Qualifying Recognised Overseas Pension Schemes (QROPS) have been dogged by controversy for years, with many financial advisors either mis-selling or completely avoiding the product.
Yet the QROPS – i.e. the product – is not at fault, and the blame lies with incompetent and sometimes unscrupulous financial advisors who did not undertake the due diligence before recommending a scheme.
These unethical practices have given the pension transfers a tarnished reputation. And whilst the sporadic implementation of QROPS rules have been evolving fast in an effort to make the system safe, it has made keeping up with developments hard for financial advisors.
However there is light at the end of the tunnel. In order to stop any further misunderstandings, two important changes have been put in place this year which are revolutionising the QROPS market.
Firstly, QROPS providers are now required to report any income taken from the transferred fund for ten years to HM Revenue and Customs (HMRC) – thus doubling the previous requirement of five years.
Secondly, the Retail Distribution Review now covers some QROPS – and so advisors will have to consider them for their clients or potentially face a mis-selling claim.
Both these developments spell good news for clients interested in these schemes; serving to both tighten and police the market.
They demonstrate how these authorities are investing their time and money into making the sector safer for clients, and how firms which do not participate correctly could potentially be penalised.
Future of QROPS
The recent changes could also be linked to the rising demand for QROPS pension transfer.
The current potential of the market is pegged at £281 billion – but so far only £6 billion has been transferred from the UK by advisers.
HMRC would do well to iron out further kinks before the number of transfers increases. As not only is the current market huge, but the move abroad by many Britons to sunnier climes shows no sign of slowing.
As the market grows, the experience of all independent financial advisors will sharpen. Each QROPS case is different – depending on a multitude of variables including the jurisdiction where they live, the amount to be transferred, and their plans for the future – and so each case will positively affect the experience of advisors.
QROPS, when properly advised, are widely regarded as a viable product with huge benefits. The two recent regulations will ensure a firmer ground for QROPS for clients and advisors alike, and as a result confidence in the market should grow in line with demand and experience.