Considering a Qualifying Recognised Overseas Pension Scheme (QROPS)? Dion Lindskog, Head of Life and Pension Products at RBC Wealth Management, offers his top tips on some of the issues you should consider before deciding if a QROPS is the right option for you.
- Can you? This should be your first question in order to ascertain whether your current pension arrangements allow you to transfer into a QROPS.
- Should you? A QROPS may not be the answer to every expat’s pension dilemma. Consider issues such as your age. Is now the right time? If you are, say, under 40 should you be paying higher charges of a QROPS over a potential 20 year period for something that is doing a similar job to what you may have now? What are your long term plans? Would a Sipp be a better option?
- Take appropriate advice. You will need to use an adviser experienced in QROPS investments. Check the adviser not only has a thorough knowledge of the pension legislation and local scheme arrangements in a wide range of countries, or at least in the ones appropriate to you, but who also has detailed knowledge of the tax consequences in moving pension benefits between these countries.
- Be clear about the scheme details. Does the scheme fulfill HM Revenue & Custom’s criteria in spirit as well as to the letter of the rules? What does the scheme allow you to do and what benefits does it give? Do these benefits abide by the spirit of HMRC’s notion of QROPS? Joining a scheme in a country where you are not resident simply because it offers more access to your pension pot may be deemed to fall outside the spirit of HMRC rules.
- Where is the QROPS based? How well regulated is the jurisdiction where the QROPS is based and how seriously do they monitor scheme providers and QROPS legislation? Typically, good QROPS jurisdictions will not only abide by HMRC rules, but also endeavour to produce their own additional codes of conduct and legislation.
- Will your current country of residence affect your decision? For example, many scheme providers will not accept transfers from the US. Also, Canada does not recognise tax free pension lump sums. So if you are going to live in Canada and plan to invest in a QROPS, you should consider taking any tax free lump sums before you leave the UK. ExpatMoneyChannel Tip: If you are going to live abroad, then you’ll need to get to grips with filing local tax returns. DIY tax software packages such as TurboTax Canada are increasingly popular and offer an easy route to compliance. Shop around to get the best package to suit your needs.
- Are there any tax implications? For example, the UK is currently looking to make potential changes to the way pensions are calculated. This may favour a move to QROPS, particular for larger pension pots. Transfers out of UK registered pension schemes are tested against the lifetime allowance (LTA) and any amounts transferred above your lifetime allowance are subject to a tax charge of 25%. The LTA was reduced from £1.8m to £1.5m as from April 2012. Also check on whether there is a dual taxation agreement between the UK and the country you plan to retire to? If so, look at which offers the better tax benefits on retirement. It may be the UK regime is more favourable.
- What are the costs? For larger pension pots or expats with suffering a currency mismatch, the higher costs associated with establishing and running a QROPS may be worthwhile. That said, costs are coming down, with more providers now offering ‘vanilla’ QROPS products for expats who require less customised QROPS versions.