A recent survey of offshore financial advisers by Skandia International shows that three quarters of them expect to sell more QROPS over the next year.
Member of UK pension schemes have been able to transfer their pensions into a Qualifying Recognised Overseas Pension Scheme since 2006, when QROPS were introduced as part of the government’s pension simplification initiative. Compared to the high numbers of Brits emigrating every year, QROPS have had relatively low take up rate, due to the high fees that providers charged when the schemes were first introduced, and a lack of awareness among investors.
However, now fees are far more competitive (just £500 per annum for some QROPS), and Brits who are heading overseas are becoming more and more savvy about ways to cut their tax bill.
The Skandia survey asked advisers why their clients were considering QROPS, and tax efficiency came out top. This is not surprising, as paying at least 25% in UK income tax on your pension when you no longer live there is not a very attractive proposition. QROPS allow their investors to receive their pensions free from UK tax, as long as they live outside of Britain for at least 5 years following the transfer. Of course, they will be subject to tax where the QROPS is based, but many offshore low tax jurisdictions offer the schemes so their investors’ tax bills are minimal.
The second most popular reason to get a QROPS was wider investment choice. Offshore investment bonds, mutual funds, stocks and share and cash were the most popular underlying investments (in that order of preference). However, other asset classes are permitted and investors’ advisers can shop around for schemes that will accommodate their asset preferences.
The next factor that advisers cited for getting a QROPS is the ability to avoid the UK’s compulsory annuity rule. In the UK, pension scheme members must buy an income bearing product by their 75th birthday – a rule that does not exist in all of the countries where QROPS are available.
Finally, the Skandia survey showed that QROPS investors had transferred their pensions as part of their inheritance tax planning. With the opportunity available to pass assets directly to beneficiaries on an investor’s death, it is possible to distribute a QROPS without paying IHT anywhere in the world.
