Concerns Raised Over QROPS

Concerns are being raised that Qualifying Recognised Overseas Pension Schemes (QROPS) are misunderstood and consequently risk being missold to expatriates, according to Dion Lindskog, Head of Life and Pension Products at RBC Wealth Management.

QROPS have become a popular choice for expatriates who plan to move overseas and want to consolidate numerous pensions built up over their working life. However, they must still abide by the fundamental rules of a pension plan and provide an income in retirement. If they are marketed as merely vehicles to access a pension pot, Lindskog warns that the UK’s HM Revenue & Customs (HMRC) will come down hard on any approved territory or scheme that is seen to exploit the spirit of the rules in this way.

HMRC has already struck off Singapore as an approved QROPS territory and more recently HMRC declared that Hong Kong-based Beazley Consulting Pension Scheme did not meet its criteria as a genuine QROPS. Investors in the scheme, many of whom are British expatriates based in Hong Kong, now face a 55% penalty charge by HMRC, which would result in them losing more than half of their pension pot.

“There is currently a lot of confusion on what you can and can’t do, but it is clear that HMRC wants QROPS to first and foremost provide an income,” says Lindskog. QROPS notionally allow you to withdraw a lump sum of up to 30% tax free. But the rules on tax free withdrawal percentages do differ from country to country. “In New Zealand the rules allow you withdraw 100% of your pension. If you are going to live there this is fine, but if you do not live in New Zealand and you move pension pot into a New Zealand QROPS then this could be seen by HMRC as just a way of releasing cash,” explains Lindskog.

Other problems Lindskog has seen relate to the quality of advice given to potential QROPS’ investors. “QROPS is not the answer for everyone. It is important to ensure that the advice you are given not only takes into account the tax situation in the country the pension is moving from, but the territory in which it will be based as well as the country you plan to retire to. Lindskog says it is equally important that any advice taken should include a thorough knowledge of your current pension arrangements in order to ensure you are making the correct decision. An adviser who does not, say, understand the intricacies of a UK defined benefit scheme may result in the wrong advice being given.

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