The poor old pension industry in the UK and those who advise on it seem slightly confused, and perhaps even a touch disgruntled. And who could blame them? For decades they were able to ride the crest of an unchallenged wave, fantastically covered by pension rules meaning that investors (their clients) had no option other than to agree to place their savings into stagnant annuities.
But once the forced annuity option was done away with, financial advisers and annuity providers must’ve feared the worst. Financial advisers would need to learn some new advice, and annuities as a product were basically cast adrift.
To make things worse for the UK’s pension advisers, more changes to legislation have created even more confusion, and the onslaught which has followed has left the majority unsure of what to advise to their clients, particularly for those with plans to get out of the UK.
Expats Should be Careful
Expats with UK pensions in place have, since 2006, always been well-advised to consider the benefits offered by a Qualifying Recognised Overseas Pensions Scheme (QROPS). But now the raft of reforms introduced to bolster the tax take on UK schemes have, in some UK adviser’s opinions, meant that QROPS are now unworthy of consideration.
This view simply serves to illustrate the huge gap in knowledge that exists in the UK. For so long the pension market in Britain has required no new ideas to be taken onboard in order to effectively advise clients. Times have changed now though, and although it is true that certain aspects of QROPS will be mirrored in the UK as of April 2015, to completely overlook QROPS as an option for expats is tantamount to poor advice.
UK advisers are no longer allowed to advise non-residents, and for good reason. A qualified international financial adviser has all the necessary familiarity with the issues faced by expats, whereas for the majority of UK-based financiers, this is far from the case.
So, while it is true that the scrapping of the UK pension annuity requirements, increased access options and no inheritance tax have meant that these benefits are no longer exclusive to QROPS, there are three other massive advantages which have always been more central to the appeal of a transfer overseas.
These benefits are also aspects of QROPS that will certainly never be available in the UK.
Top Three Benefits of QROPS
If you hope to retire in, for example, Spain in 20 years, why would you leave your pension in sterling and thus open to any currency fluctuations that may be to come over the next two decades? A QROPS will allow the finds to be transferred into Euros – or any major currency – and therefore mitigate any uncertainty surrounding exchange rates.
Depending on where you choose to retire and where you hold your pension, you are able to benefit from a 30% tax-free lump sum, and the potential for the remainder to also be tax-free, or taxed at a rate as low as just 2.5%. This varies across jurisdictions, but an international adviser will certainly be able to offer a far more tax-efficient retirement strategy than anything in the UK.
A specified and tailored investment strategy can be devised between you and your adviser. As much or as little of the fund can be invested, and in a wide array of asset classes. Diversification, constant performance reviews, and the ability to change the investment strategy are all features of a QROPS which – for those keen on seeing their pension pot grow –will be of appeal.
So for expats across the globe who are perhaps still tied to a UK-based adviser, it may be worth remembering that a local expert may have more experience in dealing with the issues faced by a modern-day non-resident, not to mention the fact that UK advisers shouldn’t be advising overseas clients in any case.