QROPS and America: Receiving right advice of paramount importance

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Written By Saeed Maleki

For many individuals living abroad, QROPS are tax-efficient transfers for UK pensions which can maximise pension income.

Yet for USA residents or citizens, choosing the right advisor for the transfer is of especial importance.

QROPS for Americans

Many independent financial advisors (IFAs) are unwilling to advise on QROPS at all, claiming that the schemes are “no good” for American citizens.

This is in spite of similar claims in the past leading the Financial Conduct Authority to chastise IFAs for potentially mis-selling – as they were not disclosing all available pension transfer options.

The reticence may be due to the fact QROPS are a relatively new entrant in the financial services market; having only been in place since 2006. In addition, there have been many well-reported changes to the system in order to tighten up the offering and protect clients – which makes many IFAs wary.

Lastly, QROPS transfers for USA clients are particularly complex, due to US authority’s regulations, laws, and stringent reporting requirements.

But by choosing an international financial advisory abiding by US regulations, a person can confidently avoid these unnecessary charges – and enjoy the benefits of the British pension they have earned.

Problems and solutions

To outline the complexities, for a QROPS for an American citizen, the scheme needs to be registered in a jurisdiction with a suitable double tax treaty, such as Malta.

If this is not the case, the QROPS provider does not need to report the underlying growth to the US authorities, which can cause substantial interest and tax penalties.

Yet even if the QROPS meets this issue, the client needs to have collected enough foreign tax credits to offset the transfer and make sure it is not classed as a ‘taxable event.’

The last factor to consider concerns how the US authorities view QROPS – namely as a trust – which means both the individual and trustee needs to annually report on the fund to the Internal Revenue Service.

This ensures the individual will never face the associated tax penalties.

Choosing the right advisor

John Cassidy of the QROPS Group states “It is important therefore that an advisor does not follow the “one-size-fits-all” model of thought. An independent, US-regulated firm with international experience will have the understanding to choose the right option for you, no matter the size of your fund, your nationality, or your final destination”

A QROPS adviser will be able to outline all the above considerations, including the annual reporting requirements, and can confirm the correct option for your needs.

This means, as an American citizen, you can enjoy your UK pension fund in a tax-efficient, safe, and regulated manner.