Review your BP Pension Scheme

This article tackles the best options, and what to avoid, when you review your BP Pension Scheme.

It considers QROPS, SIPP or alternatives, and what should you look out for?

For all BP and ex-BP employees it may be appropriate for you to review your BP pension scheme as all top advisers agree. The review should be based on the current BP scheme, its deficit, your intentions, your risk and the benefits of the alternatives including QROPS and UK pensions including SIPPs.

Why review your BP Pension Scheme?

Transfer values are at an all-time high  and anyone with a BP pension scheme may wish to review their pension because of this. Will it be of benefit to you to consider alternatives to your BP pension scheme ? Read on…

The BP pension scheme has 69,000 members, of whom 39,000 are drawing their pensions, with another 18,000 who have left the company but have yet to start claiming any pay-out. In January 2014, the funding level of the BP pension scheme was at 96% which was excellent, and Members should obtain the latest actuarial valuation for more information about the current funding level.

The headlines about BP closing the BP pension scheme to New Entrants have nothing to do with those in the scheme at that date. In fact, this move improves the situation for the current members as it reduces costs going forward.

What are your options after you review your BP pension scheme?

Essentially:

1. If you are risk averse then you should probably leave your BP pension scheme where it is. It is offering guarantees that cannot be matched by transferring, and without taking risk you are unlikely to match growth rates. Further, the undoing of the scheme is not deemed of high concern by many experts as the basis of the funding calculation has been done on extremely low interest rates and low long term gilt rates. There are downsides of leaving it where it is (death benefits, etc), so you could;
2. Consider a transfer from the BP pension scheme to a UK pension (typically a SIPP) with full pension freedom rules.
3. Consider a transfer from the BP pension scheme to a QROPS (at the time of writing these are more restricted than UK pension freedom rules)

Why do so many websites suggest that a QROPS is the right answer for the BP pension scheme then?

Ok, first of all, our own website advises the use of QROPS in limited circumstances, including consideration of Lifetime Allowance, certain jurisdictions and certain circumstances. However, we are regulated in multiple countries including the UK (we are not simply a UK based adviser – we are a worldwide specialist company) and we find that SIPPs with their additional freedoms, full access, attractive benefits to beneficiaries especially children and grandchildren including the handing down of pension pots tax-free, are more often the correct answer.

Many overseas advisers give the impression that they have a connection with the UK (citing a similar named firm based in the UK) whereas actually they have no real connection with this firm, no personal regulation in the UK, no qualifications and/or no knowledge. What they have been provided with is a week’s marketing training on how to sell the benefits of a QROPS; as a result UK pensions, including SIPPs, are often immediately ruled out or disregarded, and pension members are given a list of 10 reasons for supposed QROPS benefits, covered here  .

USA Malta QROPS transfer recommendations

Of significant concern is the recommendation for those resident in the USA to transfer from the BP pension scheme , or any final salary scheme, to a QROPS usually based in Malta. The relevant independent Wikipedia page can be read on this.

This is not likely to be good advice and may have severe and future undisclosed tax consequences . This page has other links to other independent websites that support those concerns.

We are aware that there are targeted campaigns on LinkedIn and other social media in the USA, aimed at BP members to move the BP pension Scheme to a Maltese QROPS. Unfortunately, according to some Maltese trustees this will likely lead to mis-selling and potential future tax liabilities. Despite these warnings a momentum is building as more and more members transfer. Indeed, internal referrals to other members give the false feeling of strength in numbers. Nothing could be further from the truth.

If you have transferred your BP pension scheme to a QROPS before you moved to the US then there is an understanding that may be okay, but it has to be declared as a foreign trust (Form 3520-A) with all the tax implications of that status. Also, use of tax credits can be a consideration.

If you are already a US resident then the IRS will not confirm in correspondence that a transfer from your BP pension scheme to an overseas QROPS would qualify as an “eligible rollover distribution (Section 402c)”. If it does not then the transfer should be declared to the IRS and the whole amount may be subject to US income tax.

This argument has been put forward by the IRS since at least 2013. The counter-argument to this is an often expressed judicial opinion from 2011 that says that it is okay to hold a QROPS in the USA but fails to confirm the tax position. Critically, this review was paid for a by a non-independent third party who wants to encourage QROPS transfers from the UK for commission reasons.

General BP pension scheme outcome and consideration

Many of you reading this, by virtue of BP’s international profile, are expats and are being targeted to move your BP pension scheme by QROPS adverts that are mostly spurious. If you are being told that it is  “Time to review your BP Pension scheme “ you must base any decision s on facts.  There is a lot of deliberately misleading information out there on around 20 websites  to worry BP pension scheme members into a decision they make come to regret later.

Conclusion for those of you seeking to review your BP pension Scheme?

Those with the BP pension scheme are regularly recommended to move their pensions to QROPS when, actually, remaining in the BP Pension scheme or transferring to a UK SIPP would provide a far better retirement. Consideration should be given to all 3 options with Pros and Cons assessed.

We cannot recommend strongly enough, that as BP Pension scheme member, when you are advised to move to a QROPS or see adverts recommending QROPS, you need to obtain a second opinion direct from a UK regulated firm, and not the Isle of Man. Once a decision has been made to transfer your BP pension scheme, there is no reverse gear and almost no chance to recover tax nor investment losses caused by poor advice.

We have written this blog to be informative and helpful and to counter-act what appears to be a world-wide campaign on LinkedIn and social media by some firms to focus on encouraging people to “review your BP Pension Scheme and move it to a QROPS”. However, in feedback from people who now find themselves in trouble, we have found that the websites do not really mean a review, as everyone is sold a QROPS and, in the USA, this is of particular concern.

End: Review your BP pension Scheme

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 26h January 2017

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