A UK pension transfer to an Occupational QROPS seems to be a new red flag in the non-UK advice sector.
So-called advisers target British expats or others who hold UK pensions, purely to get their hands on the funds under management. It is one step away from a scam, but cannot be called that because it is not strictly “illegal”. They are now hiding behind the Occupational QROPS, the latest shiny con trick.
The real question you should ask?
There are loads of decent schemes out there that are legitimate, that provide real protections, that are advised on by the “normal “ regulatory community but require proper authorisations. Why would anyone take on an Occupational QROPS?
We have so many stories of these advisers, often non-regulated or affiliated to a network without permissions to give advice in the UK, who then pile the investments within the Occupational QROPS into commission generating wrappers and investments to the point the clients rarely make a penny and often, worse, lose a lot of their funds.
Beware the Occupational QROPS
One would assume that only those working for the sponsoring employer of an occupational QROPS would be allowed to transfer their UK pensions in order to join the pension scheme. Well, that is not actually the case (for years, many were recommended to move their pensions to occupational QROPS in Hong Kong, despite having no ties (employment or residency) with Hong Kong)
Why would an Occupational QROPS be recommended (Reason One)?
Well, we need to look at the Overseas Transfer Charge and one of the exemptions, notably the exception in bold.
- Transfers to QROPS requested on or after 9 March 2017 will be taxed at a rate of 25% unless at least one of the following apply:
- both the individual and the QROPS are in the same country after the transfer
- the QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA after the transfer
- the QROPS is an occupational pension scheme sponsored by the individual’s employer
- the QROPS is an overseas public service pension scheme as defined at regulation 3(1B) of S.I. 2006/206 and the individual is employed by one of the employer’s participating in the scheme
- the QROPS is a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits in respect of past service and the individual is employed by that international organisation
- UK tax charges will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer
In other words, this could allow those not in the EEA or those in a country that does not have a QROPS avoid the 25% tax charge on transfer. Of course, there will have to be some evidence of employment to join such a scheme, despite the individual having no connection with any local employer. How will this evidence stand up to scrutiny?
Why would an Occupational QROPS be recommended (Reason Two)?
In a word, commission!
While some occupational QROPS will be in jurisdictions with tight regulatory control to protect members, that will not be the case for all jurisdictions(for example, Malta has tightened up its rules significantly recently).
A jurisdiction without such controls is not going to be too bothered about the regulation and qualifications of the advisers that it accepts business from. Further, there will be less supervision to police the investments that are sold to investors.
I have just heard of someone in an EU country that has been advised to use an occupational QROPS- despite the fact that the Overseas Transfer Charge will not apply (see above). So, I can only assume that this could be because either the advisers cannot get terms of business with a non-occupational EU QROPS, are not properly regulated or that they are trying to sell investments that would not be accepted by the non-occupational QROPS.
Occupational QROPS- Summary
If you are in the EU and plan to stay there for 5 years or move, then there is virtually no reason to consider transferring to an occupational QROPS. Any advantage you are being told about is likely to be spurious.
You can guess the motives for the recommendation. The non-UK authorised advisers is trying to get their hands on your funds so they can earn lots of money. They are doing it for their benefit, and not yours!
If you are not in the EU and have been advised to transfer to avoid the 25% Overseas Tax Charge, then I would suggest you look carefully at the documentation you are asked to sign regarding employment and take legal and tax advice before transferring.
And then ask yourself, why are you being advised to transfer at all to this scheme when there are so many other better options out there!
If, at some point in the future, HMRC decide that you were not eligible then you may face a 25% charge on the whole transfer.
We are not tax advisers and this final point is merely made to ensure you exercise caution before transferring.
Article Date 26th November 2020 –
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.
- QROPS Budget 2017
- The Lifetime Allowance – LTA QROPS and Returning to the UK
- QROPS Rules 2017 – Are the new QROPS rules fair?
- QROPS and the International Enhancement Factor
- QROPS and the Lifetime Allowance
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