Expats spend a lot of time probing the internet to find reasons for and against transferring their UK pension into a Qualifying Recognised Overseas Pension Scheme but often miss the key points.
A QROPS transfer is not just about which is the best jurisdiction or the financial centre that pays the most tax-free cash.
The relationship between where an expat lives and where their QROPS is based is much more important.
The right QROPS depends on the retirement saver’s tax residence.
Shopping for the right QROPS has nothing to do with the marketing hooks providers and IFAs try to throw out to catch clients.
They are simply trying to stand out in the market by making their products look as if they offer better features than those offered by rivals.
Four QROPS points to watch
But HM Revenue and Customs lays down the blueprint for all QROPS and all providers have to certify to the tax man that their product meets those rules, which leaves little headroom for the marketing men to make their pensions shine brighter than the rest.
So what are the selling points providers try to hook clients on?
- Best jurisdiction – Providers and advice firms will run a poll asking IFAs what their favourite jurisdiction is. The sentiment survey is irrelevant because the best jurisdiction for a QROPS retirement saver depends on their personal financial circumstances not somewhere the IFA prefers
- No UK tax on pension payments – Another irrelevant sales pitch as only a non-UK resident can invest in a QROPS, and as such they are not tax resident in Britain or liable to pay tax there. The reality is they pay income tax in the place where they permanently live
- 30% tax-free lump sum – For some retirement savers as not all QROPS jurisdictions offer this option
- No inheritance tax (IHT) on residual funds – Standard for all QROPS, but what the IFA often omits to say is the beneficiary must live outside the UK or tax is applied
Tailoring QROPS choice
The right way for expats to shop for a QROPS is to ignore the headline statements and work with a regulated IFA to draw up a short list of pensions tailored to their personal financial circumstances.
The selected QROPS should consider cross-border tax issues and investment goals first, and jurisdiction and tax-free lump sums second.
IHT and estate planning are important issues, but expats may find other offshore financial advice more appropriate.