It is obviously extremely tempting as an expat to transfer your UK pension to a QROPS. Given the uncertain pension landscape, and with reforms currently being thrashed out in a back room of 11 Downing Street, many are choosing to act now rather than sit tight and hope they get the result they want in relation to their savings.
The biggest advantage of QROPS is that the arrangement is free of UK tax regulations, this means that a QROPS member can benefit from a boost in pension income – especially if in a low-tax jurisdiction like Malta or Cyprus – and tax-efficient death benefits for spouses and any relatives left behind.
There are a few things to be aware of however. A QROPS may not be for everyone, particularly those with pension pots at the smaller end of the scale. Despite the tax benefits, there are fees attached to the transfer, set-up costs and annual charges too. These don’t detract from the huge savings on tax in comparison with the UK, but they are something to be aware of.
As well as that, it should also be noted that there is a potential currency risk taken when turning to QROPS. Usually a saver would choose to invest using the currency of the jurisdiction they currently inhabit, therefore mitigating any risk when it comes to currency conversion upon drawing on pension.
The risk is actually related to the potential for currencies to move in terms of value quite considerably. For example across the last 5 years the Euro has fluctuated against the Pound by over 30%.
The final consideration should be that in many cases HMRC have been forced to withdraw qualifying status of some funds. If the status is revoked due to conditions not being met, members could face a 55% loss of their savings. 40% represents an unauthorized payment charge, while the remaining 15% is listed as a surcharge.
Anybody thinking of trying to consult the HMRC published list of qualifying schemes should be aware that the list is often out of date and has previously included schemes due to have their qualifying revoked. Although potentially a useful guide, it is by no means definitive.
A consultation with a Financial Advisor would be advisable in order to be able to gauge whether a QROPS is the right way to go, and – if it is – the right jurisdiction to place it in based on the requirements.