. By moving a pension to a QROPS all this is lost, and the only people taking control of your pension is the offshore adviser and QROPS trustee- certainly not you!
Outcome – Myth – UK/British pensions are not frozen. Indeed, frozen pension plan options are only a reality in the minds of people trying to suggest a frozen pension is the reason to move a British pension overseas advertising, with little regard for the facts, promotes QROPS on this basis.
Outcome – Myth – On death before 75, there is no tax on UK funds. For money purchase pensions the whole fund can be paid in cash to the beneficiary. Over 75, the spouse, for example, can leave the fund intact with no tax and take the option of a taxable income ( locally and not 45 % UK Pension tax) . On the death of the spouse, the grandchildren can take tax free income up to their allowances, or children or other beneficiaries can inherit a tax free pension fund in the UK. Pension funds are taxed in the hand of the beneficiaries since April 2015. We suspect no one will pay 45% on the pay-out if they take professional advice.
Outcome – Partial Myth – Most people, and non-UK advisers are unaware that many UK pensions are not limited to 25% (many pre 2006 pensions have much higher PCLS or protected PCLS in place) and a move to a QROPS to get 30% is unnecessary. So, if you are in a position where a higher figure is available if not transferred, it may result in more tax being paid than otherwise by transferring and certainly higher charges and costs. Also, not every overseas jurisdiction allows the taking of 30% PCLS without restriction or without tax implications in the countries your pension and you reside.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 3rd February 2017
- 10 Reasons to use a QROPS – Facts and Myths Summary
- 10 Reasons to use a QROPS – facts and the myths – Frozen Pension Plan Options (3)
- 10 Reasons to use a QROPS- the facts and the myths (1)
- 10 Reasons to use a QROPS. Facts and Myths, QROPS Increased Flexibility (7)
- 10 Reasons to use a QROPS- QROPS do not force you to buy an annuity (9)
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