Don’t blame Qualifying Recognised Overseas Pension Scheme (QROPS) for the financial woes of retirement savers – it’s the way advisers and some providers sell them that lead to problems.
QROPS are like any other regulated financial product.
HM Revenue & Customs (HMRC) in Britain lays down strict rules as a blueprint for how a QROPS should work for an investor.
Every QROPS has to abide by these rules, regardless of the provider and advisor, but with this level playing field comes the tweaking of advice and products to give some schemes an edge over others as a unique selling point.
This is where the problems come.
Pension age test problems
The recent demise of the Australia QROPS market came about like this.
For years, Australia was the world’s leading QROPS centre, with more than 40% of all the pensions registered there in June 2015 – 1653 pensions in total.
But no one seemed to have noticed the rules changes in April 2015 to disallow the transfer of pension relieved contributions in the UK to an offshore pension where someone under the age of 55 years old could withdraw payments.
This was the new pension age test.
Overnight, 1652 QROPS were delisted by HMRC as they breached this rule.
That doesn’t make QROPS a bad pension product, but does pose some questions about how providers interpret the rules and how advisers sell.
55% tax penalties
Australia has strict financial regulation that does not allow offshore, unregulated or unauthorised advisers to discuss pension options with clients.
If they are regulated and authorised, these advisers should maintain their knowledge and skills with regular training – yet some carried on helping clients switch their money from UK pensions after the pension age test was introduced.
HMRC makes clear to QROPS investors that they are responsible for checking that the scheme they are transferring their UK funds into is obeying the QROPS rules.
This makes consulting a regulated IFA in Australia all the more important as they will have an ombudsman procedure for settling grievances and professional indemnity insurance for paying out compensation if they are found to be giving poor advice.
Anyone transferring UK pension funds to an Australia QROPS since April 6, 2015, has likely fallen foul of the pension age test as superannuation funds can make payments to under 55s.
The penalty of taking unregulated advice is a fine of at least 55% of the value of the funds transferred – plus the cost of taking questionable advice.