There are many considerations for those looking to transfer their UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS). Although the transfer into a QROPS has many advantages with regard to tax-efficiency and flexibility, one wrong choice and the penalties can be huge.
This does make the QROPS landscape appear to be rather overwhelming and full of potential pitfalls, however with the right advice, these concerns can be alleviated.
If the transfer is not conducted in accordance with the regulations imposed by HMRC, or if the scheme is suddenly excluded meaning the funds must be transferred elsewhere, the penalties can be severe. This is why it is important to select the right jurisdiction from day one.
Popular destinations currently are Ireland, Australia, Gibraltar and Malta, and these jurisdictions all have a huge variety of schemes for each appetite. Because of their close ties to the UK, and the similarities in terms of the financial regulatory board and economic structure, these destinations are never likely to fall foul of any HMRC changes, in the same way Hong Kong did not so long ago.
As well as choice of jurisdiction, the main objective is to make the transfer financially viable. For those at the smaller end of the scale in terms of capital saved into a UK scheme, the charges related to the transfer may make it impossible to reap the benefits moving forward. For those with larger amounts saved, this factor becomes irrelevant.
The final decision for UK pension holders is when to make the transfer. Which point in time represents the ideal moment to take savings from the UK pension scheme, already so heavily burdened with a billion pound deficit? The answer would appear to be as soon as possible.
By the time April 2015 comes around, the Budget – most likely the coalition’s last – will make yet more announcements relating to the UK pension market, and there is a chance that in return for some favourable announcements this time around, they will be more targeted at trying to keep millions of pounds from leaving the country each year, in the pension pot.
Couple that with the fact that a General Election will be held in May, the new government – most likely a Labour one – will have very different ideas, and very different concerns relating to the pension landscape of the UK.
There are five million expatriates form the UK living elsewhere in the world, and this number looks set to double by 2025. For a country already in huge pension deficit, the idea of allowing millions each year to be taken out simply makes no sense as they try to somehow grow the pot.
Simply delaying workers retirement ages is not going to be enough, pension restrictions are inevitable eventually. It is for this reason that QROPS enquiries across popular financial institutions globally have trebled in the last six months, according to an industry poll.