QROPdirect: QROPS Dissected

There is an abundance of information available on QROPS, particularly online - there is good, there is bad and of course, ugly. The lasting impression from the majority of this information however, is that a QROPS Pension Transfer is unique to the United Kingdom. It is important to remember that it is in fact NOT unique. Any recognised, onshore European Union (EU) pension, whether current or 'frozen' can be subject to an offshore pension transfer. Therefore a QROPS Pension Transfer is applicable to anyone with an existing, onshore EU pension, regardless of Nationality - the key points are your tax and domicile status.

QROPdirect has taken the time to summarise this information into something that is both precise and useful. To aid you further, we have also compiled a FAQ regarding QROPS Pension Transfers. Should you wish to understand more information, relevant to your personal situation, please do not hesitate to contact us without delay


What is a QROPS Pension Transfer?

A QROPS pension transfer is a transfer of an existing or a "frozen" European Union pension into another approved pension scheme, offshore in a jurisdiction outside of the home country. QROPS means Qualifying Recognised Overseas Pension Scheme, and is a fantastic option if you are an expatriate or are shortly planning to permanently leave your home country.

The reason that a QROPS pension transfer is such an attractive option is due to the limitations and restrictions placed upon an existing or "frozen" pension. Most people have a limited understanding of their pensions and as a result are ignorant of these limitations. Once the limitations of their current pension scheme are fully understood and how a QROPS pension transfer works, it becomes apparent why people who qualify for a QROPS, utilise this option.

Under a QROPS pension transfer, a Trust will be appointed in an offshore jurisdiction with the aim of providing a cost effective, tax efficient and safe investment for its clients - ultimately their beneficiaries too. The Trust will effectively purchase a 'wrapper' that will encompass all the clients' retirement planning requirements and ensure that these investments are properly managed. Typically, the 'wrapper' that will be purchased by the Trust will be an Offshore Personal Portfolio Bond (PPB) - this bond will hold the ideal spread of investments suitable for the pension portfolio. Not only is the PPB a very effective, singular administration vehicle, but it also provides an efficient method of buying and selling investment funds within the portfolio. This is because the PPB provider transacts large volumes of investments, therefore the usual, initial spreads are avoided due to the PPB providers' bulk purchasing power.

If you are eligible for a QROPS pension transfer, it is something that you should definitely consider as the inherent flexibility and benefits far exceed the costs. It is an easy way to increase the value of your estate.

Who Qualifies for a QROPS Pension Transfer?

If you currently have a current or frozen European Union member country pension, between the age of 18 and 75, are a non-tax resident or are planning to become a non-tax resident of your home country within the next 1 year, you can qualify for a QROPS pension transfer.

Also, if you have officially worked in the European Union (EU) as an expatriate of any nationality at any time and has either now returned home or are about to repatriate, you may qualify for a QROPS pension transfer.

It is understood that a pension transfer into a QROPS scheme will become available across most EU member countries in a relatively short period of time (due to implemented EU, Freedom of Capital Law).

However, should you wish to maintain your tax residency and domicile status BUT you still want to enjoy a pension that benefits from an investment in international funds and that is managed for you under the safety of a Trust - we can transfer your current pension into a Self Invested Pension Plan (SIPP). Note, although a SIPP is managed offshore, due to the tax residency status of the holder its growth and income are subject to domestic taxation. Please contact us to discuss the concept of a transfer into a SIPP.

What are the Benefits of a QROPS Pension Transfer?

The benefits of a QROPS pension transfer are numerous, and can be depend upon the jurisdiction chosen. However, the basic benefits can be summarised as follows:

• No specific requirement to purchase a poorly performing annuity
• Tax-efficiency (this alone, will generally cover all the QROPS costs)
• Higher flexibility of investment across many international funds
• Assets can be held and payments made in many currencies - reducing risk to fluctuating exchange rates
• Consolidation of multiple pension's into one fund
• All assets within the QROPS are distributed to your Named Beneficiaries on death
• Inheritance Tax Free
• 100% control over investment after 5 years - subject to the 'spirit' of the jurisdiction requirements, i.e. non-withdrawal of 100% of funds

If you consider these offshore benefits versus keeping your Pension on the mainland, you can now begin to understand why a QROPS is potentially so beneficial.

What are the Costs of a QROPS Pension Transfer?

The costs of a QROPS pension transfer depend on the value of your existing Pension. If you consider costs as a percentage of the absolute pension value, then the higher the pension value, the lower the costs.

Each specific QROPS scheme varies and has different costs and flexibility. Generally, costs are comprised of three components:

• A fixed setup cost (to set-up the Trust/transfer-in of the pensions)
• An annual 1% management cost (QROPdirect)
• The underlying fund charges (Trust management)

Given the benefits of a QROPS pension transfer, the associated costs should not be the consideration. The key thing that needs consideration is the flexibility and restrictions of the QROPS scheme that you are transferring your current or "frozen" pension into. These restrictions and fund charges depend upon the chosen jurisdiction. Due to the fixed setup costs, it is generally advisable that pensions in excess of GBP50 000 be considered. If you have multiple pensions you can combine these to reach this figure or if your value is a little less, you can always make an additional contribution. Remember, that a QROPS offers a tax-efficient structure with diverse funds and a flexibility that generates a better return.

QROPS Jurisdictions

One of the most important considerations of a QROPS is the jurisdiction of the QROPS pension transfer. You need to ensure that it is safe, secure and operates using sound financial principles: some jurisdictions have a higher tax charge or even more restrictions than your domestic country. There is also a risk that the jurisdiction could be removed from the recognised, approved list. For example, Singapore was recently removed from the UK HMRC's approved list of jurisdictions. Therefore, you should carefully consider the jurisdiction that you want to transfer your pension into.

The most popular jurisdictions include the Isle of Man & Guernsey. This is due not only to their strong investor principles but also because they have well established financial and investment security laws. These jurisdictions have also worked closely with the UK HMRC in particular, to ensure both a robust QROPS framework and operating ethic. Thus, wherever you are in the world or how often you may move, you know that your pension will be safe.

The Pitfalls of an Existing UK Pension

Each existing scheme is limited both by UK pension regulations, as well as the specific regulations that govern the individual pension scheme. The regulations and most common limitations can be summarized as follows:

• You have to take an annuity by age 75, or face an 82% tax charge on your fund
• Annuity rates in the UK are very low and the income drawn from the annuity is taxable at 21%
• You can take a tax free lump sum of 25% at age 55
• Pension and contributions are solely linked to UK Sterling
• Corporate pension fund managers try to grow the pension funds by slightly more than inflation. Therefore, you can only expect minimal growth on your pension value. In recent years many funds have lost significant value, meaning that people are unable to retire when they want to. In today's world of recession and low interest rates, this is even more relevant...
• There has been a pension crisis in the UK for a number of years already: due to the ageing population and more people withdrawing funds than contributing, many pension funds run the risk of being depleted before you retire. Thus, you may not have any pension at all.
• Defined benefit schemes held within the UK form part of a Company's Balance Sheet - exacerbated by the current recession, more of these funds are now in deficit. To the extent that many firms have closed and are closing their so called, 'final salary schemes'.
• If you die: 50% of the funds will go to your spouse and the remaining 50% will return to the pension company.
• If both you and your spouse die: 100% of the funds will go to the pension company. Nothing will be in your estate to pass on your legacy.

In 2006, both as part of an attempted simplification of the pension system & in response to EU law regarding 'freedom of capital', the UK Government introduced QROPS pension transfer legislation. If you qualify, this allows you to transfer your current UK pension (excl. state pension) to another approved jurisdiction with greater flexibility and less restrictions. For the first five tax years, the QROPS Trustees are required to report any withdrawals or contributions to the HMRC. However, after these 5 years they are no longer required to report to the HMRC and you will now effectively, have 100% control of your pension.

For topical & recent International News articles, please read our Pension News

Additional Concerns - UK High Earners

In April, 2009 the UK annual Budget announcement included an additional 'hit' to high earners: the full impact of which will not be felt for a further 3 years.* Anyone earning more than GBP150 000 per year will be impacted as follows:

• Removal of the personal allowance, i.e. the amount that they can earn without paying tax (this will become effective from GBP100 000 per year)
• Subject to a new, high rate of 50% income tax from 2010
• Reduced relief on pension contributions from 2011 - both personal and company contributions are affected
• 'Anti forestalling' measures - restrictions apply to tax relief on 'regular contributions only' during the interim period

There is a genuine requirement for financial planning and a QROPS pension transfer now as a result of this announcement.