Even returns on investment can vary hugely between different plans offered by the same providers, claims research by Money Management magazine.

The study looked at the true impact of fund charges on pension funds over a number of investment scenarios.

The results add fuel to accusations by consumer champions and trade bodies, like the National Association of Pension Funds, who are accusing pension providers of masking their costs by quoting them as percentage deductions rather than amounts on statements.

The study found someone saving £200 a month for 25 years on commission-free terms with an Aviva balanced managed fund ended with a £146,863 pension pot, but Axa’s Elevate plan charged£31,705 in extra fees on the same terms, resulting in a fund of £115,158.

Axa banks the extra £31,705 as fees.

Aegon was rated top provider for investing £500 a month over 25 years. A retirement saver would end up with a £370,599 fund – while Axa’s Elevate again came last with £290,082 after deducting an addition £71,517 in fees over the Aegon plan.

A single contribution of £50,000 over 25 years growing in a balanced managed fund at 7% per year would generate £211,354, says Money Management.

Axa Retirement Wealth paid out £36,646 more, while the negative impact of charges by Axa Elevate, saw the fund shrink by £46,096 – amounting to 21.8% of the fund – leaving a retirement saver with just £165,258 if they picked the wrong plan from the provider.

A recent report to the Treasury accused pension providers of taking an average 3.2% in pension fund charges – which totals earnings of more than £62 billion a year, regardless of investment performance.

The strict rules require companies to guarantee pensions by depositing more cash in to their funds.

The amount needed has been estimated at between £300 billion and a £1 trillion – the lowest comes from the National Association of Pension Funds, the trade body for thousands of schemes, while the highest figure was calculated by a team of specialists at JLT Pension Capital Strategies.

The ring fencing of company pensions demands employers to up their contribution efforts at the same time as most firms are struggling with economic problems and lack of capital for investment.

Joanne Segars, NAPF chief executive, said: “The overall objective to make European pensions more secure is one which we support. The introduction of solvency rules will have the opposite effect.

“Faced with extra funding demands, many employers will revisit their pension arrangements. We are likely to see is the closure of more final salary pensions.

“During these difficult economic times, Europe should focus on fostering growth and job creation. Solvency rules would not only put additional pressure on companies that are struggling for survival, but would also force them to divert money away from investment and new jobs.”

Charles Cowling, managing director of JLT Pension Capital Strategies, said that forcing employers to make additional pension contributions of up to £1trillion would be “disastrous for our economy”.

Other pension firms and financial organisations have joined Pensions Minister Steve Webb in rubbishing the solvency proposals. He called the plan a ‘nightmare scenario’.

Financial experts have warned the move could herald the end of direct benefit pensions and solvency rules designed to regulate insurance companies do not apply to pension providers.

Neither side is prepared to back down as ministers dig in their heels over proposals that will see public sector workers’ contribution rise. 29 unions joined together to strike on 30 November, but it is feared that this level of co-operation between workers’ groups may not continue as they take different approaches to the negotiations.

The UK government claims that public sector pension schemes should have retirement ages that are linked to the state retirement age. With growing life expectancy, the schemes can no longer make payments to public sector retirees for decades in a system that was designed to provide a comfortable lifestyle for just a few years.

Other sticking points include the levels of contributions required, and whether final pay outs should be based on the old final salary schemes or worked out on a career average basis.

The Public and Commercial Services Union is proving to be more militant than most. It claimed that the Government threatened to withdraw the concessions on the table which give protection to those within 10 years from retirement unless it recommended the deal to its members. Given that the union has described the proposals as a tax on civil servants, this is unlikely.

The unions generally (and very reluctantly) accept that the schemes need to be made more affordable, but it is also the pace of the implementation of the changes that is under hot debate. Some union leaders are holding out for a delay in contribution increases until 2014, but the government is seeking an incremental increase as early as next year.

MPs are only too aware of the sense of injustice felt by the private sector, whose taxes pay for what is considered to be a cushy deal. It had always been assumed that public sector workers got better pension deals because they were paid less, but Lord Hutton’s recent report found this was not the case and that public and private sector wages are comparable.

Despite 42% of affluent investors telling the firm that they aimed to improve or at least maintain their standard of living in retirement, only 46% will have the funds to pay for their current lifestyle.

Schroders benchmarked the current investment performance of 1,400 customer portfolios – and then asked the same clients how much money they expected to receive on retirement.

Based on how much money investors said they would like to live on in retirement, a target pot of €645,000 would be realistic minimum target.

Most expected to receive around 62% of their current income – but the real performance of their pension funds fall well short of their expectations by an average €475,862.

These expectations were:

• Swedish investors expect retirement income equivalent to 77% of their current income, but their pension forecast gives a retirement income of just 45% of their current income.
• British investors predict a pension that would give them the highest retirement income across Europe relative to their current income (52%)
• In five of the nine countries surveyed – Spain, France, Belgium, the Netherlands and Italy – investors predict a pension that would gives less than 40% of their current income level, even though investors in four of these countries said they wanted a retirement standard of living of 65% to 75% of their current income.

Alan Brown, Chief Investment Officer at Schroders, said: “With defined benefit pensions now a rarity, individuals are increasingly being made responsible for their own retirement provision. While many factors influence the amount of money people need to accumulate to enjoy a comfortable retirement, these latest findings suggest many investors are calling it short.

“There is a yawning gap between retirement income needs and the size of individual savings pools. Unless this gap is bridged quickly we risk a retirement tragedy where individuals have to work longer, retire poorer or both. The role of an independent financial adviser is therefore even more important in ensuring investors are working to a target retirement fund that is realistic and aligned to their lifestyle goals for the future.”

The survey did not just involve Brits, but covered the working and retirement patterns of economically active people in 17 different countries from around the world. HSBC have carried out this survey annually since 2005, and in that time they have interviewed more than 100,000 people.

The question is: are we avoiding the issue of pensions, or can we simply not afford to contribute to them? The answer seems to be a bit of both. In these economically challenging times, pay freezes and job losses have combined with higher living costs to make it hard enough to get from month to month however old you are.

Yet we all know that the longer you leave pension saving, the harder it is to build a comfortable lifestyle for retirement. It is a truism that you cannot afford to contribute to a pension but nor can you afford not to.

For those savers who are making a provision, are they investing in the right way? The HSBC report did not think so. Cash savings accounts are still the investment vehicle of choice, notwithstanding that other methods of wealth creation and asset classes have historically outperformed them.

As part of a wider discussion on attitudes to investment, the HSBC report focusses on gender differences to money and financial decision making. Women are more risk averse in every country surveyed except China, where women are prepared to take more financial risks than men.

The report does not distinguish between the habits and attitudes of those who plan to retire at home and those planning to retire abroad. But if you plan to retire overseas, the combination of foreign tax regimes and a change in your lifestyle means that retirement planning requires a higher level of sophistication.

The study looked at when those aged 18 to 24 now are likely to retire – and came up with the conclusion that most will have to work for around 50 years.

Today, men pick up a state pension at 65 and women at 60, but the government is proposing to change this to 66 years old for both by 2020.

According to the findings of the report by accountants PricewaterhouseCooper (PwC), the Department of Work and Pensions is already working on a retirement age of 68 years for men and women for around 2045.

After that, the state pension age is likely to be linked to longevity figures, and to clock up automatically every time statistics show people are likely to live longer.

Other government reports already show that of the 12.4 children aged up to 16 alive now, 3.3 million will see their 100th birthday.

A Department for Work and Pensions spokesman said: “We’ve been clear that the current timetable for moving the State Pension age to 67 is too slow due to the increases in life expectancy.

“We are committed to reviewing the date. We are continuing to look at how pension ages beyond 66 will be set, including considering an automatic mechanism.”

Ed Wilson, a PWC pensions director, has urged young adults to start saving as soon as they can for their retirement if they do not want to work long in to their 70s.

“Young people could still be working into their 70s if they fail to save independently,” he said.

Meanwhile, another report highlights how many workers face a frugal financial retirements.

The Prudential study shows one in three workers are not saving in a pension, while 43 per cent of those responding to the survey confessed they are unlikely to start saving for their retirement again because they have lost their jobs or cannot afford to save and pay their bills.

The rules changed in April – slicing a sixth off the available drawdown cash.

Pension firm AJ Bell has pressed the government to change the rate back to 120 per cent of the equivalent annuity rate rather than sticking at the current 100 per cent.

Treasury Mark Hoban has refused to reconsider, explaining the limit is to protect, not penalise, retirement savers.

Hoban also claims that another pension reform – scrapping the need for pension savers to annuitise by 75 years old – will not work with a higher drawdown limit in place.

“The change in the drawdown withdrawal rate to a single rate of 100% of the Government Actuary’s Department rate at any age was integral to ensuring this product was suitable for use over a much longer period,” said Hoban.

Hoban added that the government understands the rate change is reducing pension pay outs, but stock market falls combined with low interest rates and rising inflation are creating a false picture of pension incomes at the moment.

“In reforming pensions we have to balance freedom, fairness and responsibility,” said Hoban.

Andy Bell, head of AJ Bell, said: “From reading the response to my letter you can understand why the government would have an aversion to changing rules that were adopted as recently as April 2011. However, it demonstrates that they are failing to appreciate the strength and depth of feeling on this matter.

“We will continue to work on building the case for change and will look to evidence the depth of feeling that exists on this subject. We have two surveys running concurrently with clients and advisers and will announce the results in the coming weeks.”

Pension investments have faced a difficult few months, with billions wiped off stock markets worldwide, rising inflation and increased longevity, says Alan Carey, of the Alexander Forbes National Pension Index.

The net result is a reducing retirement pay out – and the figure has steadily dropped to the current 67.4 from an initial 100 in March 2000.

Then, the average 30-year-old expected annual contributions of 12 per cent of salary to provide an income equal to two-thirds of their final salary from the age of 65, the firm said.

That same saver could now expect an income of 43 per cent of final salary, down from 45 per cent in March 2011.

To get back on track, a retirement saver would need to invest 38 per cent of final salary, up from 33 per cent in March 2011.

But Office for National Statistics (ONS) data shows that the average total (employer and employee) contribution rate is just 8 – 12 per cent of final salary, which is two thirds of the original saving rate and a fifth of the rate required to meet original savings goals.

Defined contributions, also known as money purchase schemes, have set contributions from an employer and employee designed to deliver an income on retirement set as a percentage of salary.

Steve Watson, head of delivery, defined contributions and benefits at Alexander Forbes, said: “In the long term it is far better to stay on track with pension savings, rather than face the prospect of an impoverished retirement.

“The most important message for DC savers from the index is the importance of reviewing their projected income regularly, rather than assume that assumptions made about pension savings many years ago still hold true today, as in all likelihood they will not.”

At the same time, the pensions black hole increased by almost half to an aggregate £116 billion for all the schemes in deficit.

Two agencies monitoring pensions have revealed that the falling markets reduced the value of every UK pension by an average £2,000 in just four weeks.

The National Association of Pension Funds (NAPF) added up the cost of dropping values for defined benefit schemes, defined contribution and personal pensions.

The losses averaged between 6% and 7% for every pension fund in the UK.

Joanne Segars, chief executive of the NAPF, said: “While we have estimated that the total value of assets in pension schemes has been reduced by 6-7% over the last month, funds are long-term investments and not easily unsettled by short-term volatility.

“On top of this, they are constantly monitoring market performance and spreading their investments across many asset classes. As we can see from this week’s stock market performance, prices can rise as well as fall.”

Meanwhile, the total pension deficit black hole widened from to £67.3 billion from £8.3 billion by the end of June, says the Pension Protection Fund (PPF).

Funding ratios for the PPF7800 Index fell from 99.2% to 93.7%, with total assets at £1001.4 billion and liabilities at £1068.7 billion.

The PPF, which rescues failing pension schemes, blamed the deficits on falling share prices and decreasing gilt yields for the poor returns.

“During July, assets decreased 0.26% mainly due to declining UK and global equities, with some offset from higher bond prices. Liabilities also rose, by 5.6%, due primarily to the significant fall in gilt yields,” said a spokesman.

Around £116 billion is needed to bring all schemes in deficit in to the black – up from £77.6 billion a year earlier.

The issue is not really the rule – it’s quite straightforward – but the way some advisers and providers are selling products to unwitting retirement savers as tax solutions.

To understand the five year rule, an understanding of why a QROPS is available at all is required.

QROPS offshore pensions cam in to being on April 6, 2006 as a method of porting pension savings between financial jurisdictions for ease of access by ex pats.

The five year rule comes in here – for the first five years an ex pat is abroad, the QROPS provider has to report any unauthorised withdrawal to HMRC.

An unauthorised withdrawal is taking funds or benefits from a pension before the age of 55 years old at the earliest.

The reason for this is an ex pat is not considered a non-UK national until stacking up an absence of at least five clear tax years from Britain. During that time, any QROPS pension follows UK pension rules – but after the five years, the ex pat is deemed to have left the UK permanently and any pension income is considered taxed in his or her new country of residence.

Because HMRC no longer has a tax interest in the QROPS and the pension investor has no call on state benefits if they spend their fund, what happens next is of no concern of HMRC.

The big problem for QROPS investors is drawing down funds in the five year period. All HMRC action against QROPS providers and jurisdictions to date has related to breaching drawdown regulations governed by the five year rule.

The providers and jurisdictions at risk of losing QROPS status are those that let pension investors access funds in contravention of the five year rule. If the five year rule is broken, both the provider and the investor face fines of at least 55% of the transfer fund value in to the QROPS scheme.

The lesson for QROPS pension investors is really sit tight for five years and become an official ex pat before tempting fate and making an unauthorised withdrawal.

Equity Trust, the group behind the ill-fated Panthera ROSIIP (recognised overseas self invested international pension) took the case to court in a bid to overturn HM Revenue and Customs withdrawing QROPS status from Singapore three years ago.

Now, with their defence in tatters, Panthera’s QROPS customers face tax penalties of 55% of the value of their transfer funds for breaching QROPS transfer rules. UK pension providers who transferred client funds to Panthera may also face similar tax penalties.

The judge kicked out Equity Trust’s claims that HMRC was wrong to withdraw QROPS status from their pension scheme – but granted leave to appeal due to the financial ramifications the decision has for all QROPS schemes.

QROPS transfers broke pension tax rules

HMRC booted Singapore and the Panthera scheme off the list of HMRC QROPS providers in 2008 after suspecting some investors were withdrawing cash from their schemes against pension tax rules.

In explaining the decision, the judge agreed with HMRC that the Panthera scheme should have been open to Singapore residents to meet QROPS qualification rules, but regulators in Singapore considered it was a foreign trust and would not register the scheme as a pension, effectively closing the pension to investors living there.

Subsequently, Panthera promoted the scheme on the tax benefits offered by the trust status.

Equity Trust could show only six ‘possible’ Singapore residents invested in the QROPS and failed to persuade the judge that their problems registering with regulators arose from the Panthera rosiip being a personal pension rather than an occupational scheme.

On the web, Equity Trust bills itself as ‘the world’s leading independent provider of trust and fiduciary services with 1,200 employees operating across a global network of more than 30 jurisdictions.’

Building a financial strategy on ill-advised tax interpretations can end up costing QROPS investors thousands in unauthorised payment penalties because legally they remained UK resident and their pension switch was unlawful.

Chancellor George Osborne confirmed a statutory test for residence to ease how someone can work out where they live for tax purposes is underway.

The trouble is the law is murky in this area – and HM Revenue and Customs keep stirring the muddy waters with ‘interpretations’ that differ from statute and case law.

The latest example is the much-hyped recent announcement of a 10-day residency test.

Many are arguing HMRC will deem someone resident for UK tax if they work in the country for 10 days or more.

HMRC has stated that if someone stays in the UK for 10 days or less and has a full-time contract of employment overseas, residency status will not be challenged.

If that person stays in the UK for more than 10 days, HMRC may then want to check their overseas employment contract to show they are not resident in the UK.

The problem is this is an HMRC internal guideline that is not supported in law.

Taxpayers and advisers then interpret the statement as a rule and base their tax and financial affairs on whether they meet the qualification or not.

Best advice is for taxpayers considering a QROPS or QNUPS offshore pension to go through a tax status review as proof of residence.

This will establish where a QROPS investor is resident for tax and whether an offshore pension is a suitable retirement savings package for them.

This review can affect the choice of an independent financial adviser. A small financial firm is unlikely to have access to an international tax professional who can conduct a tax status review.

Always check residence before transferring cash because the penalty for making a mistake is severe – a fine of up to 55% of the value of the funds transferred.

QROPS.net is the world’s leading QROPS pension advice firms and has tax status specialists on call. If you want to move UK pension funds offshore, then contact us today to take advantage of the best tax and financial advice.

Equity Trust, the firm behind the failed Panthera Recognised Overseas Self Invested International Pension (Rosiip) claims the court ruling leaves the way open for HM Revenue and Customs to tackle other providers suspected of abusing pension rules.

In a statement, a spokesman for Equity Trust said that under the current ruling, any QROPS that has discretionary power to exclude applicants could be closed by HMRC.

This power is thought to be a standard clause in many QROPS pensions that gives trustees the authority to block transfers if they consider they are not bona fide – for example, to allow money-laundering.

The judge gave Equity Trust leave to appeal – and the firm claims the judge made a wrong decision.

The Panthera Rosipp was shut down when HMRC withdrew consent for Singapore to operate QROPS offshore pension schemes around three years ago.

HMRC claimed the scheme was not a QROPS because the trustees did not register with financial regulators in Singapore nor was the scheme open to Singapore residents.

QROPS rules say the offshore schemes must be regulated and open to residents in the country where they are based to qualify for recognition by the UK taxman.

Equity Trust argued their pension could not register because the Singapore financial authorities judged it was a foreign trust and not a pension scheme. They also claimed the scheme was open to Singapore residents but failed to convince the judge of this.

The financial consequences of the High Court decision affect both investors who put money in to the Panthera QROPS and the UK pension firms who transferred money as the transfers now become unauthorised pension withdrawals.

Under tax rules, both the investors and pension transferees may have to pay penalties of up to 55% of the transfer value of funds paid in to the scheme.

Contact QROPS.net for help on transferring your UK pension into a QROPS.

The good news is increasing interest rates can push up the returns from investments – especially those in a QROPS offshore pension.

The trouble is, the rate rises are coupled with increased inflation and continuing worries over the economies of Greece, Portugal, Spain and Eire.

Spain in particular has long been a favourite destination for retiring British ex pats.

Although inflation is flaring up in the Eurozone, levels are running lower than the UK’s 4.4%.

Nevertheless, anyone on a fixed pension income finds inflation of 3.6% in Spain, 2% in France and 2.5% in Italy, erodes their spending power.

Average inflation across the Eurozone is 2.7%, according to the latest figures.

On top of inflation and rising interest rates, property prices are proving to add to their financial woes.

Selling up in many countries is not easy as the combined effects of interest rate hikes, job losses and banks tightening up on borrowing mean few buyers are about, and those that are can afford to negotiate a bargain basement price for property.

For ex pats planning to stay the course in the new European homes, one way of making the best of their finances is to consider switching UK pension funds in to a QROPS offshore pension scheme.

QROPS allow investments in many major currencies, including the Euro, which takes away the stresses of currency exchange rate fluctuations having an impact on income.

They also pay out gross, leaving tax to be deducted in the ex pat’s country of residence.

Many QROPS have flexible investment options that are not available to UK pension investors.

Any UK pension funds can be consolidated in to a QROPS, although the state pension is outside the scheme and some final salary schemes will have enhanced benefits that might be difficult to replace inside a QROPS.

Transferring to a QROPS is available for any British ex pat living in the Eurozone.

For more information about transfering your pension to a QROPS , contact QROPS.net by calling the London UK office on +44 203 111 9785 or by email info@qrops.net.

Providers and advisers are mulling the effect this could have on New Zealand QROPS.

The changes take effect from April 1, 2012.

The Kiwisaver scheme was quickly becoming a financial burden for the New Zealand government and had to change.

Around NZ$1 billion a year flowing in to the retirement schemes came from the government – and much of that money was borrowed.

Economists and politicians were worried that the borrowing did not increase national savings as the inflow was cancelled out by the debt created to find the cash to inject in to the pension.

The main changes involve member contributions in Kiwisaver schemes.

• Tax credit is slashed by 50% to 50 cents on the NZ dollar contributed to the scheme

• Employer contributions will be taxed at the employee’s marginal rate from April 1, 2012

• Minimum contributions will rise to 3% from April 1, 2013

New Zealand faces a general election before April and the Labour Party opposition has not confirmed support of the changes should they take over government.

New Zealand pension analysts suggest the changes do not change the fundamentals of a Kiwisaver, but transfer the funding responsibility away from the government to employers and employees.

New Zealand QROPS are popular investment destinations for ex pats as special rules can let pension savers access cash in the pension early without tax penalties.

For more information about New Zealand QROPS and how the proposed changes may affect your offshore pension planning, contact QROPS.net by calling the UK office on +44 203 111 9785 or by email info@qrops.net.

The strategy puts thousands of pensions at risk, because the Pension Protection Fund (PPF) protects few members of final salary schemes under these circumstances.

The inquiry is underway as two private equity deals have shunned financing pension liabilities in recent weeks.

the latest was the high-profile deal involving mattress and bed firm Silentnight.

HIG Capital acquired the company out of administration after the PPF rejected a 6p in the pound and 10% of equity offer to cover pensions while trade creditors were offered 65p in the pound.

Pensioners left high and dry

The buy out went ahead despite the PPF refusal to take the offer, leaving the firm’s 1,250 employees and more pensioners high and dry.

PPF generally takes a 33% stake in a buy-out and funds the pension from selling the shares at a profit.

In April, printing group Polestar was also sold out from under the pension scheme – this time the firm’s pension scheme trustees accepted a £45 million deal over 12 years against a £500 million liability.

A PPF spokesman confirmed the regulator is investigating both companies with a view to taking action to tighten the rules.

For ex pats looking at protecting their pensions, one option is to transfer the fund in to a QROPS offshore pension scheme.

Best advice for a QROPS transfer

Key to the decision is looking at any extra benefits available within the company scheme and weighing those against the risk of the firm succumbing to a buy out.

QROPS.net professional, independent advisers can help benchmark your company scheme so you can consider your pension options by switching the fund to an offshore scheme.

In some cases, the best advice might be to keep the pension in the UK to preserve special benefits.

Doubtless, while the UK economy remains fragile, more firms will go under and their white knights will continue to exploit pension loopholes to save money.

The guide is the latest in a flurry of codes of practice for advisers and providers.

Guernsey QROPS advisers were first out of the blocks by publishing a guide at the end of March.

Recently, New Zealand QROPS experts announced they were putting together a code of practice and seminars for advisers that they hope to publish later in the year.

Advisers involved in drawing up the global guidance want to give pension investors more confidence in the advice they receive and to give independent financial advisors a QROPS advice road map.

QROPS offshore pensions are regulated by HM Revenue and Customs, with more than 2,000 registered schemes available from hundreds of providers in around 50 countries.

Many industry professionals want to act to expel poor advisers who they feel give unsuitable advice to some clients in return for charging sky-high fees.

Pension advisers in New Zealand, Australia, Hong Kong and Canada are believed to be working on the project.

Meanwhile, pension savers considering a QROPS transfer are urged to check out their advisers before committing to any transfer.

Anyone who does not match these criteria should be avoided:

• Work for a regulated firm
• Give whole-of-market advice, and not restricted product information for a single provider or jurisdiction
• Have access to professional tax and investment advisers
• Has a background of successfully completed QROPS transfers

Anyone needing help should feel free to contact QROPS.net, an established and reputable international financial firm specialising in QROPS pension advice.

Our experienced and professional advisers have a track record of successful QROPS transfers.

As a whole-of-the-market firm, QROPS.net can select a QROPS pension tailored to your personal financial circumstances.

For more information, call QROPS.net on +44 (0) 203 111 9785 or info@qrops.net

Around seven out 10 advisers (68%) are expecting to arrange more QROPS. The rest expect QROPS transfers to remain around the same levels (28%).

According to the latest QROPS transfer figure, 19,211 UK pension holders have transferred their funds offshore since the QROPS scheme started in April 2006.

For the past two years, QROPS pension transfers have hovered around the 6,000 mark.

Skandia promotes the offshore pension because they offer ex pat investors who have relocated overseas flexible investment and currency options tied up in a tax effective pension.

Skandia also expect the numbers of ex pats switching to QROPS to continue to grow next year as well.

Product and Development director Adam Wrench revealed Gibraltar’s financial regulator is reviewing the product pending approval.

He was discussing HM Revenue and Customs’ recent move to bolster QROPS anti-avoidance rules by adding a new clause to the forthcoming Finance Bill.

The clause prevents QROPS investors from claiming extra tax relief on pension contributions to financial centres with double taxation agreements with the UK.

Gibraltar is not affected by the clause as the British Overseas Territory has no double taxation treaty with the UK.

HMRC lists 11 QROPS schemes for Gibraltar, but the providers have voluntarily suspended transfers pending resolution of a tax issue between HM Treasury and the territory’s government.

Gibraltar loses ground to QROPS rivals as tax dispute rumbles on

The dispute has rumbled on for 18 months, with the Treasury insisting a 0% income tax rate for pensions needs a rethink, while the government in Gibraltar seems resolute not to consider a change.

The result is Gibraltar QROPS providers have lost ground to rivals in a fast-moving market where other financial centres like Guernsey, the Isle of Man, Malta and New Zealand have seized the initiative.

All these countries offer similar benefits to British ex pats seeking to move their pensions overseas – English is a common language, the legal system is similar to that in the UK and each has a robust financial regulation and political stability.

In a bid to distance themselves further from other QROPS providers, Guernsey has published a best practice code to aid consumer protection and New Zealand is currently working on a similar document.

Other QROPS are available – HMRC publishes a regularly updated list of global providers with around 2,500 QROPS schemes in 50 countries.

QROPS.net offers independent financial advice covering all QROPS schemes. To discuss your pension options, call +44 (0) 203 111 9785 or email info@qrops.net

Advice about your present arrangements

It may sound odd but the first thing you need to get a new pension is get out the documents relating to your old scheme. This is because there are two issues that need to be discussed.

• Will your current scheme allow a transfer to a new pension scheme?
• Is the transfer a good idea?

Some private pensions will not allow a transfer if the scheme is already in payment (although some might). For most investors, a QROPS is a good idea but for a small minority with a high final salary scheme the numbers may not add up.

Advice about your wider finances

Moving abroad may be a good time to stop and think about your wider financial situation. Your pension is obviously about long term financial planning, but could your short term finances benefit from an overhaul? If you are about to move to a foreign country, you may appreciate advice about the current accounts on offer, and whether there are any short term savings products that may suit you.

Advice about your tax bills

When your UK pension has been transferred to your QROPS, there will be no more UK tax to pay, as long as you stay outside of the UK for more than 5 tax years. However, your pension may fall into the QROPS country’s regime, and you may also have a tax bill for your country of residence.

Given that the tax situation may change if there is a new Budget of either of those jurisdictions, your QROPS adviser will need to be on the ball at all times.

QROPS in offshore destinations are popular, as they are often “tax neutral”. Your QROPS adviser will be able to give you an idea of what your tax bill might be.

Advice about the new schemes

You will also need advice about what you can and cannot do with your new scheme. When can you withdraw money? What assets can the pension hold? These are questions that you need to understand before signing on the dotted line.

The idea of a QROPS is to let ex pats transfer their retirement savings to a similar scheme in another country to simplify tax and ease access to the cash.

QROPS offshore pensions are beginning to come of age. It’s easy to forget that the first schemes were set up on A-Day (April 6, 2006) and have gone through a lot of teething problems as pension investors tried to push the envelope to see if they could find way to take their pension money early.

Over the years, the numbers of transfers have swelled to around 6,000 a year.

Some transfers have had their problems – mainly because they bucked the rules.

As long as a QROPS investor keeps three main points in mind, not much can go wrong with a transfer:

• Avoid the tax treaty trick – the loophole is closed. Work on the principle that any pension payment coming in to the UK is taxed in the same way as if the payment originated onshore.
• Don’t try and stay in the UK to take advantage of QROPS tax breaks – the plan won’t work
• Don’t set out to cheat the taxman by deliberately setting up a QROPS in such a way to break the rules

The underlying message is it’s not the QROPS infrastructure that’s wrong, it’s the way some pension savers try to tinker to gain benefits to which they are not entitled that causes the problem.

Play the game by the rules and a QROPS pension will work out just fine.

When looking in to a QROPS transfer, bear these points in mind:

• Compare QROPS from different tax jurisdictions
• Investigate the how tax interacts between the UK, the jurisdiction where a QROPS is based and where you intend to live
• Always have a Plan B – what happens to the cash in your QROPS if you have to return to the UK?

QROPS.net advisers can help you to plan for your future abroad and if/when you return to the UK. Contact QROPS.net today to find out more

New Zealand has 50 QROPS registered with the UK taxman, according to the latest list on the HM Revenue and Customs web site.

Only one firm is withdrawing from accepting international clients. The scheme is closing because the provider’s ratio of international to local New Zealand clients is out of synch.

New Zealand QROPS are popular with ex pats because some schemes offer a ‘cashing in’ facility that lets pension savers convert their funds to cash before the scheme’s retirement age.

Many cite this as a legal issue that threatens New Zealand QROPS. The fact is the strategy is allowed by HMRC and within the rules of some New Zealand QROPS schemes under certain circumstances, like injecting capital in to a business or personal financial problems.

New Zealand QROPS are not a retirement solution for every client, but some with specific financial goals/issues might find they can benefit from liquid funds rather than having them locked in a pension.

An alternative is some Guernsey QROPS that let pension members borrow against their funds.

QROPS.net is a ‘whole of market’ advisory firm, which means our advisers are not restricted to a narrow range of QROPS schemes – neither in New Zealand nor elsewhere.

As long-standing leading QROPS advice professionals, QROPS.net views New Zealand QROPS as a versatile option under the right circumstances. As all transfers, careful planning is required.

The problems come when advisers and clients try to distort the purpose of a pension transfer – for the adviser this is often a commission-driven issue and for the clients, an attempt to subvert tax rules.

No one should have a problem with transferring funds to a New Zealand QROPS if they are following HMRC’s guidelines.

If you are considering a New Zealand QROPS transfer and need reassurance over the status of the provider, call QROPS.net on +44 (0) 203 111 9785 or email info@qrops.net

The slump in annuity rates and rising cost of living are the main culprits stopping people retire.

For those who want to retire overseas, the depressed pension picture is altogether different, providing they take action early enough.

One of the recognised problems with having enough cash available to fund a comfortable retirement.

Latest figures from the Prudential and Axa Wealth both show up to 38% of savers cannot afford to retire and will have to stay in their jobs up to six more years to put together enough cash to give up work.

Ex pats and international workers need not suffer the same fate.

They can opt for a QROPS offshore pension that gives them more flexible investment options and allows them to consolidate UK pension funds in to one investment pot.

QROPS retirement savers have to ensure they qualify for the scheme; otherwise they risk severe tax penalties.

Taking control of your financial destiny with a QROPS or SiPP

For those who fall outside of QROPS pension planning, other options, like a self-invested pension plan (SiPP) offer enhanced investment returns and UK tax relief on contributions.

If the SiPP saver decides to retire overseas later, the fund can easily switch in to a QROPS to maintain tax efficiency.

The government emphasis on pension planning is to encourage savers to put small amounts of money away for the long term.

For many heading for retirement, this strategy is too little, too late, but other options are available that can boost their pensions.

The message is not to leave pension planning to chance and to take charge of your own financial destiny because you cannot rely on the government to provide anything other than a basic safety net.

A QROPS or SiPP are the ideal pension vehicles for someone who wants to take control and manage their funds to give a better return on investment.

The latest figures from the Treasury show 6,263 pensions were transferred in to QROPS in the 2008-2009 tax year, followed by another 5,659 in 2009-2010.

The favorite QROPS destinations for ex pat and international worker funds are Guernsey, the Isle of Man (IoM) and New Zealand.

More than 2,000 QROPS pensions from around 50 different countries are available to ex pats.

QROPS – qualifying recognised overseas pension schemes – were introduced in April 2006 to let retirement savers leaving the UK to retain their pension benefits while living permanently overseas.

QROPS popularity comes from tax breaks and flexible investment options that are unavailable to UK pension savers.

These benefits include:

• More opportunities to in equities and commodities in currencies other than Sterling
• No obligation to buy an annuity
• Any funds remaining on the death of the pension member are outside of UK inheritance tax rules
• Up to a 30% tax-free lump sum drawdown based on the value of the QROPS fund. Some instances it can be more. Contact QROPS.net for more information
• Pension benefits paid gross in the currency of choice for the investor

Choosing the right QROPS offshore pension scheme is important.

Three main issues need consideration before signing up for a scheme:

1. Is the adviser regulated and offering the best tax and financial advice?
2. Does a QROPS offer the best financial solution for an individual’s personal retirement plans?
3. Does the financial centre where the QROPS is based ‘match up’ with the tax laws of the country where the pension investor lives?

Making a mistake with any of these factors can cause problems years down the line that can cause heartache and financial problems for a QROPS investor.

QROPS.net is a leading QROPS independent, regulated financial advice firm with a track record of successful offshore pension transfers.

For the best QROPS advice and up-to-the-minute tax and product details, call us on +44 (0) 203 111 9785

For most people who live in the country of their birth, this is not a problem, but for ex pats and international workers, the tax you pay depends on where you live.

And closely related to tax comes whether you can benefit from transferring your UK pension in to an offshore QROPS scheme.

The rules for tax residence are simple – most people think the 183-day rules about how much time they spend in the UK count them in or out as UK residents, but they are wrong.

The real issue is where you intend to live when you leave the UK and whether you have broken your ties with the country.

This means living in a country is more than staying there for a while. You can live in a place without putting down roots.

Breaking ties and becoming a non-resident means giving up your UK home, transferring your financial affairs overseas. Little things like cancelling your TV licence count for a lot.

The rules have recently come under stringent tests in court as HM Revenue and Customs has pursued ex pats for unpaid tax. The two most notable cases involved airline pilot Lyle Grace and businessman Robert Gaines-Cooper.

Although both have lived overseas for many years, they retained a home in the UK that the taxman argued meant they had not permanently left the country. The conclusion was then that as Uk residents, they owed unpaid tax.

Making a mistake over residence could also be expensive for anyone making a QROPS pension transfer. The schemes are only open to non-residents or people intending to become non-resident.

If a ‘non-resident’ is later found not to be so, then any pension transfer is against tax rules and will incur a penalty of 55% of the transfer fund value.

So, it’s important to know exactly where you live – and leaving the decision to chance can cost a lot of money.

The European Supreme Court has rejected their argument that not linking their pension payments to inflation rises when other pensioners enjoyed the increases breached their human rights.

The group of 13 had battled the British government for eight years in a bid to upgrade their payments.

The case arose from an appeal against an earlier decision by the European Court of Appeal on 25 June 2009, who also ruled against the pensioners.

The ruling brings the fight to an end and means around 500,000 British pensioners living permanently outside the UK have no hope of receiving index-linked payments.

Right for indexation is linked to living in an EU state, says judge

The International Consortium of British Pensioners, that backed the court conflict, says this means a pensioner in Australia drawing a pension since 1981 receives just £29.60 a week instead of the current rate of £97.65, adding up to lost payments of around £100,000.

The challenge was against EU regulations restricting UK state pension indexation to pensioners living in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland. Pensioners living in other countries do not receive indexed payments.

Lady Hale, sitting as one of the ESC judges ruling on the case, said indexing benefits against inflation was linked to the right to live in an EU member state, not to live anywhere in the world.

She told the pensioners that this is a fairly clear indication that it is open to member states to make entitlement to such benefits dependent on the right to reside in the host country, even though, of necessity, such a right will be enjoyed by all nationals but only some non-nationals.

What does offshore mean?

Investing offshore is when a UK resident or ex pat invests money with financial providers who are based outside the UK – and that includes places like the Isle of Man or Channel Islands.

Is offshore investing legal?

Yes. You can invest your money with offshore banks, insurance companies and other financial providers – but you must declare any earnings worldwide on your UK tax return while you are tax resident in the UK.

If you do not pay tax in the UK, then you should follow the tax laws of the country where you live.

Who can invest offshore?

Any adult. Choosing the best financial centre depends on your domicile and where you are resident for tax.

In simple terms, your domicile is your country of birth or your father’s country of birth. Where you are resident for tax depends on where you live permanently.

If you live in the UK for more than six months, you are probably UK resident for tax.

Why should someone invest offshore?

This depends on each individual’s personal financial circumstances. In general, many offshore investments defer tax by delaying the trigger date until profits or other benefits are taken.

Is a QROPS an offshore investment?

Yes. A QROPS is a pension specifically for UK ex pats or international workers with UK pension rights who live permanently overseas.

How can I find an international financial adviser?

Many firms offer offshore investment advice and tax planning on the same basis as a UK independent financial adviser. The market is more complicated because you have to consider how cross-border tax rules might affect your finances.

A firm like QROPS.net have a specialist team of regulated and highly experienced pension’s adviser.

Who regulates offshore financial centres?

They are self-regulating. Most financial centres have a regulatory body that is equivalent to the UK’s Financial Services Authority. Some centres have a better reputation for safeguarding your money than others – that’s why former British protectorates are so popular with offshore investors.

Those with the highest reputations – especially for QROPS pensions – are the Isle of Man, Guernsey, Jersey, Gibraltar, New Zealand and Malta.

QROPS sellers and providers are striving to differentiate their products by highlighting costs and how they safeguard client investments, but these are not necessarily the key factors that should influence a buying decision.

Over recent months, firms in the Isle of Man and Guernsey have conducted a public game of one-upmanship to try and persuade QROPS investors that each financial centre has a better QROPS set up than the other.

Now providers are stepping up the pressure by cutting set-up costs.

First in line is Close Brothers – whose QROPS and offshore business was bought last week by private bankers and investment firm Kleinwort Benson in a £27 million deal.

Close Brothers is slashing access costs to QROPS.

Make a QROPS transfer based on long-term performance

Fees will start from as little as £300 with a £300 annual charge – although many QROPS will cost more like £750 to set up with a £1,000 administration fee.

Although set-up costs are an important consideration when switching pension funds in to a QROPS,   other factors should feature on the transfer checklist as well.

Top of the list comes the suitability of any QROPS to the investor’s personal financial circumstances and goals.

Regardless of running costs, if a QROPS scheme fails to deliver fund growth and restricts investment options, then the pension is not the right one for the investor.

Much better is finding a financial advisor who puts together a short-list of QROPS pensions that primarily matches investment objectives – and then set-up and running costs are factored in to arrive at the most suitable provider.

Many investors might well suffer higher running costs to reap more rewards later because the overall QROPS package is an overall better deal when headline marketing ploys are disregarded.

Internationally recognised as one of the leading centres for QROPS, Guernsey looks set to stay at the vanguard of ex pat financial services for some time.

Here, we look at what makes Guernsey a leading jurisdiction for QROPS:

• Guernsey has well-respected and tightly regulated trust practitioners who administrate QROPS pensions under the watchful eye of the Guernsey Financial Services Commission (GFSC)
• Guernsey has strong ties with Britain, speaks English as the main language and has a legal system based on the British system
• Guernsey QROPS providers have produced a code of practice to reassure ex pats that rigourous rules safeguard their money
• Only QROPS schemes that fully comply with HM Revenue and Customs rules are allowed to register and base themselves in Guernsey
• Guernsey financial firms have managed personal pensions for more than 25 years, including RATS (Retirement Annuity Trusts)
• Guernsey is an OECD white list tax and financial centre
• The island has double taxation treaties and tax information exchange agreements with other key financial centres
• All the Channel islands, including Guernsey have a reputation for political and financial stability

Besides the reputation for political and financial stability, Guernsey QROPS offer all the tax and investment advantages that can be found in almost every other scheme.

The main competitor is the Isle of Man QROPS, but that seems currently embroiled in a quagmire of legal doubts and insecurities surrounding the 50c QROPS.

The 50c scheme lets QROPS investors draw more than the 25% tax-free sum – and Guernsey is waiting for legal ratification of pension rules that will let the island’s providers compete with their Irish Sea rivals in April.

Other than that, everything else a QROPS investor would expect from a market-leading offshore pension is available from a Guernsey provider.

This includes QROPS benefits paid gross, no need to buy an annuity, inheritance tax protection and no limits to fund accumulation.

On the other hand, the cost of keeping an increasing aging population in retirement is growing all the time.

The current state pension age for men is 65, and 60 for women. Those figures will be equalised by 2020, and may even be raised to 66 if the coalition’s current proposals go ahead. Such proposals are difficult to keep up with, as a new set of plans seems to hit the news every day. The current government has not ruled out the possibility of the state retirement age eventually reaching 70.

The Pensions Policy Institute has been the latest body to put forward its proposals, with the suggestion that the state retirement age should be at least 72. This, it claims, is necessary to maintain the affordability of a state pension system. Not only would less money be paid out in pension payments, but the change would also lead to increased tax revenues as more older people would have to remain in retirement.

The proposals make sense in the context of the proposed abolition of a default retirement age.

Groups who represent older people appear to be split on the issue. Some would welcome the move if it would secure a comfortable retirement when they eventually give up work. After all, older people are fitter and healthier now than ever before, and bring wisdom and experience to the workforce.

However, it would take a seismic shift in cultural expectations to get the baby boomers to accept that they will not be retiring in their sixties. There is also the fact that unfortunately this is exactly the time when a person’s health may begin to decline.

HMRC is monitoring the activities of  some irresponsible international firms offering ex pats advice about switching pension funds from the UK to offshore schemes.

Investigators are building evidence against schemes thought to abuse tax rules with a view to removing them from the HMRC list of registered QROPS pensions.

An HMRC spokesman confirmed the move but declined to comment about any particular schemes under investigation.

Since QROPS started in 2006, offshore pension schemes have been closed down in Singapore and Hong Kong, leaving investors facing tax penalties of 55% of the value of the pension fund transferred in to the scheme.

Further tax charges are also expected as the pension funds are no longer exempt from inheritance tax as they were within a QROPS scheme.

Recently, a couple who transferred more than £250,000 offshore to avoid tax have had to pay £86,000 in penalties after the taxman objected to the scheme, reducing their retirement savings to £145,800.

Neil and Megan Gratton were hoping to save tax and avoid buying an annuity with their pension under a scheme devised by Malcolm Tune, a financial adviser later convicted of fraud.

Regulators in Spain and Dubai are also cracking down on advisers offering dubious offshore financial advice.

The issue is not QROPS offshore pensions – the investment vehicle is robust and regulated by HMRC – but unscrupulous advisers charging high fees for strategies that break the rules and leave customers high and dry facing fines and reduced retirement savings.

The message from regulators is clear – if you transfer pension funds to a QROPS check out that your adviser and provider are regulated and are part of reputable and experienced firms who can demonstrate a track record of successful QROPS transfers.

The university workers’ scheme is a final salary one, although among the proposals which are on the table was the proposition to offer new entrants to the profession a career average scheme instead.

The problem, like all final salary scheme and particularly those in the public sector, is that increased longevity and poor stock market returns have combined to form a “perfect storm” for defined benefit schemes.

The Universities Superannuation Scheme is said to have a deficit of £17 billion, and these are figures that are tending to go up and up each time they are reported.

If the scheme’s trustees proceed with their current proposals, they will align the indexation provisions that the final salary calculations are made by with the Consumer Prices Index rather than the Retail Prices Index, subject to a cap of 5% for those that are already in payment.

Deferred members (who have not yet taken any benefits) may get a worse deal – the proposed cap is 2.5%.

The current retirement age is 60, but that seems out of step in a country whose government is mooting an eventual retirement age of 68 or beyond. Employees who are under 55 may see their retirement age rise to 65.

There are also plans to raise the levels of contributions among members of the final salary scheme, in order to reduce the deficit.

How will these proposals go down with the scheme’s academic members? Two years of talks on similar proposals have just broken down. A new period of consultation has begun, but it is argued that there is now a feeling that public sector pensions have reached “crisis point” and that something must be done to protect the scheme.

The government has launched a commission which is looking into public sector pensions. It will be interesting to know whether it distinguishes between those who have shown willing to compromise on their current entitlements and those who have resisted, when it gives its views on where the axe will fall.

Unlike regular public sector schemes which the Treasury forks out for, the BBC set-up is funded. But given the figures that have emerged, the scheme is not funded enough.

One thing that it does have in common with private sector final salary schemes is a significant deficit – estimated to be £2 billion at 1 April 2009. This figure is unlikely to have improved when the 2010 figures are available given the poor performance of bonds.

Trustees of the scheme will no doubt hope that the trend does not continue – the deficit was “only” £470 million in April 2008.

So what can be done about it? To maintain the current level of benefits that the scheme promises its members, the trustees will have to find some money from somewhere. And in the current environment of cuts left right and centre, that somewhere will not be the government.

License payers already believe that they pay quite enough, so there is unlikely to be a rise in the cost of the fee to plug this pension hole. In any event, such a move would be highly unpopular given that the public’s perception of public sector pensions being cushy perks.

Other possible sources of funding could include the BBC itself, which is also unlikely, and the employees themselves. But in a world where pay freezes or tiny pay rises are becoming the norm, who can afford to make higher contributions into their pension scheme?

 The BBC seems to have chosen the other path: to tinker with the benefits that will be paid to staff. Current accrued benefits will be maintained, but future benefits will be worked out according to a different formula.

So what happens at your first meeting with your adviser? It would be helpful if you could bring the details of your current scheme, this is important for two reasons.

Firstly, your adviser needs to check to see whether a transfer to a foreign scheme is permitted by your current scheme’s rules. Some members of UK schemes that are already in payment may find that their trustees do not permit transfers after benefits have been taken.

The second reason for examining your current scheme’s details is to see what kind of a deal you already have in place. If your scheme is a defined contribution one (where no particular payment has been guaranteed) then you may have as good a chance as anyone of finding a QROPS that can better or match your current deal. However, if you have a final salary pension scheme guaranteed by a reputable scheme, you may be well placed already, in which case the financial professional’s advice may be that you should stick with what you have.

Once you have decided whether or not a QROPS is possible or desirable, your QROPS adviser will look at a few schemes and choose some that may be appropriate for you.

The issues that will be taken into account may include:

• tax implications;
• flexibility of investment choices;
• availability of lump sums; and
• the possible or likely investment returns.

Once your decision has been made, then the adviser should give you a release paper to sign, in order for their firm to be authorised to deal direct with the QROPS providers. Within a few short weeks, your pension should be out of the UK taxman’s reach.

The government is making a play to become the home of 15 tax exiles every year by offering attractive low rates on worldwide annual income of more than £625,000 (US$1 million).

Treasury Minister Philip Ozouf intends to drop income tax rates to 20% on the first £625,000 of worldwide earnings and just 1% on the rest – down from 20% on the first £1 million and 1% on any other income.

These super rich ex pats will have to pay a minimum £125,000 income tax per year and a 20% rate on any income earned in Jersey.

Currently, they pay £200,000 income tax on the first £1 million, 10% on the next £500,000 and 1% on any other worldwide earnings plus 20% on any Jersey earnings.

The new tax regime will save the ex pats at least £75,000 a year in income tax.

New rules will affect tax on QROPS benefits for some

The Jersey government wants to increase cash coming in to the Channel Island – but find they have to change controversial zero-10 tax rules in line with neighbouring Guernsey.

The European Union are at odds with Jersey, Guernsey and the Isle of Man over corporation tax laws that mean local firms pay 10% tax while firms from overseas relocating on the islands pay zero.

Guernsey has already agreed to revise company tax to remove the anomaly, while Jersey and the Isle of Man are trying to hang on to the laws that other countries complain give companies an unfair trading advantage.

These tax changes will not affect the benefits of a Jersey QROPS for ex pats – but will change the income tax on any payment of benefits from a QROPS for ex pats resident in Jersey who are caught by the proposed changes.

This impacts on payments from QROPS based in any jurisdiction, as the tax is dependent on the residency status of the pension scheme member, not the residency of the QROPS pension.

Guernsey QROPS providers have taken a leap forward in customer service by focusing on these issues by compiling a voluntary code of conduct that lays out what investments are allowed in a QROPS.

The code of conduct announcement is widely reported – but here QROPS.Net puts the details under the microscope with how Guernsey QROPS providers handle investments:

Who makes the investment decisions for a Guernsey QROPS?

This depends on the underlying terms of the QROPS scheme you join. Some providers only offer managed funds, while others let pension members manage their own investments.

If the provider manages the fund, the trustees must take professional investment advice unless they are qualified to offer this service.

What investments can I hold in my Guernsey QROPS?

The code of practise lays out five specific investments:

• Equities quoted on a recognised stock exchange
• Equities in an unquoted company, providing the pension member and/or his or her family hold 15% or more of the share capital and the QROPS investment is limited to 10%of the total fund.
• Any investment marketed by a recognised financial institution
• Loans to members of up to 25% of the QROPS fund
• Property let on a commercial basis that is wholly owned by the QROPS scheme

Can a Guernsey QROPS hold residential investment property?

No – not if the QROPS is an investment regulated pension scheme. HM Revenue and Customs (HMRC) will tax  any QROPS holding ‘taxable property’. This includes residential property, fine wines, art, antiques, jewellery and other assets like boats and aircraft.

Can I add this to my Guernsey QROPS when the five year reporting rule ends?

No. The five year rule does not apply to taxable property – QROPS trustees have to tell HMRC if these investments are added at any time during the life of the QROPS.

Is a Guernsey QROPS subject to any other investment restrictions?

Sometimes. Other tax jurisdictions may have pension investment rules, and if a pension member is resident in one of those places, the QROPS administrators may have to report details of certain  investments to them as well as HMRC.

More information

To find out more about Guernsey QROPS transfers, contact QROPS.net for impartial, independent advice.

Guernsey QROPS providers have taken a leap forward in customer service by focusing on these issues by compiling a voluntary code of conduct that lays out what pension investors can expect when drawing benefits from a pension from the island.

The code of conduct announcement is widely reported – but here QROPS.Net puts the details under the microscope, starting with how Guernsey QROPS providers handle benefit payments:

Do all Guernsey QROPS pay the same benefits?

Not necessarily. Some providers may have specific terms and conditions in their QROPS agreement that might lead to a different pay out than expected.

What happens if more money is taken from the QROPS than the rules allow?

It probably won’t happen but the rules say any pay outs that exceed those allowed under HM Revenue and Customs QROPS rules are ‘unauthorised withdrawals’ and face a tax penalty of up to 55% of the original value of the fund transferred in to the QROPS.

Don’t these penalties only apply to the reporting period?

It’s difficult to say because the reporting period from the inception of the first QROPS scheme has not passed yet, so a real-life case has not yet arisen. The reporting period lasts until the QROPS member has been a non-UK resident for five full tax years.

QROPS were first established from April 6, 2006, so the first five years is not up until April 5, 2011.

QROPS providers are not keen to breach these rules as they face stiff penalties and possible removal of their scheme from HMRC’s QROPS list.

What age can Guernsey QROPS benefits start?

Guernsey regulators state that other than retirement for ill health, pensions can start paying when the member is between 50 and 75 years old. QROPS rules state that benefits relating to a UK fund transfer must not start before 55 years old unless ill health issues are involved.

Guernsey QROPS tax free lump sums

A Guernsey QROPS currently pays a 25% tax free lump sum on retirement and 70% of the fund is retained for paying pension benefits. This should increase to a 30% lump sum when the necessary legislation is passed in Guernsey later in 2011.

Guernsey QROPS loans to members

Up to 25% of the total fund value is available as a loan with interest charged on a commercial basis. The trustees will want to hold security to cover the debt and the loan must be repaid before any pension benefits are paid

More information

To find out more about Guernsey QROPS transfers, contact QROPS.net for impartial, independent advice.

Guernsey QROPS providers have taken a leap forward in customer service by focusing on these issues by compiling a voluntary code of conduct that lays out what pension investors can expect when transferring a pension to the island.

The code of conduct announcement is widely reported – but here QROPS.net puts the details under the microscope, starting with how Guernsey QROPS providers handle transfers in to their funds.

Who can transfer in to a Guernsey QROPS?

Many providers will accept transfers from UK pension funds even if the scheme is already in draw down, but some schemes rules prevent considering a transfer after draw down.

How long does a QROPS fund transfer take?

The time scale generally depends on the UK  pension fund. The issues that slow transfers down are incorrect discharge paperwork from the UK fund and time limits on transfer values that mean new documents must be supplied especially when final salary schemes are involved.

Need for financial advice and a pension review

The code tasks all QROPS trustees to take all ‘reasonable endeavours’ to ensure potential members of a Guernsey QROPS pension take professional advice before applying to join a scheme.  This should include a review from a qualified pension advisor.

Transfer from defined benefits schemes should include a transfer value analysis and defined contributions schemes should have regard to guaranteed annuity rates.

Although Guernsey pension rules do not cover protected rights or guaranteed minimum pensions, investors transferring in need to confirm in writing that they understand this protection is given up when transferring to a Guernsey QROPS.

Additional contributions

A Guernsey QROPS can accept additional contributions, but HM Revenue and Customs rules set out restrictions on investments and benefit payments that may mean separate arrangements for these funds may a better pension option.

Informing the UK taxman

The pension provider will tell HM Revenue and Customs the following about every transfer in:

• Pension investor’s name, address, date of birth and national insurance number
• The total amount of assets transferred in to a QROPS
• Transfer date
• The QROPS scheme name
• The country where the QROPS is established and regulated

More information

To find out more about Guernsey QROPS transfers, contact QROPS.net for impartial, independent advice.

A recent survey by the Prudential called Class of 2010 found that, of those who were planning to retire this year, only 19% had consulted a financial adviser about the best way to invest their pension pot.

More than a third of those who are soon to be pensioners got their financial advice from friends and family, and a quarter consulted the internet, magazines and newspapers. Commenting on this research, Vincent Smith-Hughes (who is Head of Retirement Income at Prudential) said that whilst there was no doubt that speaking to your acquaintances and researching retirement products in the media helped people to make up their mind, they were no substitutes for getting the advice of an expert.

The important decisions to be made about pensions include when to purchase an annuity, and with whom. While the coalition government has promised to end compulsory annuitisation at 75, it is likely that many pensioners will choose to buy an income bearing product to give them the security of a regular income.

 The charity Age UK has estimated that shopping around for an annuity provider could mean that you get an improvement of 20% more income than you would receive had you stayed with your original pension provider. However most people do not shop around because either they feel a sense of customer loyalty to a particular provider, or because shopping around does not occur to them.

Given that one in four UK citizens is estimated to need long term additional care when they are elderly, the cost of this needs to be taken into account in retirement planning. This is an issue that a financial adviser could help with, and may even be able to build in some inheritance tax planning to boot.

What explains our national reluctance to seek advice about financial planning? Mis-selling scandals do not help. However, the perceived cost of professional advice may also be a disincentive.

Some financial advisers charge fees on an hourly basis, and whilst others may be paid a commission by the financial institutions whose products they sell. Whichever method your adviser uses, it is essential to make sure that you know how much the advice will cost.

QROPS.net offer free advice on how to transfer your pension overseas. If you plan to live outside of the UK for more than five years, contact us to find the right product for you, free from UK income tax.

The code explains the rules and standards QROPS providers on the island will apply to offshore pension transfers from the UK.

Providers and advisers have to the end of February to comment on the proposals and a final code is set for publication on March 31.

The Guernsey Association of Pension Providers (GAPP) hopes everyone with an interest in Guernsey QROPS will sign up to the scheme.

Roger Berry, who chaired the group that devised the draft, explained that the QROPS market was considered too complicated by many investors and that GAPP wanted to present a simple explanation of how Guernsey QROPS worked.

The code is voluntary, but the Guernsey government has recently passed consumer  laws aimed at protecting retirement savings based on the island – but these laws do not offer full protection to QROPS investors.

Guernsey Financial Services Commission, the island’s official pensions and investment regulator, has worked with GAPP on drafting the code.

Guernsey QROPS pact pressures offshore pension centres

GFSC is considering passing tougher rules for QROPS providers, but explained they wanted to deal with tightening up standards for the local market before looking at QROPS pension.

Offshore pension providers hope that the code bolsters confidence for investors wanting to transfer their UK pensions in to a QROPS scheme.

The Guernsey code is thought to be the first voluntary pact by providers in an offshore financial jurisdiction and will pressure other similar centres to increase protection for their investors to compete in the market place.

GAPP intends to publish a list of providers following the code and to police their standards of service.

Like the HM Revenue and Customs list of QROPS providers, the GAPP code of conduct will not guarantee QROPS schemes meet all tax rules, nor will members compensate investors who lose money.

Nevertheless, investors will need to question why a provider has not joined the scheme before sanctioning a QROPS transfer.

Commenting on the results of their recent research, the firm claim that employees feel that they are too stretched by everyday expenses to maintain high levels of pension contributions. Lower wages combined with higher fuel, food and utility bills mean that month to month survival has become the priority of many households.

Whilst this is perfectly understandable, Punter Southall point out that pension savers need to weigh up the true cost of suspending or reducing their contributions. After all, not only will their pension funds be missing the value of the contributions themselves, but they will also lack any pension tax credit that the amount would have attracted.

But tax credits are not the only thing the schemes will miss out on. Many occupational schemes operate on the basis of employers matching their employees’ contributions. If the employees’ contributions are suspended or reduced, then their employers’ contributions may go down too.

Punter Southall fear that the pension pots of those who have taken the decision to stop or suspend their contributions may never recover. In gathering the information that formed the basis of the survey, Punter Southall consulted employers, rather than employees. Their research was conducted among 330 UK employers, including 24 of the FTSE 100 companies.

Whilst the employers that were asked felt that any new government in May would tweak pension policy, they were on the whole pessimistic about the effect any change would have on them or their employees. There was significant evidence that employers did not rate any of the parties’ pension policies, and a widespread expectation that their employees would not be better off under any new government.

It seems that no matter who forms the next government, and no matter what pension policies they bring into effect, it is the performance of the economy that will matter to individual savers’ pensions. Let’s hope that savers feel able to start up or increase their contributions before too long.

Thousands of schemes based in 50 countries let ex pats break free from the shackles of restrictive pension tax and investment rules.

New ‘portable’ QROPS schemes offered by many providers mean the days of paying hefty transfer fees to switch to another offshore jurisdiction are gone.

Not all QROPS are portable – so if this is a must-have facility, then tell your financial adviser to source a short list of suitable providers.

Ex pats might want  to transfer their QROPS across borders to take advantage of tax  planning opportunities when moving country of residence.

Don’t forget a QROPS pension does not have to reside in the same tax jurisdiction as the pension investor but the locations should have a tax relationship that is balanced, for instance with a double taxation treaty in place.

Sometimes a pension investor decides to move on to another country where tax rules might impact on the efficient operation of a QROPS as well.

In these cases, a portable product reduces the time, hassle and cost involved in stopping one QROPS and switching to another with the added bonus of cutting fees as well.

Many European QROPS providers view portable offshore schemes as a step on the road to future pan-European schemes that will let European Union citizens invest their retirement savings in a EU country of their choice rather than the country where they reside.

Many providers and advisers consider EU savings and investments, including pensions, will move this way once member countries have  initiated consumer financial directives for personal loans and mortgages that are in the pipeline.

One point about portable QROPS is they have more built-in flexibility than a standard offshore pension, but the tax and cost implications need detailed discussion before opting for bells-and-whistles on a scheme that an investor might never need.

The SIPPS providers – short for self invested pension plans – are constantly trying to talk up their products to avoid losing their clients to QROPS pension schemes.

In some cases, advisers who have switched pension investments in to a SIPPS claim they cannot arrange a transfer of funds in to a QROPS.

Any reasonable financial adviser will tell a client that a QROPS pension is certainly not the final pension saving solution for every client – but neither is a SIPP.

Every ex pat with savings locked in an onshore pension should consider consolidating one or more funds in to a tax effective QROPS.

While SiPPs can be excellent schemes for pension investors remaining in the UK.

If an independent financial advisor tells you that this is not possible, then politely ask him to explain why an ‘in specie’ transfer does not apply in your case and that you will approach the pension provider directly to discuss the matter.

In specie transfers are common in the pensions industry and often take place when an asset is transferred between SIPPs or a SSaS (small self-administered scheme).

No legal or ethical reason stops a similar transfer to a QROPS or QNUPS.

The real decision that a pension investor needs to make about whether a SiPP or QROPS is the most effective retirement savings scheme should not be based on administrating the scheme but whether the product is the most suitable wrapper for that individual’s personal financial circumstances.

If you come across an independent financial adviser who can’t or won’t help transfer assets from a SIPP to a QROPS or QNUPS for apparently no good reason, then perhaps it’s time to reconsider whether this adviser is working in your best interests.

Changing to a financial firm that has a track record in helping ex pats is not a problem – QROPS.net are a team of highly reputable and experienced advisers and can service your needs wherever you are in the world.

There are nearly 7,400 pension schemes in the group of final salary arrangements that is monitored. This month, nearly 400 more schemes fell into the “deficit” category. The £42 billion figure is the collective deficit which balances the collective deficits and surplus of every scheme monitored by the fund. Perhaps the real figure that should be highlighted to the public is £98.4 billion, which is the total deficit of schemes in the red. The collective surplus of schemes in the black is £57 billion.

Given the turmoil that the markets are suffering (and no doubt factoring in the schemes’ exposure to BP in the wake of the oil spill crisis), these results are hardly surprising.

The sustainability of final salary schemes is under scrutiny, both in the private and the public sectors. In good times, they are seen as a great perk to reward hard working employees. In bad times on the other hand, they are viewed as a luxury that a modern business cannot afford.

Nearly 90% of final salary schemes have been closed to new members, and every day the press seems to carry a story of another final salary scheme that is being closed to its current members.

Northern Rock have announced that they will be closing their final salary scheme, in a bid to make themselves more attractive to potential private sector suitors. Instead of a defined benefit scheme, members will be invited to join a money purchase scheme for future accruals.

Union leaders have been predictably furious about this prospect, but with one in seven Northern Rock staff members to lose their job in an upcoming shakeup of the bank, things are looking very serious indeed.

Closing final salary schemes to existing members is becoming commonplace among financial institutions, with Barclays and Aviva recently announcing that they are doing the same.

He has been tantalizing the French public with talk of this for years – even before the credit crunch hit and France’s deficit came under scrutiny in the light of the euro zone’s heightened version of the economic crisis. With Greece in receipt of a substantial rescue package, the world’s media has focussed on the deficits of European countries and are waiting to pounce if any country looks like it may default on its sovereign debt.

Sarkozy has a number of choices to make about the changes he can impose. He can raise the pension age, increase the number of years of contributions that you have to make to be entitled to a full pension or reduce the level of the pension that older people receive.

Clearly none of these propositions is ever going to be popular. The powerful French unions have called national strikes and demonstrations in response to his suggestions so far. However, despite the strikes being much more widely supported than they would have been if they had been called in, say, England, the anti-change movement has not garnered as much public support as they might have done ten years ago. In fact, recent polls have showed that there is a growing understanding that some changes have to be made to preserve the French pension scheme’s very existence.

So what does Sarkozy have in store?

Given that the current state pension age is only 60, Sarkozy has hinted that this has to go up. This is a particularly hot issue because the German retirement age has recently been raised to 67. Sarkozy would  never get away with such a dramatic hike, although 62 or 63 is looking more probable.

French workers have to make 40.5 years’ worth of social security contributions to get a full pension at the moment. But Sarkozy is tipped to up this to 41.5 years, which is a measure that seems to be less unpopular than the retirement age range.

The government recently announced a three year programme of cuts worth around 45 billion euros, so the French public will already be feeling the squeeze. The UK will find out shortly how its Chancellor George Osborne’s plans for cuts compare.

However, the PPF have confirmed that the schemes have fallen back into deficit again. At the end of April, UK defined benefit schemes had a total deficit of £2.2 billion. The deficit may be partially explained due to the dip in the equity markets and fear about UK political uncertainty and more severely about the European debt crisis took hold. Commentators expect a better performance now that the European Central Bank and the European finance ministers have outlined their commitments to this problem. But a month is a long time in economics so who knows what May’s figures will bring for pensions?

Not all of the 7,400 UK private sector final salary schemes were in deficit in April – the PPF revealed that 31% of schemes are either on target or have a surplus.

When comparing the figures to last month’s investors may be dismayed. On the other hand, if you consider that this time last year the schemes’ collective deficit was £188.5 billion, there is much to be positive about.

Some of the difference in the 2009 and 2010 figures can be explained by a change in the way in which the figures have been calculated. The accounting practice was altered in October 2009 to adjust the way that final salary pension schemes’ liabilities are worked out. Rather than an accountant’s trick to make the books look better, this adjustment is said to give a truer reflection of the long term nature of pension liabilities.

Nine out of ten defined benefit schemes are closed to new members, and more seem to be closing every day. Whilst their deficits may be frightening, this funding gap must surely pale into insignificance compared to the fact that the state pension is completely unfunded, being set up on a “pay as you go” basis. Interestingly, the UK government does not splash their figures across the news on a monthly basis – it would just be too terrifying.

Anyone resident in the UK has to pay income tax on their worldwide earnings and also faces restrictions on investing in a pension.

These restrictions do not tie down non-residents, and this has led to a constant battle between tax inspectors against the wealthy and their armies of financial advisers to exploit holes in the law that save money.

One by one, HM Revenue and Customs (HMRC) is plugging the gaps – this year has seen anti-avoidance measures on pension contributions for top rate taxpayers, rules effectively shutting employer financed retirement benefit schemes (EFRBs) and a crack down on ‘non-doms’

Non-doms – foreigners who live or work in Britain – have to pay a £30,000 ‘fee’ every year to stay in the country to keep their non-resident status and their income from other countries out of the grasp of HMRC.

Switching to a QROPS is a key non-dom strategy

HMRC is also working hard to prove many expats who believe they are non-residents are really still UK taxpayers.

The overall result is HMRC is trying to colour in the grey area that once existed around offshore financial planning to claw back money from expats. After all, it’s easier to raise more tax from a known target than to try and track down evaders who are off the radar.

Switching UK pension funds in to a QROPS scheme is a key financial strategy for many expats.

If the pension transfer is not carried out properly, the QROPS investor could face tax penalties of at least 55% of the value of the switched cash.

With heightened interest from the taxman snooping in to expats financial affairs and the risk of huge penalties if an expat or non-dom does not follow the letter of the law, it makes sense to take expert professional advice from a suitably experienced independent financial advisor.

If you have any doubts about your tax status as an expat or non-dom even if you already have a QROPS and other offshore financial arrangements, QROPS.net can review your finances and offer you the best solution

This means that some companies like BAE Systems, British Airways and Wm Morrison paid more to their pension schemes than they did to shareholders as dividends.

Defined benefit schemes offer their members a “defined” amount on their retirement. In the case of final salary schemes, this amount is defined by reference to a proportion of their final salary with the company. The trouble is that the company bears all of the investment risk – and if the employee lives for decades in retirement and the pension scheme’s investments suffer from poor returns, the company must make up the shortfall.

That is exactly what has happened to many of the final salary schemes that FTSE100 companies offer. Many are now closed to new members, but the liabilities that are owed to current members are significant.

Some companies have come up with creative solutions for plugging the gaps in their schemes. For example, Sainsbury’s and Marks and Spencer have transferred properties or shares in their properties into their schemes, and other employers have resorted to more exotic assets like mature whisky.

The actuaries at LCP do see a ray of hope on the horizon for companies with final salary schemes. The government has thrown them a lifeline and decided that where possible, inflationary increases in the amounts to be paid out will be made in line with CPI, rather than RPI.

This is significant because CPI typically comes in around 5% lower than RPI, which overnight reduces the final salary schemes’ contributions considerably. This is a fact that employers will celebrate, but will cost pensioners dearly.

However, this is only possible where the schemes’ rules allow it. Some schemes may have it set in stone that the payments made will be pegged indefinitely to RPI.

The scheme is a final salary one, where staff retire on a set proportion of their wage packet which is guaranteed by the government. Final salary schemes are notoriously difficult to value, given the long term nature of their liabilities and the unpredictability of how long their members will live, and whether the scheme will enjoy decent returns on its investments.

The Audit Commission had found that the scheme only has enough funding to meet three quarters of its liabilities.

The Local Government Pension Scheme is not small fry – it has 1.7 million members who are current employees, 1.1 million who have left local government but not yet retired and 1.1 million who are already in receipt of their pensions. Together they make up a significant proportion of the UK’s workforce.

Communities and Local Government Secretary Eric Pickles has said that it is unacceptable that such a large chunk of council taxpayers’ money is going on the pensions of local government staff, when it is so badly needed on local services like refuse collection and street cleaning.

Local government pension contributions cost the government £5.5 billion last year. So what can be done about it?

Local government employees’ groups have been keen to point out that there is only a tiny minority of “fat cats” at the top who command headline grabbing pensions. The majority of employees, they say, are low paid part time workers. But the majority of workers in the private sector who pay their council tax are also low paid, and are not entitled to any kind of final salary deal.

The proposals on the table to amend the scheme involve raising the retirement age for local government employees, increasing their contributions, reconfiguring their entitlements. Realistically, the final proposals are likely to include a combination of these approaches.

Under the present rules, people with UK private pensions have to purchase an income bearing product (typically an annuity) by their 75^th birthday. Opponents to the current regime cite not only the time limit as the problem (although pensioners could be panicked into make a decision at the last minute), but also the paucity of good deals out there to choose from. Prudential, Legal & General and Standard Life are said to be reducing their already-low rates at the moment.

Perhaps the biggest problem with compulsory annuitisation is savers’ reluctance to shop around for a good deal. Financial services firm Hargreaves Lansdown claim that 63% of those who bought annuities in 2009 did not shop around for the best option, and that they may have missed out on the best deal as a result. The research does not reveal whether the lack of shopping around was due to consumer inertia or a sense of loyalty to their current pension provider.

If you live outside of the UK but still have a private UK pension, you could escape the annuity requirement by getting a QROPS. Qualifying Recognised Overseas Pensions were brought about in 2006, when the government made it legal to transfer your pension to an approved overseas scheme without paying UK income tax.

Not only are there obvious tax advantages to a QROPS transfer, but there are also other benefits, including the ability to choose a more flexible regime in which to invest your pension.

Some QROPS countries have already abolished compulsory annuitisation (or never had it in the first place), and others may offer early access to lump sums and a greater choice of underlying assets for the more adventurous pension investor. You may even be able to find a scheme that will permit the inheritance tax free transfer of your assets directly to your beneficiaries on your demise.

Many of these taxpayers are retired expats and international workers picking up payments from a UK pension scheme.

Expats seem to be unaware they can place themselves outside the HMRC tax system by switching their pension fund to a qualifying recognised overseas pension scheme (QROPS).

Having pension benefits paid gross directly from the provider is one of the many tax-effective features of a QROPS offshore pension that makes switching retirement savings out of the UK so attractive.

As the providers are based outside of the UK in an offshore financial centre, the payments are outside of the UK PAYE system and the inept HMRC.

HMRC is currently examining tax payments for 2009 and 2010, so many more taxpayers are likely to receive unwelcome letters demanding they pay more from the taxman.

Avoid HMRC bungling with a QROPS pension transfer

Generally, many QROPS schemes will not accept a transfer once the scheme has started paying benefits, but some will consider a change.

If you are an expat or expect to leave the UK to live overseas permanently within six months, you can speak to a QROPS.net financial adviser about your options of consolidating one or moiré UK pensions in to an offshore package.

Pension rules let any QROPS provider pay gross benefits to the pension scheme member regardless of where they live outside the UK.

Switching to a QROPS to avoid HMRC errors is just a by-product of the benefits offered by offshore pensions, but should not be the primary reason for a transfer of funds.

The main reasons why expats favours a QROPS over a UK pension include benefit payments made in major currencies to minimise the effects of exchange rate fluctuations, investment flexibility and placing the fund outside of inheritance tax.

The anomaly means over 50s who transfer funds from a UK pension to a QROPS no longer pay a penalty that can wipe out a proportion of their investment.

Over 55s already benefit from rules that bypass the tax charge.

The regulations will be backdated to cover transfers from April 6, 2010 – the date when the wrongly drafted rules came in to force.

The tax change comes about after the government informally consulted with pension providers. The new rules will also cover pension savers who have bought a scheme pension or annuity using unsecured pension funds.

The government is also wants to clarify the normal minimum pension age (NMPA) test applying to the transfer is the date of the first payment of pension.

Over 50s hit by unintentional pension tax charge

The proposal to change the rules points out that the wording of NMPA legislation that increased from 50 years old to 55 on 6 April 2010 was unclear.

Under the original rules, people can start receiving their pension payments without incurring an unauthorised payments tax charge once they have reached 55 years old.

Someone aged 50 and over but under 55 who started drawing their pension before April 6, 2010 can continue to draw without a tax charge, even when they are not yet 55.

But the government has now realised the legislation unintentionally imposes a tax charge of up to 55% of the value of the transferred fund if someone transfers a pension before age 55 to a new provider or changes to a different type of pension.

A Treasury Order will be made to cover anyone aged 50 and over, but under 55, who has already satisfied the NMPA test of 50 and over prior to April 6 2010.

The move has been announced by Employment Minister Edward Davey, who claims that rather than forcing people to work for longer, the move will shift the balance of power to employees and give them the choice. If people want to retire at 65, they will still be able to.

John Cridland at the Confederation of British Industry has expressed his reservations about the measure, claiming that employers with staff whose ability to perform their duties is failing will be in an awkward position.

There has also been criticism of the move by some young people, who believe that older workers should make room for them in an environment where job opportunities are limited.

Age UK, a charity that campaigns on behalf of older people, welcomed the move. They believe that it is unfair to force someone out of their job just because they have reached their 65^th birthday. As the law currently stands, an employer does not have to pay any compensation to someone whose employment they terminate on the grounds of age.

A default retirement age was scrapped years ago in America and Australia, where the system seems to work without too many problems.

However, the issue is not just one about fairness. It is also about money. With such poor savings rates and a nation who have not put enough aside for an early retirement (or even a late one), there is a strong case for allowing older people to stay in work for as long as possible to boost their pension pots.

This will also have the effect of generating more tax, and delaying the moment when they have to be paid the state pension.

At the end of March 2010, the scheme’s liabilities were estimated to be around £6.6 billion, which is large enough in itself but far short of the £9 billion figure that was given at the same point in 2008.

Thanks to poor historic stock market performances and increasing longevity, BT has long been a member of the group of large companies that have eye watering pension deficits for their final salary pension schemes.

The scheme has 336,000 members. BT’s management have said that they have plans to prop up the pension scheme that are currently under review by the Pensions Regulator, although there is no indication of when these might be approved or rejected.

Whatever those plans include, they will not involve putting up the prices that it charged to competitors to use its infrastructure to meet the deficit. BT had intended to ask its competitors for contributions to its pension fund, as they were now benefiting from the systems that BT had originally put in place. The telecommunications watchdog, Ofcom has already ruled that this would not be acceptable, and one can imagine what kind of answer BT’s competitors would give to such a proposal.

BT are going to challenge Ofcom’s ruling, but commentators think that it is unlikely that the regulator will change its mind and provide a magic answer to solve BT’s pension problem.

BT has already implemented a cost cutting programme which saw 9,000 people lose their jobs. But despite rumours of central government contracts being axed, BT’s management remain positive about the future – at least in public anyway. Whilst Cable & Wireless have warned that its profits might be hit by George Osborne’s proposed cuts, BT have indicated that they view the austerity measures as a potential business opportunity.

Any high-earning UK taxpayer or international work only has a few months left to make the most from the current rules – then they can consider switching their funds to a more attractive QROPS or QNUPS offshore scheme.

Know your pension limits

• Stop saving if you’ve hit your limit – Don’t put any more cash in to a pension that’s in danger of breaching the new lifetime allowance of £1.5 million that comes in from April and is likely to stick at that level for a while.
• Don’t get pipped at the post – if your PIP (pension input period) ends in the new tax year that starts on April 6, you are already subject to the maximum £50,000 annual contribution threshold
• Max out your account – Savers earning less than £130,000 a year can inject £255,000 in to their pension before April, but real high-earners are already restricted by ‘anti-forestalling’ rules.

What a relief for offshore pensions

Putting as much cash in to a pension that attracts relief at your highest rate of income tax really pays off if you plan to switch to a QROPS or QNUPS offshore pension as you can take every penny of that tax relief with you with no tax charges.

Think tax efficient QROPS

Don’t play with your limits now by putting assets that attract income tax or capital gains tax in to a UK pension like a SiPP or SaSS – open a QROPS or QNUPS instead as no lifetime allowance rules apply to offshore schemes but you still pick up the tax benefits.

It’s all in the timing

By timing your switch to an offshore scheme, you can make maximum benefit of the current laxer UK pension rules and the more flexible QROPS or QNUPS on or around the change of the tax year.

Don’t forget you can start a QROPS offshore pension scheme before you plan to leave the UK for overseas.

The idea is that you may find the need to move to another country for tax or personal reasons at some stage  – and that moving your QROPS may make financial sense as well.

Many QROPS providers offer multi-jurisdictional or portable offshore pension schemes. The sting in the tail is that squirrelled away in the small print may be a clause triggering extra charges.

QROPS.net advisors already have a range of offshore pensions that offer free switching between different countries and tax jurisdictions.

Some schemes cannot offer this add-on as each tax jurisdiction has different QROPS rules laid down by that country’s financial regulator, so designing a package that can border-hop is more demanding for a financial services company.

Multi-jurisdictional QROPS make financial sense

The reasons why someone might want to switch their QROPS between countries are often personal – but the biggest advantage of keeping a QROPS and moving across jurisdictions is the strategy avoids the costs of stopping one scheme, transferring the funds and setting up another.

Setting up your first QROPS pension with this built-in option makes good financial sense as the costs of switching schemes can eat away a significant portion of a pension pot.

Nevertheless, a portable QROPS is not a ‘one-size fits-all’ solution and QROPS.net independent financial advisers will carry out a thorough financial fact find before offering the product ahead of another QROPS that may be more suitable.

Generally, portable QROPS are available in several popular financial centres, including the Isle of Man, New Zealand, Jersey, Guernsey, Malta and Switzerland.

QROPS providers are also keen to set up multi-jurisdictional products as they predict that pensions will become a pan-European rather national financial package in coming years. The portable offshore pension will then provide the structure for designing retirement wrappers that meet cross-border regulations within the European Union and probably the European Economic Area as well.

Most savers consider a pension is a stealth tax that locks up money they need for day to day living while they are working and that the rules are too complicated for anyone other than an expert to follow.

Even with the latest shake-up that has scrapped the need to buy an annuity from April 2011 and the impending auto-enrolment nest pension due to start in April 2012, most people are disillusioned with pension saving.

The outflow of pension funds in to popular QROPS offshore pension schemes is seen as another consumer reaction to their dissatisfaction with the pension system in the UK.

In the latest survey of firms representing 9 million employees, carried out by the Association of Consulting Actuaries (ACA), savers put forward a clear message:

• 69% claim they are disillusioned with saving for retirement and about a third will opt out of pensions if they can under the current systems
• 40% of workers either can’t be bothered or don’t see the point in having a pension

Abolish pensions for lifetime savings

Instead, they advocate that the term ‘pension’ should be abolished from every retirement plan except the state pension with ‘lifetime savings’ taking its place.

A lifetime savings scheme ought to allow people to take out cash when they are hard up – in a similar way to investing with an ISA. Many employees would favour auto-enrolment in a savings scheme rather than a pension if they could manage access to their own cash.

Many see that a lifetime savings plan would let workers either hand their funds over to a manager or let them make their own investment decisions.

Simplifying access to money and removing tax restrictions to make the fund accessible for expats living offshore would also be welcome moves.

One of the best ways of encouraging saving for retirement would be to pay a flat rate state pension with no means-testing and to let self-interest govern how much people want to save for the future, with no extra top-ups from the state for those that don’t bother.

Consultancy firm Aon claim that the 200 top defined benefit (final salary) UK pension schemes are collectively £83.5 billion in deficit. This figure is not as bad as expected, given recent stock market falls, and many investors may have been holding their breath expecting a larger deficit to be announced.

Last month Aon put the deficit figure at £97 billion, so the change represents a £13.5 billion improvement, although both figures are eye wateringly large.

What explains this change? Sarah Abraham from Aon Consulting highlighted that the figures do not just represent a valuation of the schemes’ assets; they also take into account their liabilities.

The estimated liabilities of the schemes have fallen thanks to a reduction long term projections for inflation. Despite a short term rise, when you look at inflation over the next 40 years (which is the period over which pensions are expected to be paid out), the figure is projected to be lower than was previously expected.

The current Aon figures were calculated before the sharp decline in the value of BP shares. So far £45 billion has been knocked off BP’s value, thanks to the company’s failure to stop the oil leak in the Gulf of Mexico. With the clean-up bill getting bigger by the day, commentators are eyeing the price of the former City favourite with nervousness.

If you have a UK pension scheme you may wonder what effect the BP crisis may have on your retirement pot. Pensions experts have warned that most large UK pension schemes have invested in BP in some form or another.

According to the BBC’s Robert Peston, dividends from BP make up around 8% of pension funds’ income. Any significant change in the amounts paid out would have a tangible effect on British pensioners’ pockets.

While the spill refuses to be tamed, the City can do nothing but look on anxiously.

For private pensions, investors will no doubt be interested to hear when the government’s plans to end compulsory annuitisation will come onto the statute book. The rule is currently that private pension pots must be turned into income bearing products by the saver’s 75^th birthday. Many have claimed that this was unfair because it either did not fit with their own circumstances (if they wanted to spend the money on additional care costs or pay off a mortgage) or because the timetable forced people to make a decision at an unfavourable time.

The new government is also considering plans to let people access more of their funds than is currently permitted, which would give individuals the right to tailor their retirement funding plans to their own circumstances. A criticism that is often levied at the present system is that is seeks to impose a “one size fits all” solution.

An end to compulsory annuitisation is not likely to stop people from buying annuities, as they still offer certainty about an older person’s lifetime income. It may however make annuity providers more competitive in trying to attract business that is no longer theirs of right.

What about the state pension? Brits are going to be drawing their pensions later and later, although no top age limit has yet been given so rumours of a state pension age of 70 are gathering momentum.

For those who are currently drawing a state pension, news of the “triple guarantee” will be welcome. This guarantee operates so that the state pension will be increased in line with earnings, inflation, or by 2.5% if neither of the other figures reaches this result.

The moves that are being taken to increase the state retirement age are also being accompanied by measures to end the default retirement age. After all, if people cannot draw a state pension until much later on, they will need to keep working for longer to support themselves.

In a recent survey by Aon Consulting, only 12% of those asked said that pensions interested them, despite poverty in old age being something that was worried about.

The survey consulted 7,500 workers across Europe. German workers came across as those who were the most interested in pensions, with a third of those questioned saying that they paid attention to the issue. Other countries followed suit, with France and Holland showing a similar disinterest to British savers.

In fact, the survey showed that the British pension industry has an uphill marketing battle to climb, with one in ten British respondents claiming that they thought pensions were a con. The prevalence of mis-selling stories in the press and poor performance of schemes linked to the markets may explain where they might have got this idea.

So how are those disinterested Brits going to survive in retirement? Only 5% of them were planning to live solely off the state. No details are available about the other 95%’s investment plans, although given that one in ten hadn’t got around to starting a private pension scheme yet, we can assume that they are relying on property or other assets to see them through their old age.

Perhaps the most worrying (and significant statistic to come out of the survey is that 47% of respondents in the UK said their employer did not give them access to a pension scheme. With very few exceptions, it is compulsory for employers to at least give their workers access to pension schemes, even if they do not contribute themselves.

This is a huge problem, because it erodes any culture of saving that the government may be trying to create. If this rule is enforced more stringently, then perhaps British employees would take more of an interest in the issue.

It is now possible to be retired from the point of view of receiving a pension – and yet continue to work (and receive a wage), since the rules were changed as part of the government’s Pension Simplification initiative in 2006. This was the same initiative that brought about Qualifying Recognised Overseas Pension Schemes and loosened the tight restrictions on SIPPs.

In many of the recent surveys of workers’ expectations about their retirement income, a so-called “part-tirement” involving part time work has been billed as a necessity as they cannot make ends meet on the state pension alone. Even the new government’s promise to restore the link to earnings has not affected the fear that many feel about impending old age poverty.

However, reports of the 10,000 or so public sector workers who have also officially retired on comfortable civil service pensions is bound to inflame the growing private sector fury at the perceived cushiness of public sector pensions.

The Sunday Times revealed that of the 85,000 staff employed by Her Majesty’s Revenue & Customs, over 2,000 were also receiving their pension. HMRC had the highest proportion of double dippers on its payroll of all the public sector bodies the paper surveyed.

Given that the practice is perfectly legal there is no suggestion of impropriety, but it is amusing that the public body with the greatest percentage of employees taking advantage of this technicality are those whose day jobs involve the closing of loopholes.

The survey also shows that the typical retirement ages among the public sector bodies the paper examined are somewhat lower than the state retirement age, which is soon to be 65. Many public bodies had average ages of retirement of 60 or under, although of course if retirees became double dippers they would still be in work after that age.

With more doom and gloom about the coming austerity measures needed to reduce the UK’s deficit, the coalition’s conclusions on public sector pensions are awaited with interest.

The report assumes that a typical pensioner household receives an income of £17,727, of which £5,315 is then paid out in tax. This figure may at first seem surprising, but it includes both direct and indirect taxes.

Traditional income tax is the biggest cost, coming in at approximately £1,500. However, VAT is not far behind at £1,229 a year. Council tax and duty on booze, cigarettes and fuel make up the rest.

The income tax figure may not seem so bad if you are still living in the UK, making use of the health service and other public provisions. But if you have moved abroad, paying so much tax much surely grate on your nerves.

If you have moved abroad but still draw a UK private pension, have you considered a QROPS? Qualifying Recognised Overseas Pension Schemes allow you to transfer your pension pot into a foreign scheme without paying UK income tax.

As long as you stay outside of the UK for five years or more, the taxman will cease to have an interest in your affairs. During those five years however he will be keeping his beady eyes on your pension pot, and getting reports of any activities that are linked to it.

You can visit the UK from time to time without being sucked back into UK residence for tax purposes, but it is best to get professional advice about the consequences of your activities to make sure that you do not inadvertently end up with a high tax bill.

Other than the income tax issues, there are other advantages to QROPS. They may typically offer more flexibility about when you can access your pension fund, and sometimes offer more choice in what you can choose as underlying assets.

QROPS.net can help you move your pension out of the reach of the UK taxman in a completely lawful way. Taking into account your plans, hopes and aspirations for a comfortable retirement, we can look for a solution to your investment needs.

Self-administered schemes regulations were overhauled on A-day in April 2006, when previous schemes were replaced with mainly self-invested personal pensions (SiPPs) and small self-administered schemes (SaSS).

Trustees and administrators were given until April 2011 to bring their scheme in line with the new regulations.

Failure to meet the deadline could see HM Revenue and Customs inflict a 40% tax charge on any assets and deregistration.

HMRC ready to announce pension tax penalties

To make matters worse, this could also freeze or restrict contributions and pension benefits.

The pension scheme problems are:

n  Some schemes have no administrators as they have resigned – and the scheme members are unaware of the pension’s tax status

n  Many SiPP and SaSS schemes have not undergone regular reviews

n  Businesses that consolidated property and pensions have had a difficult trading period over recent years and have overlooked or ignored their schemes

If you have a SiPP or SaSS scheme that does not meet the A-day rules, HMRC is due to announce on December 9 whether tax penalties will be pursued or if deadlines will be extended.

QROPS solution for SiPP and SaSS problems

For pension holders who have retired or live permanently outside the UK one option is to transfer the self-administered fund in to a QROPS.

Good QROPS offshore pension schemes more investment and tax flexibility to a SiPP or SaSS and some also offer similar self-administration options.

Switching funds to a QROPS removes the regulatory problem as all good QROPS schemes are already listed by HMRC as pensions that are qualified and recognised as meeting tax and investment rules.

An experienced independent financial adviser can review current fund performance and offer other investment options while managing the transfer.

For more information about transferring a SiPP or SaSS to an offshore QROPS pension scheme, contact us today

Even if the advice is not relevant, at least the guys in the bar are trying to be helpful, not ripping you off for a fat commission or fee.

If you are shopping for a QROPS pension, then here are some relevant points to ask your advisor:

Long time no see!

It’s no coincidence a firm you may have contacted some time in the past approaches you. The likely reason is they are raking over old lists of ‘prospects’ – people who have made an inquiry but not completed any business or the adviser has switched firms and is looking to prop up income.

One-size fits all solutions

QROPS pension transfers are complex financial transactions and need careful consideration of the consequences for each pension saver. If your adviser is not showing you a personal, tailored solution, then show that adviser the door.

No time like the present

Rush decisions are no good for anyone. Reputable advisers do not pressure clients and if you are under stress to complete the deal, the adviser has another agenda.

Read the small print

You need to run a calculator over the QROPS transfer and administration charges. Look for add-on fees and recurring costs. Make sure the maths works out.

If your adviser is suggesting an in and out deal where you open one scheme and then move to another for tax avoidance, just stop and think. The adviser is landing you with two sets of charges – and earning two fees or commissions – that are diminishing your pension pot.

Avoid hit and run advisers

QROPS investments are long-term strategies that require regular reviews to stay on-track. Make sure you have an adviser that’s going to stick around and offer you a service.

Go for a complete package

QROPS pensions are about tax effective savings and benefits. They are also tied up with capital gains and inheritance tax, so you need an adviser who has access to professional cross-border tax advice so you can avoid the pitfalls.

Watch out for special offers

QROPS are technical products based on legal guidelines issued by HM Revenue and Customs. The products can vary slightly between offshore financial centres, but beware if your adviser is offering a package you can’t pick up from anyone else – it’s probably too good to be true.

In three separate moves over the past few days, some shortcomings in SIPP and SASS pensions have become apparent:

• Several providers have announced they will stop dealing with international advisers because they consider the compliance risks are too stressful
• A poll of IFA advisers has revealed that SIPP investors with cash in their pension plan are receiving miserly interest rates of UK bank rate or less (0.5%)
• Providers and advisers are calling for the Treasury to rewrite commercial property lending rules to let SIPPs investors borrow more than 50% loan-to-value

Overall, the announcements show how constrained a SIPP or SaSS is for pension investment in the UK.

More flexible options for British expats or international workers with UK pension rights would seem to be QROPS or QNUPS – both offshore pension schemes.

Both are pension schemes operate under a framework of HM Revenue and Customs approved rules in offshore tax jurisdictions – the Isle of Man QROPOS and Guernsey QROPS are popular with UK expats.

For investors looking at a mix of cash and equities, offshore pensions break the link between investments and Sterling by opening the door to other currencies.

Investment options give access to more markets and assets than a UK pension scheme as well.

For property investors, QNUPS provide options to invest in residential and commercial real estate.

Both offshore schemes are outside UK pension rules and are only open to non-residents with UK pension rights or those who are planning to move overseas within six months.

Hundreds of offshore pension providers offer almost 2,000 QROPS and QNUPS schemes in about 50 tax jurisdictions worldwide.

Pension funds in SIPP or SaSS schemes can be transferred in to offshore pensions with the help of independent financial consultants. Providers will not accept direct applications from investors.

QROPS.net has spoken out about the QROPS cowboys who give poor advice and charge big fees.

Now David Trenner, technical director at Intelligent Pensions, claims QROPS have created an opportunity for abuse and mis-selling.

Speaking at a retirement income specialist road show, Mr Trenner told the audience that QROPS are a valid pension planning option, but pension savers need to be aware of advisers who are not regulated and who take commissions as high as 8% of the fund sell many QROPS.

Expats should not assume that an overseas QROPS salesman knows more about QROPS offshore pensions than an independent UK financial adviser, he added.

He explained some clients lose up to 10% of their funds when they transferred in to a QROPS because overseas sellers did not have to disclose fees, commissions and charges.

QROPS.net has warned anyone transferring their UK pensions in to a QROPS scheme that they should carefully check out overseas advisers before entering in to any agreements.

Watch out for QROPS advisers charging huge fees

Often, offshore QROPS packages look better than those offered by regulated companies because the illustrations leave out crucial charges.

Overseas advisers who do not work with a firm that has proven experience in QROPS transfers are unlikely to have the backing of investment and tax professionals.

Clients can often end up as ‘orphans’ when small advisers close down. This can lead to poor performing funds unless a new adviser is found to help with regular reviews.

Many advisers claim that HM Revenue and Customs (HMRC) approves their QROPS because they are on the HMRC list of providers – but this does not mean any scheme is endorsed by the tax man.

Instead, inclusion on the list merely indicates the scheme is registered with HMRC.

If you are looking for professional, expert advice from an independent adviser with QROPS experience, contact us today

About 100,000 investors are victims of anti-avoidance measures that are now in effect – and in April 2011 face even more restrictions linked to the levels of contributions.

Then government effectively closed EFRBS because they are considered a tax loophole for the wealthy.

Now, EFRBS investors face higher tax bills as perks that allowed contributions free of income tax and national insurance were withdrawn after the Treasury discovered some employers were avoiding corporation tax by running the schemes.

From April, new pension rules limit the annual allowance to £50,000 of savings in to a pension with tax relief, while the lifetime allowance is reduced by £300,000 to £1.5 million.

HM Revenue and Customs (HMRC) are seeking to bring back £500 million a year in lost tax from disguised remuneration schemes like EFRBS and employee benefit trusts.

Transferring offshore funds in to a QROPS

The Treasury is also taking anti-tax avoidance action against other similar schemes, like employee benefit trusts (EBT) that are much favoured by professional contractors and consultants.

EFRBS pension investors who are expats or who intend to move permanently outside the UK within six months can transfer their EFRBS funds in to a QROPS without any tax penalty or repayments of any tax relief.

Employers can then continue to make contributions in to the QROPS – but the new contributions will not accrue any tax relief.

The QROPS pension saver receives all the benefits of the registered offshore scheme – including tax-free growth on incoming transfers – but also has no lifetime allowance limit on any contributions made after the transfer.

The alternative for EFRBS investors is to receive taxable cash payments or bonuses to top up their retirement savings as the EFRBS or EBT now offer no tax benefit to pension savers.

Walking on the wild side means investors can put their money in to a zoo – the buildings, compounds and cages count but not the animals. An even wilder investment is going to the dogs – literally – with a greyhound stadium.

If you are a sporty type, show your support by pitching in for a football stadium, racecourse or cricket ground

Perhaps a room with a view is more to your taste. In that case, hotels are a great investment – whether they are in city centres for busy business travellers or providing treats for travellers in a far-flung tropical paradise.

For a more niche investment, Japanese love hotels attract lots of investment. The country has 25,000 of these discreet nests for secret liaisons attracting millions of visitors for stays lasting from a couple of hours to much longer.

QROPS investment on the menu for Jamie Oliver

Timeshares and hotels offering ‘investor perks’ like free accommodation are more tricky to consider for a QROPS as they breach HM Revenue and Customs investment rules and trigger tax penalties.

Another tasty investment from a QROPS comes from a fan of TV chef Jamie Oliver who has benefitted a £1.5 million portfolio bond held within the offshore pension scheme in favour of developing a restaurant in Singapore.

Onshore SiPP (self invested pension plan) providers are claiming that scrapping annuities from April 2011 lets pension investors look beyond the traditional commercial building and development options for their retirement savings.

The problem they face is explaining to an expat or overseas worker why they would want a SiPP when they could have a tax-efficient QROPS want to take a clunky UK SiPP that lacks the finesse and flexibility of its offshore cousin.

Switching your pension funds offshore bypasses the restrictions placed on retirement saving by the UK government – even when the despised annuity rules are scrapped in April 2011.

Two of the most important advantages for many QROPS investors are control of their funds and retaining tax relief on contributions to funds.

Many QROPS schemes let scheme members self-manage their investments in much the same way as a SiPP – self-administered pension plan – that gives a degree of control that is unavailable in most onshore pensions.

One other unsung benefit is the ability to transfer contributions in to funds that have received tax relief without any requirement to refund the tax.

For instance, the average QROPS transfer is between £150,000 – £250,000. If contributions attracted 40% relief for a higher rate taxpayer, that amount accounts for £60,000 of the total fund – and none has to be repaid on transfer.

Five reasons to switch your pension to a QROPS

Here’s a list of some of the other key advantages of transferring your pension fund in to an offshore QROPS:

• Pension benefits are paid gross by many QROPS providers
• Many QROPS let retirement savers draw down up to 30% of the fund as a tax-free lump sum. More in some cases, contact QROPS.net for more information
• Pension benefits are paid in your choice of several major currencies, negating the effects of currency fluctuation on a fixed income
• In most cases, the trust status of a QROPS places the funds outside of inheritance tax when the pension investor dies
• QROPS have an investment flexibility that is far outside of the narrow limits offered by any UK pension or SiPP.

Qualifying for a QROPS is straightforward – anyone with UK pension rights can consolidate one or more funds in to a single QROPS, providing they are or intend to permanently live outside the

The average pension transfer is £225,000 and the most popular fund destination is Guernsey. With the Isle of Man and New Zealand being close behind.

The potential number of expats and foreign workers who can capitalise on a QROPS pension transfer grows at the rate of 400,000 or so each year.

Insurance company AXA estimates a total of 5.5 million Britons live overseas permanently.

Nevertheless, expats and other pension savers should carefully weigh up the pros and cons with a reputable and regulated advisor before transferring or consolidating their pensions in to a QROPS.

QROPS are tax effective retirement savings options for expats

In most cases, QROPS are a feasible and tax effective retirement savings option for expats – but anyone in a final salary pension scheme would lose their guaranteed annual index-linked payments.

Other offshore pension options are also available for expats – like QNUPS, employer funded retirement benefit schemes (EFRBS) and international pension plans (IPP).

QROPS advisers also warn against schemes that heavily promote more than a 30% lump sum draw down, have high payment benefits and let investors put residential property and other tangible assets, like wine, art and other luxuries for personal use, generally disallowed by HM Revenue and Customs in to a QROPS wrapper.

Even if a scheme is listed on the HMRC’s database of registered QROPS schemes, this is no endorsement or recommendation that the scheme meets UK pension rules.

A list of registered QROPS schemes is updated every month by HMRC and is available for download from the HMRC web site

As always, QROPS.net suggests any expat or foreign worker leaving the UK to live overseas permanently should review their offshore pension and finance options by speaking to one of our advisers.

The government has announced the major change to the UK pension system will start from April 6, 2011.

The critics, including influential industry analysts and pension providers claim the rules will benefit the wealthy more than anyone else because they can afford to escape income tax and inheritance tax on their pension funds by living off other income.

The wealthiest savers already avoid tax on pensions, they say, by switching their UK funds offshore with a QROPS (Qualifying Recognised Overseas Pension Scheme).

QROPS let expats take their pensions without any tax relief recovery charge and are outside UK tax calls on any pension benefits paid.

Not reclaiming tax relief boosts QROPS savings

Effectively, this means they have picked up generous tax relief on contributions while the fund was based in the UK plus the bonus of not having to repay any of this tax relief when the fund is moved away to another tax jurisdiction.

From April, annuities and alternatively secured pensions (ASPs) are replaced by new income drawdown rules that let pension savers choose to keep their funds intact or take cash at roughly the same amount an annuity would pay.

The capped drawdown is review every three years up to age 75 and annually in subsequent years.

The intention is not to allow pension savers to draw all the cash and then look to the state for financial support by penalising excessive draw downs with tax charges and penalties.

Poor paying annuities are one of the key reasons for swopping funds in to a QROPS, but although the new rules encourage the wealthy to stay in the UK, the are only a small step towards the flexibility and tax effectiveness of a QROPS.

For expert and professional QROPS advice, contact us today

The government recognises that these people need access to pensions; investments and savings to pay for their retirement and lifestyle and general financial products available at home do not do the job.

That’s why the government opted to help expats access their money with offshore pension schemes called ‘qualifying recognised overseas pension schemes’ or QROPS.

The problem for expats is nailing down an experienced and reputable adviser who can guide them through the pitfalls of investing offshore.

To help, HM Revenue and Customs regulates QROPS offshore pensions and publishes a list of ‘approved’ schemes every month online.

Here are some key points to watch when considering investing in a QROPS:

• Pension savers cannot approach a QROPS provider directly – they must set up a scheme via a financial adviser
• Choose an adviser who can evidence other successful QROPS transfers. Don’t just take their word, ask for testimonials or references and follow them up. A good adviser has nothing to hide.
• Thousands of offshore pension schemes are vying for your money – only invest in one that is on the HMRC list to gain maximum protection for your money
• Consider consolidating any number of UK pension funds in to a QROPS to keep administration costs down
• The State pension cannot be switched in to a QROPS
• Pick a provider in a regulated or trustworthy tax jurisdiction like the Isle of Man or Guernsey. The tax and legal systems are similar to the UK and the providers speak English.
• Opt for a self-managed scheme if you want a hands-on investment approach
• Watch out for schemes that are too good to be true – they probably are.
• Make sure your adviser has access to cross-border tax consultancy that covers income tax, capital gains tax and inheritance tax for your QROPS fund.

Another type of offshore pension with similar rules to a QROPS is called a QNUPS – a qualifying non-UK pension scheme. Make sure your adviser explains the differences if you consider a QNUPS as a suitable pension solution.

Surprisingly, the answer still remains almost every expat – because surveys show the main reasons for ditching a UK pension in favour of a QROPS have nothing to do with the miserly rates annuities pay.

Researched by multinational QROPS providers show the three main reasons for opting for a QROPS are:

• Protection from currency fluctuation
• The possibility of drawing a larger lump sum
• Inheritance tax benefits

However the government tinkers with pension rules, the probability is little or nothing is available that makes a UK pension comparable with an offshore pension like a QROPS for expats wanting to maximise retirement savings.

While the government has put a brake on buying an annuity, the current change of legislative direction is merely a stopgap to let ministers draw breath while considering further pension upheavals.

QROPS offer more than tax breaks and flexible investments

The system has to change – the trouble is no one seems to know what changes need making as more people are living longer and the issues of dealing with retirees who have little or no provision for their retirement is having a knock on effect to those with more significant savings.

That’s the basic problem for wealthy individuals who have pension pots of £250,000 or more – UK pension rules are based on those with lesser funds to the detriment of those who can afford to look at better options.

Consolidating one or more UK funds in to a QROPS offshore pension certainly offers a step up with improved tax breaks and financial flexibility.

Switching to a QROPS fund in a stable offshore tax jurisdiction like the Isle of Man or Guernsey immediately gives a pension saver more control of their assets and removes the imposition of artificial investment caps.

If you are an expat or international worker with money locked in to the UK pension system and want advice on how to maximise your retirement returns by fast tracking to a QROPS, then contact us today

Millions of pension savers have cash tied up in closed funds that pay at low rates when they could review their pensions and switch to earn more money.

Funds that with low paying out low returns in comparison to other providers include Equitable Life, National Provident Life, Phoenix, Abbey Life and Windsor Life.

The problem is an annuity trap because these sleeping giants who no longer accept new business in to some funds do not pay enhanced annuities.

For a retired expat relying on a fixed pension income, this can add up to thousands of pounds in lost benefits. In some cases highlighted by independent annuity advisers, these annuities pay up to 60% less than the top performing products.

If you are an expat about to draw an annuity with one or more funds trapped in one of these firms, a qualifying recognised overseas pension scheme (QROPS) could be the solution.

QROPS offshore pensions offer expats a tax bonus

QROPS are offshore pension schemes that let expats consolidate scattererd pension funds in to a single investment. This reduces charges and fees.

The big bonus is QROPS investors do not have to buy any annuity but still benefit from a tax-free lump sum draw down of up to 30% of the fund plus pension benefits are paid gross (without tax deducted) and in most major currencies.

Having pension benefits paid directly in to your bank without currency conversion means a fixed income is not subject to fluctuating rates.

If expats take out an annuity, it’s too late to switch to a QROPS under tax rules policed by HM Revenue and Customs – and another important restriction is the state pension cannot go in to a QROPS either.

Besides expats, anyone living outside the UK who has UK pension rights can transfer their pension in to a QROPS.

The problem is the legal defiinition of a wind turbine in the UK.

On the one hand, the government is looking to sell licences to wind farm firms to generate clean and cheap electricity, while on the other the taxman is preventing pension and instituitional investors from taking part.

In the UK, several self-invested pension schemes want to put money in to wind farms, but fear the taxman will impose 40% tax penalties on their funds by ruling wind turbines are not permanenet structures.

Despite the size and logistics involved in plugging a wind turbine in to the electrical grid, the taxman still treats the massive structure on the same basis as a work of art or bottle of wine.

Under UK tax rules, these non-permanent structures are defined as ‘tangible moveable property’ and are excluded as asset classes for pension investment.

The same rules apply to QROPS as UK pension schemes for moveable property.

Holding taxable property at any time in a QROPS can trigger a tax penalty – even after the five year reporting rule from the QROPS provider to HMRC has lapsed.

Not only does the QROPS investor risk a tax penalty, but the provider may lose approved status for allowing the investment.

HM Revenue and Customs tends to take the stance that the individual circumstances of each case are reviewed rather than accepting a general ruling. This means that some wind turbines may pass as investments but others might not.

Investors are holding back because of the uncertainty and risk of tax penalties.

One SiPP provider has written to HMRC asking for investment exemptions for wind turbines and solar panels.

Neil and Megan Gratton were hoping to save tax and avoid buying an annuity with their pension under a scheme devised by Malcolm Tune, a financial adviser later convicted of fraud.

The taxman discovered their transfers during the criminal investigation.

The Grattons said Tune had told them that they could avoid pension rules by transferring their pensions in schemes on Guernsey and then become resident by renting a home in the offshore tax jurisdiction for 12 months to make them look non-resident in the UK.

The scheme backfired and HM Revenue and Customs demanded a tax surcharge on the transfer of funds, alleging the transaction was an unauthorised pension transfer and as such was subject to a tax penalty of at least 40% of the fund value plus 15% in penalties and surcharges.

Guernsey pensions adviser was convicted fraudster

The Grattons appealed, arguing they had carried out the transfer in good faith and did not know until after the switch that the movement of funds in 1996 contravened pension rules.

The Tax Commissioners heard the appeal and concluded that the transfer had not complied with tax rules, so the tax penalty should stand.

Because they believed they were not breaking the law, the commissioners decided imposing a further surcharge was harsh and held the penalty should be withdrawn.

This left the couple paying a penalty of  £86,00 on a total pension fund transfer of £231,832 – reducing their retirement savings to £145,832.

The Grattons may face a further tax penalty as the funds may be subject to inheritance tax at a late date.

“We are sympathetic to the fact that the Grattons were honest and compliant taxpayers for several years. They are now in their mid to late 70s Mr Gratton in poor health as a result of Parkinson’s disease,” said the commissioners.

“They seem to have fallen into the hands of a convicted fraudster who perhaps did not act in their best interest.”

Many overseas workers are in a win-win position because they can build up a pension pot onshore while gaining tax relief top-ups from the government and benefit from a tax-effective QROPS scheme if they leave the UK.

A QROPS is a special offshore pension scheme that allows anyone with UK pension rights who moves overseas better access and more control over their pension funds.

High-earning expats have offshore pension options

QROPS – which stands for qualifying recognised overseas pension scheme – is a pension aimed at UK expats or overseas workers with UK pension rights who have moved permanently to another country.

This double-whammy investment is of particular interest to high-earning expats in the UK who plan to live and work here for several years and then opt for retirement back to their home country.

Higher rate taxpayers can invest in a UK pension and pick up 40% tax relief on their contributions – then instead of accepting the meagre annuity returns and restricted benefits, they can switch the fund to a QROPS up to six months before leaving Britain or once they have moved overseas.

Tax benefits of a QROPS pension

The QROPS rules than come in to play that let them drawdown a tax-free lump sum and pension benefits paid gross – plus the any remaining funds in a QROPS are generally exempt from inheritance tax when the pension investor dies.

Crucially, the QROPS can live in a neutral tax jurisdiction like the Isle of Man or Guernsey while the saver can set up home wherever they like.

Moving a pension fund offshore is a serious and complex investment decision, and QROPS providers insist investors take advice from an independent financial adviser before switching a penny offshore.

Some pension experts claim continuing low interest rates will have an unexpected impact on pensions – which has led finance professionals to point clients towards offshore pensions like qualifying recognised offshore pension schemes (QROPS) for better returns on investment.

Low interest rates undermine pensions in several ways:

• Long-term growth is harmed
• Inflation – running at 3.2% a year according to latest government figures – erodes savings
• Annuity rates are pushed down
• Quantative easing shores up assets and investments reflect artificial values

One pension expert, Dr Ros Altmann, director-general of the over-50’s financial provider Saga Group, is even predicting a further financial crash unless rates rise.

She claims low long-term interest rates are damaging pensions and has spoken out about the dangers of the current economic environment.

Her main concern is free market asset prices are often priced according to government bonds, and that as quantative easing (QE) is promoting artificial values of these bonds, the real asset values underlying those seen through QE tinted glasses are not clear to investors.

Dr Altmann addresses problems in the UK pension market but does not promote any offshore solution, but one way to steer clear of the crisis is for investors to take control of their pension funds.

UK pension holders who plan to move abroad  or are already live abroad can move their cash in to a QROPS.

A QROPS shields investments from the vagaries of UK pension rules by moving money to an offshore financial centre like the Isle of Man or Guernsey – to name just two of the most popular.

QROPS investors have more choice over how they invest – like choosing the currency and spreading risk across a wider selection of assets.

Although QROPS are not exempt from the effects of a global financial crash, they can remove risk from a narrow investment base imposed by a UK onshore pension.

One of the problems of saving for retirement is a scattergun approach to pensions and then failing to make the most of the payouts.

The latest government pension reviews have thrown up an interesting insight in to pensions – that most workers have an average 11 jobs before they retire.

That may well change with the seemingly elastic retirement finishing line stretching further in to the future for many, but the odds are that those 11 jobs have thrown up several small pension pots.

Each on probably pays in Sterling wherever the expat lives, so the value of the pension benefit is diluted by the exchange rates between the Pound, and currencies of the likely choice destinations – the Euro and US dollar.

Other financial and tax restrictions probably devalue the pension pots further – for instance buying an annuity, pension benefits paid with tax deducted and inheritance tax considerations.

Sensible expats or workers with UK pension rights could look at offshore pension schemes managed under HM Revenue and Customs rules to enhance pension payouts.

These schemes – called QROPS and QNUPS – can effectively consolidate all a pension saver’s funds in to one, except for the State pension.

Many offshore pensions, based in places like the Isle of Man and Guernsey, also offer pension benefits paid gross, eliminate the need for an annuity and place the remaining fund outside of inheritance tax when the pension holder dies.

Pension benefits are paid out in a currency of choice to minimise exchange rate fluctuations impacting on living expenses.

Offshore pensions roll up a solution that solves most financial problems for expats in to one simple to manage product.

Expats need to make investigating the benefits of a QROPS or QNUPS their top financial objective as soon as they know where they want to settle.

NAPF is now urging the government to let the transfers go ahead.

The comments are in response to a recent Department of Work and Pensions (DWP) consultation relating to the scrapping of defined benefit pension schemes (DB).

“NAPF and its members are supportive of the abolition of contracting out defined contribution schemes. This move will help simplify the complex interaction between workplace pensions and the state pension system,” said the NAPF consultation submission.

“We would urge the government to consider allowing transfers from contracted-out DB schemes to any HM Revenue and Customs-registered or QROPS post April 2012.

“Restricting transfers of this nature would be harmful because it would severely limit individuals’ ability to transfer their own pension rights to suit their needs and circumstances. It would increase administrative cost and complexity for pension schemes and it runs contrary to the European Commission’s portability agenda.

“Individuals choose to transfer their pension rights out of contracted-out DB schemes for many reasons. They may want to amalgamate their smaller pension into a single pot, they may have concerns about the future viability of their sponsoring employer or they may want to make use of facilities like income drawdown.

“This is not to say that transferring out of a contracted-out DB scheme would be in every members’ best interest. Individuals must understand the risks associated with transferring out of a contracted-out DB scheme and should be encouraged to seek independent financial advice before making their decision.”

The members are understandably concerned about the £2 billion deficit in their combined pension pot. 1,100 members have taken the unprecedented step of demanding a meeting at the highest level, which means that the people in charge will have to answer some serious questions about what they plan to do to plug the gap.

There are a number of proposals on the table at the moment. The suggestions under discussion include a rise in the pension age for members and the possible sale of the corporation’s flagship building Television Centre. But the proposal that has incensed the unions is a cap on how much pensionable salary can increase per year to 1%. In a world where pay freezes are the norm, and redundancies and cuts widespread, at first glance this may not seem so unreasonable.

However, the proposals are intended to affect contributions that have already been made, which has led to cries of pensions robbery.

The main unions involved, Bectu and NUJ, are in the process of balloting their members about whether or not to strike over the issue. It has been rumoured that the proms may be affected.

But the issue is so serious that the unions are planning to go beyond strikes. The NUJ has threatened to issue a legal challenge if the proposals go ahead.

The backdrop to the fury is the fact that senior management have only just decided to sacrifice some of their own pension entitlement, which has been perceived as a “fat cat” perk by the lower paid BBC employees.

At the moment, the BBC scheme is a funded one, which means that the organisation, employees and the proceeds of the scheme’s investment gains make up the pot that is available for payments. Up until now, the taxpayer has not had to make any contribution to the scheme. However, the trustees get desperate and call the Treasury, the matter will be of increasing public interest.

Transferring a fund from a UK pension in to a QROPS is an ideal time for many investors to consider the consequences for others from their investments.

Next week is National Ethical Investment Week (November 7 – 13) in the UK, and a number of financial organisations are taking the opportunity to promote what they see as a different way of doing good.

Likewise, many QROPS investors could look at less mainstream investments that are still financially viable as savings with the added benefit of fair trade for those who are less well off.

Nick Scarrett, head of investment and pensions at the Fair Investment Company explains why making green and ethical financial choices is just as important as drinking Fairtrade coffee.

“While many of us would go out of our way to avoid unethical products, ethics are often not considered when it comes to finances, but the same principles should apply. If you care where the coffee you drink comes from, then you should care how your money is being invested,” he said.

Although Mr Scarrett is talking about UK finacial products, the same applies to QROPS.

All offshore pension schemes have a much broader range of investment options than their onshore equivalents.

Following the credit crisis, many investors have a more acute financial responsibility and would gladly see a proportion of their money invested in a way that was advantageous to the less well-off in the world.

UK ethical finance figures reflect this. Between 1999 and 2009, ethical finance has enjoyed 373% hike from £5.1 billion to £19.2 billion.  This total includes:  

• A 423% lift in ethical banking from £2.1billion to £9 billion,
• Ethical investments up by 332% from £2.9 billion to £9.5 billion
• A 438% rise from £150m to £657 million in money held in credit unions and ethical shares.

The figures show that ethics are not at odds with finance and that many investors want to use their money for the power of good.

Switching your UK pension funds in to an offshore pension scheme has a major impact on inheritance tax (IHT).

IHT is charged at 40% on the value of any estate exceeding the current IHT threshold of £325,000 – and this is likely to remain so for some years as the government has indicated no IHT changes are likely in the life of this Parliament.

Expats with UK pension rights have the choice between two offshore pensions – the QROPS and a QNUPS.

The difference between the two is subtle – a QROPS will always be a QNUPS, but a QNUPS need not be a QROPS.

The basic difference is how fund trustees communicate with HM Revenue and Customs. A QNUPS can have a home in a jurisdiction that does not have a double taxation treaty with the UK and therefore has no reporting process, whereas a QROPS must be based in a jurisdiction with a double taxation treaty that insists the trustees have to report any scheme changes in the first five years of a QROPS.

The result is both schemes take your pension savings outside UK inheritance tax laws regardless of your domicile. – subject to some anti-avoidance rules.

Setting up the right scheme can ensure the pension saver can access an enhanced tax free lump sum of up 80% of the fund value, have pension benefits paid gross and free any remaining funds on death from IHT.

Working out cross-border IHT for expats is complicated – and a QROPS or QNUPS pension transfer adds another layer of complication.

UK domicile, generally based on the domicile of an individual’s father, determines IHT liability – but a QROPS or QNUPS can ‘live’ in it’s own tax jurisdiction, like the Isle of Man or Guernsey, while the pension holder can be resident in any other country except the UK.

Effective estate planning means looking at the implications of financial ties to each of these places of domicile and residence.

To make sure everyone benefits from the improved investment and tax benefits of an offshore pension, it’s imperative an experienced international tax adviser is involved in setting up the scheme from the start.

QROPS.net has a wealth of experience in successful UK pension transfers in to QROPS and QNUPS. Contact QROPS.net for more information.

It has been revealed that members of the armed forces are set to lose 12% of their pensions thanks to the government’s decision to index pensions in line with CPI rather than RPI. Perhaps the forces feel particularly let down given that IDS has a military background.

It is necessary to index final salary pensions to make sure that they reflect the true value of what the employee’s last salary would have been when they left employment. Without indexation, pension payments would become less valuable each year, and would provide little help for funding the real life costs of day to day living in the UK.

Currently pensions are typically indexed in line with the Retail Prices Index, which takes into account accommodation and utilities bills. However, from April 2011, public sector pension payments will be linked instead to the Consumer Prices Index, which does not include these costs. Accordingly, in real terms pensions that are calculated in this way will be lower.

In the case of British serviceman, they will be much lower. Assuming that a serviceman retires at forty, the difference between what the payments would have been and what they will actually receive could run to hundreds of thousands of pounds.

The move is just part of a review of public sector pensions, which were a bone of contention during the election. Most private sector workers have not had access to final salary schemes for years, as the penny dropped some time ago for their employers that they were unsustainable and sometimes even threaten the very business that they are derived from. Indeed, some FTSE 100 companies have pension deficits that are bigger than their market capitalisation.

The public sector is now playing catch up. It remains to be seen whether public sector workers will threaten to strike over the change.

QROPS providers in Gibraltar are maintaining a ‘wait and see’ view until the local government confirms the agreement.

Sources in Gibraltar confirm that high-level talks have taken place between HM Treasury and the Gibraltar government in recent weeks and that local amendments to pension rules are expected before Christmas that will enable QROPS providers to start trading.

“We are not accepting transfers from UK pension funds in to QROPS schemes,” said one Gibraltar provider.

“The situation is still unclear until the government confirms any tax issues are resolved. HMRC approved Gibraltar as a QROPS jurisdiction and then asked that we stop accepting transfers, which we have done.

“The risk is if we accept any transfers, a 50% tax penalty could be levied.”

The history of the dispute dates back to September 2009, when HMRC wrote to the Gibraltar government querying 0% tax rates on pension benefits for over 60’s living there.

QROPS rules state that schemes should be open to residents in the jurisdiction offering the pension on the same terms as to those living in other jurisdictions. HMRC feels this is breached by the Gibraltar pension tax rules.

Discussions to resolve the disagreement were planned for earlier this year, but the General Election and subsequent emergency budget and spending reviews led to the Treasury postponing talks.

Now, these have been held and an agreement supposedly reached although no official confirmation is available.

Meanwhile, although Gibraltar QROPS schemes have been listed on HMRC’s ‘approved’ list, no transfers have been taken because fund trustees do not want to put clients or themselves at financial risk without clear and unambiguous approval.

The next expected move is for the Gibraltar government to amend pension tax legislation in line with any agreement with the Treasury and HMRC.

It aims to ensure that all employees will eventually benefit from a private pension that receives contributions from their employer. The roll out of the scheme will be gradual, but larger employers must take steps to get it in place by Autumn 2012.

As the state pension becomes more expensive to deliver due to increasing longevity and a growing elderly population, governments of all colours are united in the view that individuals (and their employers) need to shoulder more of the burden of providing for them in their retirement.

Under the NEST scheme, employers will eventually end up contributing 4% of their workers’ salaries to their pension pots.

However, a recent survey by the Association of Consulting Actuaries (ACA) has revealed that rather than providing a basic pension package that they will use as a starting point, a significant minority may end up reducing the contributions they currently make to the 4% level.

41% of the employers polled said that they intended to do this.

So rather than improving the lot of employees, NEST may actually end up reducing the pension benefits they currently enjoy.

According to the ACA survey of 210 major employers, the principle of NEST is widely supported, with 75% claiming that they broadly backed the concept. But the devil is in the detail, with 70% of respondents claiming that the scheme was too complex.

Notwithstanding the cost and hassle that NEST presents for employers, the ACA are also concerned that the scheme may potentially leave lower paid workers out of pocket in the long run. Under the current proposals, it is possible that lower paid workers could lose out on benefits they may have been able to claim, without being able to replace this income with pension payments.

The Treasury put the proposal out to consultation earlier this year and is expected to confirm the results later this month.

For the top 1% of pension savers with the largest funds, the rules are expected to change to allow a flexible drawdown – providing other pension arrangements guarantee the savers will not apply for state benefits.

The new rules are expected to state that only investment funds topping the £200,000 threshold – which returns about £6,000 inflation-linked income – other pension savings will count towards eligibility for the drawdown.

Some pension industry experts claim any change will have no affect on UK pensions because these ‘gold plated’ pensioners can already take advantage of a qualifying overseas pension scheme (QROPS) by transferring their UK pension pots offshore and the new rules would not benefit the other 99% of UK pension savers.

No annuity needed for a QROPS offshore pension

QROPS schemes – like those promoted in the Isle of Man and Guernsey – already do away with the requirement to buy an annuity, but these schemes are only available to expats or non-residents who have UK pension rights.

The Treasury consultation reveals the government estimates that 3,000 people immediately approaching retirement and a further 5,000 between age 55 and 75-years-old will benefit from flexible drawdown rules. 

The UK has 7.8 million pensions savers and around 450,000 annuities are bought each year. 

One of the most outspoken critics against the flexible drawdown proposal is Dr Ros Altmann, director-general of over 50s financial group Saga.

She is an expert and policy adviser on pensions, savings, annuities and retirement and has advised government, corporates and pension funds on strategy, governance and investment allocations.

“If the aim of this policy change is to help people benefit from greater flexibility in the annuities market, and help reinvigorate retirement, surely we should not be focussing only on the top 1% or so of annuitants. 99% of people are not being helped and remain at risk of the same inflexibility and potential mis-buying that exists today,” said Dr Altmann.

“For the vast majority, these measures will have no benefit and, in fact, there will be a potential tax increase for many middle income pensioners who die before age 75.”

• you need to find out whether your current scheme will permit a transfer (as some will only allow it before the member has started to take benefits);
• to remind yourself of the benefits to which you are entitled; and
• to review the fees and charges that your current scheme bears.

Next, you have to give some firm thought to what your plans really are. Unless you genuinely intend to be out of the country for five whole tax years following the pension transfer, a QROPS transfer will not be for you. The danger of a large tax bill greeting you on the doormat if you come back early should be a significant deterrent.

Many QROPS do not accept investments direct from private individuals who are not represented by an adviser. Accordingly, even if you felt able to choose an appropriate scheme for yourself, you may find that the QROPS administrators may not be prepared to deal with you direct.

In any event, many QROPS advisers operate on a commission only basis, which means that you may not even need to pay directly for the advice that you receive.

When selecting an adviser, bear in mind that only someone independent with access to the whole of the market has the potential to sift through every single scheme out there on your behalf. A tied agent may not be able to offer the most competitively priced deal.

Your adviser should listen to what you have to say about your plans and ambitions for your retirement so that they can help you choose a QROPS to suit. For example, if you need access to lump sums early on, this will affect the types of scheme that you can choose. Alternatively, if you want your pension to hold a particular asset, you may be directed to another type of arrangement.

Once the scheme has been chosen, your QROPS adviser should deal with the transfer.

Trinity, from Isle of Man actuaries and pension specialists Boal & Co, was designed alongside the new legislation that allows pensions, lump sums, and death benefits to be paid without tax.

The new 50C rules were only passed by the IoM government last week to let providers on the island compete with rivals in Guernsey, which already pays pension benefits without deducting tax.

Besides paying pension benefits gross of tax, Trinity also pays a retirement lump sum which can, in most cases, be significantly higher than the normal 25% or 30% of fund value found in other QROPS schemes.

Enhanced lump sum payments make Trinity a special QROPS

Gary Boal, managing director of Boal & Co, said: “Trinity rules have been written so that the scheme fully complies with HMRC requirements, without adding unnecessary restrictions. At least 70% of any UK transfer values paid across into Trinity have to be used to provide a pension for life, and must commence no earlier than age 55.

“However, the excess of the pension fund over and above this amount can be used to provide an additional retirement lump sum. All of the investment growth achieved within Trinity can, at retirement, be paid as a lump sum. Expatriate clients who retire outside of the UK can receive a lump sum equal to 100% of fund value less 70% of the initial transfer value.

“In some cases, this can be as high as 75% or 80% of the fund value at retirement. For this single reason alone, transfers already made to QROPS established in other jurisdictions should now be revisited by advisers – as Trinity will generally be able to offer much greater benefits than their current QROPS arrangement.”

Trinity can accept transfers from UK pension schemes, including SIPPs, plus transfers from Guernsey and other QROPS.

The new legislation came into effect on the 22nd October 2010. Trinity is the very first 50C QROPS available.

Contact us for more information

After all, the adviser has your financial security in retirement in their hands, so it is worth shopping around for someone who knows what they are doing!

QROPS themselves are relatively new, having only been introduced in 2006. However, for years before that Brits have been planning their retirements abroad, so there is a plethora of financial advisers out there who are familiar with the issues involved in offshore and overseas investments.

But aside from knowledge of the overseas markets, you also need someone who can interpret the rules and regulations of the pension you currently have based in the UK, and someone who can make a judgement over whether a QROPS will be a better deal for you.

Sometimes investors prefer to take advice from someone who has already arranged another financial product for them. This is understandable. After all, if you know and trust their advice, and it has worked out well in the past, why shop around? But on the other hand, if your current adviser is a tied agent with only a few products at their disposal, you may wish to consider using an independent firm.

After all, why limit yourself to a handful of pension schemes when the QROPS list has over a thousand for you to choose from? QROPS can be found in countries around the world in places as diverse as the Isle of Man and New Zealand. Providers include household names and lesser known financial institutions. Some schemes are enormous, others just have one member. Some permit early, large lump sums to be taken, others allow you to leave your money untouched for almost as long as you  like – but with a tied agent you may only have access to a fraction of those options.

Aon consultancy has reported that the combined value of the schemes’ deficits has reached 1.2 trillion, a figure that is difficult enough to imagine let alone to find in a recession.

In a masterstroke of understatement, Aon has described the figure as “a significant risk”. A spokesman for Aon has speculated that the figure is likely to grow, as conditions in the UK economy may worsen.

According to recent surveys by other actuarial consultants, at least three FTSE 100 firms have been found to have pension deficits that are greater than their own market capitalisation.

The recent growth in the deficit is due to record low yields from government securities, which are used in calculations of how much will be needed to pay out the scheme members.

Increasing life expectancy has combined with low investment returns to produce the conditions for a perfect storm – where the amounts available are falling and the amounts that are needed are growing.

There is evidence that some companies are waking up to the problem and trying to combat it. Marks and Spencer and Sainsbury’s have given their pension schemes assets and shares of assets (including property) in addition to cash sums to try to plug the gaps in funding. But more effort needs to be made if their schemes will meet their liabilities.

The public sector, on the other hand, just seems to be waking up to the nightmare that they have found themselves in. Given that many public sector schemes are unfunded, it could be argued that their deficits are 100% – because there is no pot set aside to pay out former government employees. At least the Treasury (and the taxpayer) may be called upon to help them. For the private sector, the future of final salary schemes looks bleak.

However, in reality, anyone with a UK pension who is living abroad or thinking of moving abroad should consider getting one. QROPS investors are a diverse range of people who might include:

People who are going to be away from the UK for at least 5 years

This requirement is driven by a HMRC rule that QROPS investors must be non-resident for at least 5 years to enjoy the benefits of tax exemption. The rule is strictly policed and narrowly interpreted. Being non-resident may be more difficult than it sounds, as instead of totting up how many days you spend inside and outside of the country, HMRC looks at where the investor has their “centre of gravity”. This test involves a number of aspects, including looking at where the saver owns property and where their children are being educated.

The consequences of not staying outside the UK for 5 years could include a back dated tax bill and even a penalty, so it is a rule that needs to be carefully heeded.

…but not necessarily Brits

QROPS are available to members of UK pension schemes, but this does not necessarily mean that the savers who have them need to be British. In fact, QROPS are available to a wide range of nationalities. Perhaps you have been on a long work placement in London and accrued pension benefits as part of your package. In this case, it is still worth looking at a QROPS to see what tax, if any, you could save.

Tax

Transferring your UK pension into a QROPS means that it will be free from UK income tax. The next thing to consider then is what tax liabilities it might attract. This does not just mean asking how much you may have to pay, but when you have to pay it.

QROPS are widely available in low tax jurisdictions, but you may have reasons for choosing a country like France or Spain to hold your pension pot. Your QROPS adviser should run through the consequences of this.

What is your pension buying?

The choice of underlying assets in the pension will depend on your appetite for risk, and whether you have any existing investment preferences. Generally speaking, the closer you are to retire age, the lower risk your investments tend to be.

When can you get to it?

This is one of the key questions to ask about planning your retirement income. With the UK government promising to end compulsory annuitisation at 75 the playing field may have levelled in that regard, but QROPS may still offer a competitive choice regarding early access to lump sums.

Inheritance

It is worth casting aside any reluctance you have to consider your own demise to make sure that your beneficiaries will not lose out from your QROPS decision. As you might expect, there is a range of inheritance tax treatments across the QROPS countries, so ask your QROPS adviser to bear this in mind when recommending a scheme for you.

How much will the QROPS cost you?

Finally, whilst no one welcomes paying management or administration fees for their pension scheme, these expenses are much less painful if they are what you expect them to be. Accordingly, make sure that you are aware of any set-up, annual and transfer fees that your QROPS administrators may charge.  

QROPS.net take all of these issues into account when we choose the best scheme for you. We make sure that our clients make informed decisions about products we select for them.

Qualifying Recognised Overseas Pension Schemes were part of the last UK government’s Pension Simplification initiative. As its name suggests, this series of new regulations were meant to usher in a new age of straightforward, rules on retirement saving. As you might expect, the result was anything but.

However, whilst the HMRC manual on QROPS may not be the light reading it was meant to be, the introduction of QROPS has been a significant advantage to members of United Kingdom pension schemes who have moved abroad.

Her Majesty’s Revenue & Customs will approve an overseas scheme as a QROPS if it is regulated and taxed as a pension in the jurisdiction where it is incorporated. At first glance it may seem that this may not get you anywhere. If the QROPS is still subject to a tax regime, why bother?

But the advantage of the scheme is that you do have to choose a QROPS where you live. So you can choose a QROPS in a jurisdiction like Guernsey or Jersey, which may not even tax non-residents on investment gains in the type of product that you choose.

When talking about tax, savers may understandably be most concerned about income tax, because it affects the here and now. But you may also wish to take the opportunity of getting a QROPS to do some IHT planning.  Some QROPS locations let you pass assets directly to beneficiaries on your death without any inheritance tax being payable anywhere in the world.

QROPS.net can help you organise your pension overseas to maximise the opportunities for IHT and income tax planning. And as significant as the tax advantages of QROPS may be, there are also other benefits over keeping your pension in the UK. For example, you may find that there is more flexibility about investment choices and underlying assets available in QROPS.

With the ability to escape from UK income tax and enjoy a more flexible pension regime, QROPS are worth a look for most members of private UK pension schemes. Unless you are one of the dwindling number of people with a final salary arrangement that is still worthwhile even after UK tax and exchange rate fluctuations are taken into account, many British expats find that a QROPS offers them a better deal than leaving their money behind.

However, one of the first things you may notice about QROPS shopping is the diversity of choices available. After all, there are well over one thousand schemes available to accept transfers of UK pensions. Which one should a British expat choose?

Like other financial decisions, what suits one investor may not be the best solution for another.  For example, if you need access to a sizeable lump sum from your pension early on in your retirement for whatever reason (perhaps to finance the purchase of your retirement home abroad), then finding a scheme which permits this is a priority.

On the other hand, if your other assets are structured in such a way that your estate’s potential inheritance tax liabilities concerns you, then you may be more focussed on finding a way to manage your retirement finances in such a manner that will mean that your children and grandchildren will benefit from the residue when you have gone.

Another key consideration for most people is tax. But if your QROPS is located in a different country to you, you need professional advice about how your QROPS jurisdiction and your new country of residence will work together regarding tax.

QROPS.net can advise you on this point, and suggest QROPS jurisdictions that offer the best products for you that are subject to favourable tax treatments. We listen fully to our clients’ plans and ambitions, and pick out QROPS that will suit their needs.

Anyone who opts instead for an overseas scheme in a foreign country that has not be specifically authorised runs the risk of a large tax bill (backdated to the date of the transfer) and a penalty on top of that. Add those sums together, and an unwitting investor could end up having to pay 55% of the value of their pension.

HMRC approves schemes if they are taxed and regulated as pensions in their own jurisdiction. So whilst the pension does not have to meet UK regulatory standards, it has to be recognised as a bona fide pension in its own country.

This is where investors in a scheme called The Beazley Consulting Pension Scheme in Hong Kong had a nasty shock. The scheme was given HMRC’s approval in 2007, and added to the list of overseas pension arrangements which could legitimately receive UK pension assets without attracting a charge to UK tax.

However, it later transpired that the scheme had not been set up properly as required by Hong Kong regulations. Accordingly, the scheme’s investors were told that, as participants in an unauthorised scheme, they may have to pay a hefty fine.

In previous cases, HMRC have proved to be unrelenting in their pursuit of this surcharge. However, there is a chink of hope for Beazley investors to cling to. Some commentators have reported that the scheme’s trustees have secured a concession from HMRC. It seems that Her Majesty’s inspectors may be prepared to waive the penalty, if, having looked at the transfers on a case by case basis it seems that they were made for bona fide reasons.

In real terms, it seems that HMRC will impose the penalty if the transfers were for tax avoidance purposes, and may consider waiving it if investors genuinely thought that they were providing for their retirement in a legitimate way which happened to have various tax benefits.

It remains to be seen what lenience, if any, will actually be shown.

On one hand, pensions are investment vehicles which permit investors to save to provide for their retirement. But on the other hand, some savers are equally as concerned with what they will be able to leave behind for their loved ones.

Up until very recently it was compulsory for members of UK schemes to buy an annuity with their pension assets when they reached the age of 75. Alternatively, if their pension funds were large they would have a few other options. The rationale behind this rule was that people could not be trusted to spread their money out in their retirement.

The advantage of an annuity is that it provides a guaranteed income for life, which no doubt means that many investors will continue to purchase them even though the rule has been abolished. However, a significant disadvantage under the UK system is that when the annuitant dies, very little of the residue is left after tax for their loved ones.

If you live outside of the UK but have kept your pension behind in Britain, a QROPS may be worth considering. HMRC confirmed that these foreign schemes are exempt from UK inheritance tax in a recent set of regulations, so you may rest assured that the UK taxman will not be a beneficiary of your pension when you die.

If you have already started taking benefits from your UK pension you may find that its rules may not permit a transfer. However, if you have not yet withdrawn anything from your scheme, a QROPS could be well worth a look.

Aside from the inheritance tax point of view, a QROPS could be a positive step for you because they offer lots of choice and flexibility about how your money is held and invested. You do not have to hold the QROPS in the same country that you live in, so essentially many tax neutral offshore jurisdictions like Guernsey are opened up for you.

Fortunately, if you are looking to transfer your UK pension into an overseas scheme, there are hundreds of QROPS to choose from. Qualifying Recognised Overseas Pension Schemes were introduced in 2006 and offer members of UK pension schemes the chance to transfer their pensions abroad without paying UK income tax. Of course, as with every other concession the taxman gives away there are terms and conditions. The expat must be tax resident outside of the UK for at least 5 years following the transfer, and the scheme that receives the funds must have been approved by HMRC.

So how can you find a QROPS that would suit every one of our hypothetical expats?

Firstly, it is important to clarify that a QROPS does not need to be based in the same country as its investors, so expats can choose a scheme based in a location that is as far flung from their new home as they like. When choosing a QROPS destination, tax efficiency will be high on the list of every investor’s priorities, and your QROPS adviser will be able to give you the lowdown on the tax efficiency of a number of popular locations.

After tax, most investors are interested in the flexibility that a pension scheme will allow them. Our 50 hypothetical investors will each have a different preference for the underlying assets that will underpin their pension scheme, and will each have a different appetite for risk. Having over a thousand approved QROPS to choose from, a good QROPS adviser who has scoured the whole of the market should be able to find a suitable scheme for each one.

Finally, investors who are approaching retirement are particularly interested in when they can get their hands on their money. Some investors may be willing to sign up to purchase an annuity at a particular age, but others may want the freedom to spend their money when they want to. If you want to escape an annuity requirement, your QROPS adviser will be able to find a scheme that does not have this feature.

It is also possible to set up a QROPS pension in a country other than the one in which you are living. Bear in mind, however, that you will have to pay tax in the country in which you are resident and may also have to pay tax in the country where the QROPS was established. The reason people usually set up QROPS in an alternative country is because the taxes there are particularly low, so they still gain overall.

To avoid double taxation it is important to marry the QROPS juridcistion with the country of residence.

QROPS stands for Qualifying Recognised Overseas Pensions Scheme. This means that the scheme should be recognised by the relevant tax authorities of the country in which it is established. It should also be approved by Her Majesty’s Revenue and Customs (HMRC) in the UK. HMRC publish a list of approved QROPS schemes, which you can view at the HMRC website. The QROPS list is updated regularly as more QROPS providers are added, and some are removed. If a QROPS pension provider is not on the QROPS HMRC list or has been removed, you could risk incurring large tax penalties from the UK government.

QROPS pensions are most suited to people who intend living abroad for at least five years, because prior to five years the QROPS providers have to report any pension withdrawals to HMRC. After five years this reporting is no longer required and you benefit from the full QROPS rules.

As well as benefitting from reduced taxation on your pension, QROPS have a number of other benefits. Amongst these is the fact that you don’t have to worry about fluctuating interest rates and are not subject to exchange rate charges if you are drawing your pension in the same currency as that used by the country where you are resident. Additionally, your dependants may not have to pay inheritance tax on any sums that you leave to them.

There are many other advantages of taking out a QROPS pension, which is why they are now becoming so popular. However, QROPS schemes are not suitable for everybody. QROPS pensions are a specialist field and it is essential to consult a qualified QROPS adviser who can give advice on schemes to suit you.

QROPS stands for Qualifying Recognised Overseas Pension Scheme, and they were introduced in 2006 in a wave of legislation as part of the then government’s Pension Simplification initiative. Given that the initiative was meant to make pension regulations easier to understand and follow, the market had high hopes for the product.

Hundreds of thousands of former members of UK pension schemes seem to be pleased with the results. After all, they have lawfully transferred their pension assets to overseas schemes out of the reach of the UK taxman.

Easy to understand

As long as you have a good QROPS adviser on your side, deciphering the QROPS regulations can be relatively straightforward. From an investor’s perspective, there are two main certainties to take into account. Firstly, you need to be sure that you are going to stay outside of the UK for at least 5 years after the pension has been transferred. If you are only planning to leave the country for a short time, a QROPS may not be suitable as there may be a “claw back” from the point of view of tax that needs to be paid.

The other “golden rule” is that the scheme you choose must have been individually approved by HMRC. It is important to remember here that this approval does not confer any sort of official recommendation. HMRC merely check that the QROPS meets with their regulatory standards. It is then your QROPS adviser’s job to assess the scheme on its merits and suitability for your own individual needs.

Easy to transfer

Once you have decided on a scheme – or decided that you want to set up a bespoke scheme around your own requirements, your QROPS adviser should do all of the rest of the work involved in effecting the transfer for you.

Pros

Tax is probably the first positive that springs to mind about QROPS. With exemption from UK inheritance tax and income tax, QROPS offer a distinct advantage to British expats over keeping your pension in the UK. Given that your QROPS can be based anywhere, you can effectively choose which jurisdiction you want to keep your pension in.

In fact, the very breadth of choice available among QROPS is an advantage that they may have over domestic pension products. As an overseas investor, you may have the chance to make lucrative offshore investments that may not be available to UK based savers.

Given that there is so much choice available to QROPS investors, you might also be able to find a pension solution that is more flexible than your current arrangements. Depending on which country you choose to base your QROPS in, the scheme may give you access to your money sooner than you think.

Cons

What could possibly be a point to consider against QROPS? You may wish to make sure that the size of your pension pot justifies the fees involved. But the main thing is that you do need to make sure that you abide by any rules and regulations that HMRC hand down about foreign pensions. The rules may change from time to time, so make sure you have an adviser who is keeping you in the loop.

For example, the most important rule about QROPS is that investors must stay resident outside of the United Kingdom for at least 5 complete tax years after the transfer. Failure to stick to this would mean a large tax bill, and what could be a worse “con” than that?

Before 2006, expat pension savers using UK schemes could not access their pensions from outside the UK without paying at least 25% UK tax on the money. Imagine the relief they felt then when the government introduced the concept of Qualifying Recognised Overseas Pension Schemes in 2006.

QROPS providers exploited this relief and set their charges relatively high, knowing that people that transferred their pensions across were so grateful to escape the British taxman that they would pay the fees with little complaint.

Fortunately, the situation has changed. New QROPS destinations are being opened up all the time – the first Maltese QROPS was added to the HMRC’s list a few days ago. Accordingly, the growing competition in the QROPS marketplace means that QROPS savers can benefit from charges that are comparable with domestic UK schemes. Some QROPS are being offered at £500 per year, although these are likely to be off the peg schemes rather than bespoke arrangements for an individual’s specific circumstances.

Annual fees are only one aspect to take into account when you are considering what a QROPS will cost. Start up fees and charges that may be payable for transferring money in and out of the schemes should also be weighed up when an investor is trying to decide what constitutes a “good value” QROPS.

As part of a large group of advisers who place hundreds of thousands of pounds’ worth of pension investments every year, QROPS.net can often negotiate significant discounts in QROPS providers’ fees and may be privy to exclusive offers from QROPS providers. Speak to one of our advisers to see if there is a good value QROPS out there for you.

As long as you remain a non-resident for at least five years after the pension has been transferred, you can continue your expat life without looking back at the United Kingdom’s Treasury.

But have you considered what may happen to your loved ones when you die? When you are making the decision about which QROPS to choose, your adviser should take inheritance tax issues into account as part of your retirement planning.

Making the move abroad should involve a thorough audit of all of your personal finances (not just your pension), and structuring them in such a way that your worldwide inheritance tax liabilities are reduced (and hopefully eliminated).

Given that there are over a thousand QROPS on the approved HMRC list, the countries that host them have different treatment of inheritance and succession issues. Some QROPS countries do tax pensions, but others may permit your pension assets to be passed directly to your beneficiaries without any tax being paid.

While you have prepared yourself to face this slightly morbid issue, you should also consider making a will, or updating your existing will if you have already made one. Your relocation itself might trigger the need for changes, to accommodate foreign property or to take into account any new grandchildren you may have acquired since the last will you drafted!

It is particularly important for expats to have valid wills because your assets may be held internationally. By consolidating details of your wealth into a single document (or series of documents), you can make your executors’ job easier, and of course make sure that your assets are distributed in the manner that you intend.

QROPS.net takes a variety of issues into account when we assist you with your retirement planning. We can advise on the inheritance and other tax implications of QROPS and your other investments.

This may not be the top of your list of priorities, but getting a QROPS means that the assets in your UK pension that you have worked so hard to build up would become exempt from UK inheritance tax.  Some QROPS fall within their own country’s IHT regime, but a good QROPS adviser will be able to tell you which do not.

More interesting perhaps from a day to day perspective is that QROPS are exempt from UK income tax, as long as the investor lives outside of the United Kingdom for at least 5 years following the transfer. If you do not plan on being away from the United Kingdom for that long, you may wish to make alternative arrangements. However, if you plan to emigrate for at least 5 years, HMRC will cease to have an interest in your pension.

But there is more to a QROPS than its UK tax exempt status. If you have already left the UK you may be sick of not knowing how much your monthly pension payment is worth in your pocket after it has been converted from sterling. You may also be sick of paying exchange rate fees. Accordingly, getting a QROPS could offer you the chance to hold your pension in the same currency that you spend, and could mean that you will save money on transfer and exchange fees.

Finally, imagine the choice that you would have if you have the world’s marketplace of QROPS to select your pension scheme from. Whether you want a classic Guernsey QROPS or an innovative Maltese deal, the choice is yours.

Given that the two opposing sides – BBC management and the workers themselves cannot even agree about the size of the scheme’s deficit – the chances of reconciliation do not look good.

The strikes are planned for the beginning and for mid October, which means that coverage of the Tory party conference and of the Autumn spending review may be under threat. Although given the severity of what is supposed to be coming, perhaps the government may be glad if no one gets to hear about the cut fest that is to come.

A spokesman for the workers involved expressed his frustration that the Beeb seem to be taking a stance on the issue that is based on a knee jerk reaction. But perhaps the BBC pension trustees, like anyone who is in charge of a final salary scheme, need to not only take some action but be seen to be fixing the pension problem.

BBC workers feel under attack on all fronts. Not only are higher contributions threatened, but also higher retirement ages and lower payments. They are also incensed by the proposal to cap amount by which pensionable pay can increase to 1% per annum, which effectively ensures that the pensions cannot possibly keep up with inflation.

On the other hand, BBC chiefs claim that they must act now to make significant headway into the deficit, because a failure to do so would threaten the very existence of the BBC. If you take those remarks in the context that the deficits of some large FTSE100 companies are larger than the organisations’ market capitalisation, this is not an empty sentiment.

The negotiations continue, but given the strength of feeling on both sides it seems unlikely that the strikes can be stopped.

Transferring your UK pension into a Qualifying Recognised Overseas Pension Scheme offers expats the chance to remove their retirement funding from the clutches of the UK taxman. Introduced in 2006, expats are now starting to appreciate the potential that a QROPS has for tax planning, but also for investment returns.

The first step in considering a QROPS is to look at your current arrangements. If you have already started to draw benefits from a scheme, the chances are that it may be too late to transfer it anywhere else. Next you need to look at the type of benefits your scheme currently offers. The financial press is full of stories about final salary schemes closing, but if you are one of the lucky ones who still have a gold plated pension guaranteed, it may not be worth taking the risk of transferring this to another scheme.

However, if you have not yet drawn any benefits and do not have a defined benefits scheme, a QROPS is worth looking into.

The next thing to take into account is residency. QROPS transfers are free from UK income tax, but only if you remain resident outside of the UK for tax purposes for 5 years or more following the transfer. Accordingly, if you have taken a two year posting for a job abroad but plan to return home after that, a QROPS may not be appropriate. Returning to the United Kingdom to live within the 5 year period can result in a tax bill and even a penalty.

Once you have passed that hurdle, QROPS can be very rewarding indeed. Not only will your pension be free from UK tax, but you may also find that you have asset classes available to you that your domestic pension did not permit. Also, you may be able to find a QROPS in a country that does not tax pensions, or taxes pensions in a favourable way.

Does any of this sound tempting? If so QROPS.net can offer a short assessment of your financial circumstances and advise you about the best way to plan your retirement abroad.

One in five of those asked lives on less than £750 per month and more than a quarter of those surveyed has an outstanding mortgage of more than £50,000 on their home. It is not clear from the figures whether these are original mortgages, remortgages for better rates or the results of equity release schemes. However, of those who had taken out equity release schemes, many had used the proceeds to pay off outstanding unsecured debt.

The research paints a picture of the aging baby boomers being are much more comfortable with debt than previous generations, and who also expect a high standard of living.

The Aviva research also showed that investors were not very well informed about annuities. Up until recently, it was compulsory to use your pension pot to purchase an annuity before your 75^th birthday. There were two main problems with this. Firstly, from a timing perspective, some people felt that they should have been allowed to hold out for longer and take more time to pick their moment regarding the market.

Secondly, annuity rates have fallen significantly, so retirees were not able to enjoy the quality of life that they thought they might. Aviva found that many people purchased an annuity well before the “deadline” of their 75^th birthday, although there was a high level of confusion about what the best option for them. Many investors did not shop around, and have not ended up with the best deal available for them. Others may not have realised that by delaying the purchase by a couple of years, they could have made a significant increase to their income in retirement.

Over all the report highlights the importance of getting professional financial advice at all stages of your career. With pensions particularly, the decisions that you make (or rather, don’t make) at an early stage in your life cast long shadows over your retirement.

Yet it remains to be seen whether British unions will take any action to see off the forthcoming changes.

Before the general election, it was well known that the Conservatives were planning to overhaul radically the way in which government workers’ pension schemes operate.

In particular, final salary pension schemes are seen as unsustainable and – importantly from a political point of view – unfair in a climate where private sector workers typically have no such provision.

Members of public sector schemes await two announcements. Firstly, like the rest of the country, they await the Autumn spending review, which is expected to be brutal. But secondly they await the suggestions of a Commission into public sector pensions that is being carried out by former Labour minister John Hutton.

Unless Mr Hutton is able to perform the actuarial equivalent of pulling a rabbit out of a hat, he is expected to announce a series of reforms and measures which will not sit well with scheme members. Increased contributions are on the cards, although by how much remains to be seen.

Mr Hutton is also expected to unveil further plans next year.

Union leaders have indicated that they know they tread a difficult path. If they react too stridently, the public may react negatively, implying that they are willing to put publicly services at risk for a fight over their pensions. However, union leaders would argue that despite regular reports about “fat cat” pensions in the media, most public sector employees are low paid and will miss out if they do not get the pension that was promised to them.

Only private pensions can be transferred into QROPS. Your state pension entitlement is not capable of being carried across into the scheme. There are many different types of private pension scheme.

If yours is a final salary arrangement, you may need to give careful thought to whether a QROPS can offer the same level of income that your existing scheme will promise. A reputable QROPS adviser will point out if you would be better off sticking with your current deal.

If you have already started to take benefits from the scheme, you may find that the rules of your UK pension may prevent a transfer. However, this is something that your QROPS adviser can also tell you about in detail.

What if you have lots of UK pensions?

If you have changed jobs a few times, you may find that you have a number of different pension schemes on the go at once. The UK government runs a Pension Tracing service that helps reunite savers with their long lost schemes, so it may be worth getting in contact with that service to find any that you have lost the details of.

Some investors may even find that getting a QROPS is a useful opportunity to consolidate their existing schemes into one place. It may be more efficient from the point of view of fees that are due on the schemes.

How long will the process take?

It would be wise to leave around two months for the whole process to take place, although hopefully it should take less time than that.

The speed of the transfer depends on how organised your UK schemes are in making the assets or money available, and how quickly your QROPS is set up. Your QROPS adviser should be the one to contact both of these parties, with a view to hurrying them along if the transfer is not effected quickly.

The UK side of things

Qualifying Recognised Overseas Pension Schemes offer an exemption from UK income tax, but on certain conditions that have to be kept strictly.

First is the condition that you have to choose a scheme that has been individually approved by HMRC. It is not simply enough to choose a pension scheme in a country that has been approved to accept QROPS – the scheme itself must have been vetted to check that it has been set up, is regulated and taxed as a pension in its own jurisdiction.

HMRC keep a list on their website which gives the names of most of the approved QROPS. However, there may also be some that are not on the list due to confidentiality reasons. Your QROPS adviser should check the list before giving any advice about the schemes. Investors should note that being on the list does not mean that the scheme has been “recommended” by HMRC. It merely means that the scheme has met the regulatory criteria.

The penalty for going “off list” with your choice can be severe. HMRC have the power to impose a penalty of up to 55% of the value of your pension, which they can do even if there is no evidence that you transferred the pension fraudulently.

The second condition that investors have to meet is a residence requirement. To benefit from the UK tax exemption, investors must be non-resident for at least 5 years.

QROPS investors will be pleased to note that QROPS are also exempt from UK inheritance tax.

Overseas perspectives

What about the tax authorities in the country where the QROPS is based? The answer to this question will probably inform your decision about where to buy a QROPS. After all, tax is often a significant motivation behind an investor’s decision to get a QROPS.

If your QROPS is going to be based in a country that is different from the place where you will live, then there will be a third jurisdiction to consider.

It is true that such people no doubt have accounts and investments abroad. However, many offshore investment opportunities, including Qualifying Recognised Overseas Pension Schemes, do not have minimum levels of contribution.

Some providers may set their own level for the smallest pension that they would consider. However, such levels are more likely to be in the tens of thousands rather than tens of millions.

So who, in addition to the jet setters, are likely to have QROPS?

• People with UK private pensions. The emphasis here is on the fact that the pensions are private. Unfortunately, your state pension entitlement cannot be transferred into a QROPS.
• Not necessarily UK citizens. Given that QROPS are typically targeted at British expats, you may find that most QROPS investors are British. But the schemes are open to anyone with UK pensions, so foreign nationals who have been placed in the United Kingdom and build up a pension pot here while they were working may also apply. In fact, if you are the kind of worker who is regularly moved around, you may find that a QROPS suits your needs well.

If you are a US citizen, you may be aware that your own tax authorities may not be very keen on such schemes, and accordingly you may need special advice about your overseas investment plans.

• A wide variety of expats. Given that life expectancy is rising all the time, the “retired” age bracket covers around 30 years. Accordingly, QROPS investors may find themselves at different stages in their lives. But the other thing to bear in mind is where these investors live. QROPS can only be hosted by countries with double taxation agreements with the United Kingdom. However, QROPS investors do not have to live in the same country as their scheme, so you could find QROPS investors anywhere in the world!

But all that is set to get worse in 2012, which is going to be a bumper year for people turning 65 (and becoming eligible for a full state pension).

The Department for Work and Pensions has revealed that 800,000 people will turn 65 in 2012, which will be 150,000 more people who celebrated that birthday than in 2011.

The spike in numbers has been attributed to the post war baby boom, with many people being born in 1946 and 1947.

Rather than being merely an interesting historical and statistical quirk, this rapid increase in the number of pensioners will present a logistical and financial headache for the government. The costs of providing the state pension are likely to rise by another £4 billion by 2012. Even if Britain is well and truly put the recession behind it by then (which is by no means a certainty) this will still be a large amount of money to find.

The coalition have previously announced plans to accelerate the rise in the age at which UK citizens become eligible for a state pension. There are plans on the table to raise this age from 65 to 68 over a few decades, although politicians have not ruled out an eventual target retirement age of 70. This has sparked much debate in the media about what citizens are entitled to expect. After all, if you have made all of the appropriate contributions, it is hardly fair for the government to keep moving the goalposts.

At the same time, the coalition has committed itself to its triple guarantee – that the state pension is guaranteed to rise every year on the basis of either earnings, prices or 2.5%, whichever is the highest.

Is it possible?

First, you need to ask whether the transfer is possible. If you have already started taking benefits from your UK scheme, its rules may not permit transfers. If you are in any doubt about this, ask your QROPS adviser to check the details. After all, that is what they are there for!

What kind of investor are you?

The answer to this question probably depends on your age as much as the size of your pension pot. If you have quite a long time left before your retirement, you may be tempted to opt for higher risk investment strategies which may bear higher rewards. But if you are close to retirement age, you may wish to opt for safer QROPS choices.

Whatever your age, you may wish to consider what kinds of underlying assets you want your QROPS to hold. Fortunately there is plenty of choice about the types and structures of schemes available on the QROPS list.

What have you got planned for your retirement?

If you intend to put off purchasing an annuity until the eleventh hour but intend to make purchases using lump sums, then you may need a pension scheme that will permit you to do this.

Inheritance tax

QROPS are exempt from UK inheritance tax but may be liable to domestic succession duties, depending on the country where your QROPS is based. Accordingly, ask your QROPS adviser for specific predictions about how much, if any IHT your estate could be expected to pay.

Currency issues

Which currency will you be spending? QROPS are available in most major currencies, and it may be efficient to make sure that your pension is held in the same currency that you intend to spend to avoid uncertainty and the costs of exchanging currencies.

Is this right for me?

Your QROPS adviser should start with this one. After all, just because the HMRC rules would permit a transfer, it does not mean that this is necessarily the best way forward (although for a lot of people it will be). For instance, if you have a final salary pension scheme, you may not be able to find a deal that makes it worth your while to bear the investment risk that giving up a defined benefits scheme presents.

Likewise, once you have decided that a QROPS is for you, you cannot assume that the schemes are all the same. After all, there are over a thousand on HMRC’s list. Some may be wildly unsuitable, others may be perfect. The chances are that if you have a QROPS adviser on the case, you will be able to find that perfect one.

What can and what can’t I do?

As a QROPS investor, there are a number of things that you can and cannot do. The first thing to bear in mind is that you need to stay resident for tax purposes outside of the UK for at least five years after the pension has been transferred. From a practical perspective, what does this mean? It is best to take professional advice on this issue, because the law is a grey area here. There is a fine line between popping back to the UK now and again and splitting your year between Britain and another country.

The other rules that you may be concerned with may include when you can take money out of the scheme. The rules are likely to let you make withdrawals from the age of 55, although the domestic laws of some QROPS countries may mean that withdrawals can only be made later than that.

However, it is also worth familiarising yourself with a few of the basic rules that frame the QROPS regime.

Firstly, there is the 5 year rule. How long are you planning to be outside of the United Kingdom? An important distinction to make here is where you are going to be resident for tax purposes.

It used to be the case that this was decided on the basis of how many days you stay in the UK. But a recent change in the case law on the subject means that HMRC now look at where your “centre of gravity” lies. This is an oblique concept and means that HMRC can look at your lifestyle and decide which country should claim you as a resident.

The importance of the 5 year mark is that anyone who stays out of the UK for 5 years or longer can benefit from income tax exemption. If you return to the UK in that time period, however, the exemption falls away and a large tax bill may be due.

The second important rule to bear in mind is the fact that the foreign pension scheme you choose needs to be one that has been individually approved by HMRC. Merely choosing any old pension scheme in a QROPS approved country is not enough. Likewise, it is not enough to select any pension in a European Union country. There is currently a debate taking place between investment houses and the tax authorities about this issue, but currently the only safe thing is to choose a QROPS that has been individually approved by HMRC.

HMRC publish a QROPS list which is updated regularly on their website. However, this list is not exhaustive as some schemes may wish to remain confidential. Accordingly, some foreign pension schemes can be QROPS without appearing on the list, but HMRC will be able to advise about their status.

But with QROPS, getting that bill may prove to be a pleasant surprise.

Firstly, you may not even need to pay for advice from your IFA. After all, many operate on a commission basis, where the institution whose products they recommend pay them a certain amount for each pension that is sold. Some advisers operate on the basis of an hourly fee. The most important thing is to know at the outset of the session which basis your QROPS adviser intends to use.

When it comes to how much the providers charge, you may be pleased to hear that as a customer you benefit in a number of ways from the large amount of competition in the marketplace.

So not only does that mean that you will be spoilt for choice when the time comes to choose your overseas pension scheme, but it also means that there are hundred of providers who are keen to compete for your business – and as such who are mindful of the fact that they cannot charge too much because there are a thousand other QROPS on the scheme for you to choose from.

So how much will you pay to have a QROPS? This depends on the nature of the scheme that you choose. On one hand, if your retirement planning needs are quite simple, you may be able to use an “off the peg” scheme which may be as cheap as £500 per annum. On the other hand, if your finances are a complex web of existing assets that you want held in a certain, bespoke structure, you may have to pay more.

As with the adviser’s fees, the key is to make sure that you know what you are letting yourself in for. Some providers make charges for transferring assets in and out; others a yearly management fee; or sometimes a combination of both.

People who have UK private pensions

There are two important things to note about this point. Firstly, take note that only private pension entitlements can be transferred. Your state pension cannot be carried across into a QROPS. The second thing is that the pension you want to transfer must be a UK one. So there is no requirement that the scheme member must be a UK citizen. US citizens may have difficulty using a QROPS due to their own country’s rules on tax avoidance, but apart from that qualification, QROPS are open to most people who are UK pension scheme members.

People who have not yet taken benefits

The relevance of this depends on the rules of your individual pension scheme. Some schemes will not permit a transfer when their member has drawn an income or taken a lump sum from their pension pot. However, it is always checking the fine print on this issue, so get your QROPS adviser to check the documents just in case it is an option.

People who are leaving the UK for at least 5 years

To qualify for the UK tax exemption, members of QROPS must be non resident for at least 5 years. If you do not plan to be away for this long, you should seriously consider whether to get a QROPS. if you come back in that 5 year period, you may have to pay the tax that was due, and perhaps even a penalty too.

A recent legal case has made the rules on residence very strict, so if you do get a QROPS, it’s worth taking advice on whether you fit the criteria.

People who want to save tax

Given that QROPS are exempt from UK income tax, they are not only effective retirement planning solutions but also useful tax planning vehicles in their own right. If your QROPS adviser looks at a variety of options all over the world, they should be able to find a scheme that is tax favourable to your requirements.

If you have never heard of these schemes before, you may be surprised to learn that the concept was introduced by the UK government in 2006. Since their introduction, thousands of investors have enjoyed the UK tax exemption that QROPS offer. Some what perplexingly though, thousands more expats continue to draw their pension from abroad without taking advantage of the QROPS scheme.

Contrary to popular opinion, offshore investment opportunities are not just for superrich people – anyone who has accumulated a UK pension pot should look into whether a QROPS would be worthwhile for them. So what are the reasons for getting a QROPS?

First and foremost, the tax exemptions are typically what draws people in. The exemption from UK income tax is often billed as the headline reason why an investor should consider a QROPS, but the protection the schemes also offer from UK IHT should not be sniffed at either.

But secondly there is also the issue of choice. Getting a QROPS is not simply a question of looking at a handful of foreign investment products. Assuming that your adviser is independent and not tied to any particular provider, you may find that there are over one thousand schemes on the list of what is available to you. Accordingly, if you draw up a simple shopping list of the flexibility you need, the amount of tax you want to pay and the kinds of underlying assets you want your QROPS to hold, your adviser should be able to find a suitable scheme for you.

Finally, there is the question of fees. As set out above, there are more than a thousand QROPS out there which is not just an advantage from the point of view of choice but also from the point of view of competition. All of those schemes want your business, so you may find that they are willing to give you a good deal on the fees that they charge.

QROPS are available to anyone with a UK pension scheme who lives abroad. Their purpose is to allow such people to transfer their pension assets into a foreign scheme without attracting a charge to tax. The qualifications a overseas scheme has to meet to become a QROPS include:

• regulation as a pension in its own jurisdiction; and
• taxation as a pension in its own jurisdiction.

At first glance, it may seem alarming that the scheme should be taxed as a pension in its own country. However, given that your pension can be based anywhere in the world, it is worth remembering that you can choose a country that does not tax pensions, or at least does not tax them very much, when you select where to base your QROPS.

For the first five years following the transfer, the QROPS trustees must “report back” to HMRC about the activities of your scheme. This way HMRC keeps tabs on its former customers, and makes sure that the regulations are being adhered to.

After those five years are up, the QROPS no longer has to tell HMRC anything about the scheme’s activities.

QROPS are investment controlled, which means that there are certain assets that cannot be held by the schemes. However, the choice and variety of the thousand or so approved QROPS on the HMRC list means that there will be something for everyone.

QROPS can come in any shape or size. If your requirements are unusual, you could get a QROPS built around your own individual circumstances. Alternatively, if your needs are those of a typical expat, you may qualify for a cheaper “off the peg” scheme.

Where do you start?

Funnily enough, you should start with your UK documents. After all, you need to get a recent balance to get a true picture of the value of your pension pot. Also, you may need to check the rules and regulations to see whether a transfer would even be permitted.

Some schemes do not allow transfers after their members have started to take benefits.

Who can you ask for help?

The next step is to find an adviser. If you have a friend or relative who has made a similar move abroad and been impressed by a particular firm of advisers, so much the better. But if you do not have any such recommendations, you need to look at the qualifications and expertise of the advisers on offer.

One thing you may wish to bear in mind is that pensions is specialised enough, but overseas pensions is a specialism within a specialism. Accordingly, the person you choose should have handled such work before, rather then being a generalist who is tacking this sort of work for the first time.

Another thing to consider is the independence of the adviser you select. After all, if an adviser is tied, then by definition they are not able to offer you any QROPS on the market.

Will you have to pay?

QROPS advisers either charge for their advice by the hour or get paid a commission by those institutions whose products they recommend. Either way, make sure that you understand how the adviser is getting paid from the outset.

How long will it take?

The answer to this question depends on three things: how efficient your existing scheme is at dealing with the transfer request, how efficient the QROPS adviser is in orchestrating the move, and how quickly the new QROPS is set up or accepts the assets. It is impossible to give an exact timescale, but you should leave around six weeks for the process to be completed.

Current accounts

It may be worth getting some financial advice about the current account you may need. Obviously you will need to have access to a different currency, but if you plan to roam the globe rather than stay in one place during your retirement, you will need an account with the flexibility to match that lifestyle.

Pensions

At first glance you may wonder why you need to reassess your pension needs at all. After all, pensions are something to be set up and left for decades, aren’t they? But like any financial product, pensions should be reviewed from time to time to make sure that they offer the best return and value for money.

If you are planning to be abroad for longer than five years, a QROPS is worth looking at. These are overseas pension schemes which offer members of UK schemes the chance to transfer their assets abroad without incurring any UK taxes. Whilst they may be liable to taxes in their own countries, the investor can pick where their QROPS is held, so in effect you may be able to choose how much tax you pay.

Whilst tax is what draws many investors into QROPS, members of these schemes also enjoy other advantages, like exemption from UK inheritance tax and the potential to take larger lump sums than the UK system would allow.

QROPS can also offer you the chance to hold underlying assets in structures that UK schemes do not offer or recognise. Guernsey in particular is known for having a wide range of QROPS options available.

If you have particularly unusual pension needs, a QROPS can be created around your individual requirements, so speak to an adviser about what can be achieved.

Finally, you may find that a QROPS is also worthwhile from the point of view of avoiding currency fluctuations. If you have moved out of the UK, why should you have to keep changing your pension from sterling into another currency?

The trouble is that you do not have to be a jet setting celebrity to find that the rules become complicated for tax reasons.

Before this year, it used to be the case that as long as you stayed outside of the UK for at least three quarters of the year, you would definitely count as a non-resident. But now the days when the taxman was satisfied by a little look at your calendar are long gone.

The Gaines-Cooper case, where HMRC pursued a multi millionaire for years’ worth of back taxes, has set the new rules about non-residence. Or rather, confirmed that the 90 rule no longer applies without really setting in stone a new set of standards to apply.

Under the new “regime”, HMRC officials are entitled to look at your whole life to see where its “centre of gravity” is. This includes looking at not only how long you spend in the UK, but also where your children are educated, where your spouse lives, and what property you own there.

With Gaines-Cooper, who still had property in Britain and whose wife lived there, it may have been simple conclusion for them to draw. But for the average expat who may have kept the family home in the UK and may pop back from time to time, the lines may be rather more blurred.

So what can you do about it? Ignoring the issue is not an option. Even if the bills you are likely to face from HMRC are not likely to run to millions, no one wants a surprise letter from a creditor – especially not from a creditor like HMRC.

It seems that the only course of action is to check in from time to time with your financial adviser to get a quick assessment of whether you have been sucked back into UK residency for tax purposes.

Leaving your pension behind in the UK means that the taxman takes his chunk out of it whenever you take a payment. It may also mean that you have to pay local taxes on the payments where you are.

A QROPS on the other hand, offers an alternative to this set up. The acronym stands for Qualifying Recognised Overseas Pension Scheme, and means a pension scheme that can receive UK pension assets without attracting UK tax.

There are a couple of conditions attached, of course. Firstly, the taxpayer has to stay resident for tax purposes outside of the UK for at least 5 years following the transfer. Breaking this rule may mean having to hand a large cheque over to the taxman.

The second rule is that the QROPS must be an overseas scheme that has been approved by HMRC. Failure to abide by this one may also mean giving a large cheque to the taxman.

As long as the QROPS is on the list of schemes that HMRC has approved, it can be in a number of countries. So you are open to choose one that treats pensions favourably. You may end up paying tax on your pension payments in your country of residence, but from this perspective the tax may be no higher than what you would have paid had you been receiving them from the UK.

Perhaps the most significant tax benefit to be taken from a QROPS is the fact that they are all exempt from UK inheritance tax. Whilst you may have assumed that leaving the UK means that you leave the inheritance tax net, this is sadly not true, and many a British expat (or more accurately the loved ones they have left behind) have a come a cropper believing this.

QROPS can theoretically be chosen in countries that may allow the lawful and direct transfer of pension assets to beneficiaries without incurring any local taxes either.

Some investors may be put off the idea of the perceived hassle that may be involved in transferring their pension assets to an overseas scheme. But if you have an adviser managing the transfer for you, there should really not be much to do.

The question should really be whether the benefits of a transfer would be worthwhile.

This depends on what kind of UK pension you have. It used to be the case that those with final salary schemes would almost certainly decide to keep their pensions in the UK, as they were unlikely to find schemes abroad that could offer that level of guaranteed income.

However, final salary schemes are being reviewed left right and centre, with some changing to career average schemes. Accordingly, if you have one of these it may still be worth chatting over your options with a QROPS adviser to see what our options are.

Have you taken any benefits yet from your scheme? If you have, this may even affect your ability to transfer your pension assets, as some schemes will not consider letting you make a transfer in these circumstances.

You may have got the impression from the media that QROPS are aimed exclusively at the superrich. However, this is not true. Whilst the superrich do take advantage of opportunities to invest offshore and overseas, QROPS are available to everyone. Some providers may have a minimum level of investment, but to be fair the fees involved may not justify the move if your pension is smaller than this amount.

Speaking of fees, you may find that the charges involved may be comparable to those charged by domestic pension providers. There is a lot of competition out there for your business, and a good QROPS adviser should be able to find you a good deal.

But when something happens in your life that makes you review your finances, what should you look for in a pension?

If you are taking a work placement abroad or moving to another country for a different reason, you may wish to consider a QROPS. Qualifying Recognised Overseas Pension Schemes are foreign pension arrangements that allow UK pension assets to be transferred into them without incurring UK income tax.

Aside from the condition that you have to remain outside of the UK for at least 5 years after the pension has been transferred, the rules and regulations surrounding them are not restrictive. So what are the criteria you should apply when choosing one?

Tax efficiency

Just because QROPS are not liable to UK tax, it does not mean that they are exempt from local taxes accordingly, you need to check what the tax implications of holding a QROPS would be from the point of view of the place you are moving to. QROPS can be held anywhere that HMRC has authorised to run them, so you may find it advantageous to live and have your QROPS in different places.

Freedom

Having been dictated to by HMRC and the UK government for so many years about how much and when you can make withdrawals from your UK pension, you may be surprised that at how flexible QROPS can be on the issue. Some QROPS can let you take larger lump sums sooner than UK schemes will allow.

Currency

QROPS can be held in most of the major currencies, so even if your pension is not in the same country that you live in, you may be able to hold your pension (and receive payments) in the same currency that you spend. This can cut down on the exchange rate costs, which will save you money in itself.

The recent legal case of Fry v HMRC may focus your mind on the issue.

It concerned a lady who had been diagnosed with terminal cancer. Given that she knew that she did not have very long left to live, she decided that she would not take the benefits to which she was entitled from her private pension when she turned 60. Her rationale was that she did not need the money.

However, little did she know that the effect of this decision would be to make most of the pension pot chargeable to inheritance tax.

Under the current rules on the subject, the law makes a distinction between pension assets that have crystallised and those that have not. A member of a UK pension is typically able to take her benefits from the age of 55, although the individual scheme may have provided for a later pension age. Before benefits are taken, the assets are said to be non-crystallised. Should the member die at this point, the pension assets would be outside of their estate for the purposes of IHT.

However, once the member has taken benefits, the residue that is left is typically chargeable to IHT.

From the analysis above, you may have expected Ms Fryer’s relatives to have received her pension assets directly without having to pay tax on them. However, HMRC took the view that her decision not to take benefits was a transfer of value which had reduced the value of her estate for IHT purposes. Accordingly, whilst she had not set out to put any tax mitigation plans in place, her estate was treated as though she had and IHT was payable on her pension accordingly.

The case shows that HMRC are increasingly trying to reach their tentacles further and further to claw back as much tax as possible. A QROPS was not available to Ms Fryer as she was UK resident. However, if you have left the UK, you may wish to take action to protect the pension that you have left in the UK. HMRC have confirmed that QROPS are exempt from UK IHT, whether you have taken your benefits or not.

An overseas pension specialist

The key here is to find not just a pension specialist, and not just an overseas investment specialist, but someone who has expertise in both aspects of offshore retirement planning. QROPS have been around since 2006, but retirement planning has been around for much longer.

Someone independent

If you were looking to buy a new house, would you limit yourself to just peering through the window of one estate agent? Of course not. But if you only consider getting a QROPS from just one provider, that is effectively what you are doing. Tied agents may provide good advice, but how can you be sure that their product is the most competitive out there for you if they do not have the freedom to shop around the whole world’s marketplace?

Someone who speaks plain English

Or, to be fair, someone who speaks in plain, straightforward terms, whichever language you happen to need advice in. Your pension should be something that you are not afraid to ask questions about. Accordingly, you must have an adviser who set out the basics for you, and can answer your questions without using technical jargon.

Someone with links to the United Kingdom

Whilst you may wish to leave the UK behind and forget all about the place, the tax benefits and exemptions that you enjoy from a QROPS are still dependent on UK legislation. Not only may there be changes to your own pension scheme that affect how HMRC views it, but there may also be change to HMRC attitudes and rules in general. Accordingly, it is helpful to have an adviser who maintains links with the UK and has a handle on HMRC’s views and plans.

The trouble with pensions is that they are often left on the proverbial back burner until it is too late. If you are moving abroad, you may understandably have other things on your mind, but failure to pay attention to what will happen to your pension may cost you dearly.

If you have a private UK pension, have you considered whether to leave it in the United Kingdom or move it abroad too?

The advantages of moving your pension abroad may include:

• freedom from the UK income tax system. As long as you are away for 5 years or more, you may be able to leave UK income tax behind for good;
• freedom from UK inheritance tax;
• greater investment freedom. Some foreign schemes may be able to hold a wider range of asset classes than you are used to investing in; and
• freedom to take your money when you want it. You may find that overseas schemes may be more flexible about when you can take a lump sum, and even about how much you can take.

To get the best out of moving your pension abroad, look into getting a QROPS. The acronym stands for Qualifying Recognised Overseas Pension Scheme and applies to schemes that have individually checked by HMRC.

QROPS are approved if they are taxed and regulated as pensions. But that does not mean that their structure and tax background need to mirror a UK style scheme. Accordingly, you have the choice of over a thousand diverse arrangements which can be found on a list on HMRC’s website.

If you use an independent QROPS adviser to help you, you can get advice on the whole of the QROPS marketplace. So what are you waiting for?

But there are more advantages to investing offshore. For instance, many offshore investment centres offer a confidential environment, where details of investments are not routinely disclosed. Some jurisdictions even keep the identity of a company’s shareholders secret.

The media can unfairly portray savers and businesses who seek confidentiality about their finances as being involved in something underhand or dishonest, but such assertions are unfair.

The tax authorities of respectable offshore investment centres will typically hand over information about an investor if they are reasonably suspected of money laundering, drug trafficking and in this day and age, funding terrorism. The recent flurry of Tax Information Exchange Agreements that have been signed on the advice/suggestion of the OECD ensure that governments who suspect that their citizens have something to hide offshore can get access to the relevant information for their investigations. At the same time, such agreements are meant to contain the checks and balances needed to ensure that a government cannot just go on a fishing expedition.

Confidentiality is particularly valuable is you are a high profile investor who does not want people to copy their investment decisions (and therefore affect the price of whatever you have bought). Keeping purchases of shares confidential is also helpful to those who are planning to mount a takeover bid.

In addition to tax and confidentiality, investing offshore also offers the opportunity to organise your assets in such a way that they are protected from potential lawsuits and insolvency situations. Arranging your affairs in this way to avoid a particular liability that has already crystallised is regarded as fraud, but by and large organising your assets to reduce the general risk of them being seized (before you have decided that you are likely to be sued on a specific liability) is not typically a problem.

Finally, another advantage to investing offshore is the choice that you have available. Whether you want innovative, traditional, high risk or low risk products, there is something out there for everyone.

A Qualifying Recognised Overseas Pension Scheme may be the answer to your problems, as transferring your UK pension to one means that you can enjoy your pension free from UK income tax.

Along the way to getting a QROPS, there are a number of choices that you will need to make as part of your retirement planning.

Choosing your QROPS adviser

If you choose an independent QROPS adviser, you have access to over one thousand different overseas pension schemes. Choose an adviser with years of experience in offshore investments, and you have someone who is well placed to pick the best one at your disposal.

Choosing your QROPS country

Choosing your QROPS country has a lot more to do with choosing what kind of a tax regime you want to be part of – although of course that will have a lot to do with your decision.

The final choice may come down to thinking about how politically stable an overseas destination is, and also the quality of financial institutions that operate from there. It may also be important to you that there are plenty of English speakers to help you with any enquiries you may have about your QROPS.

Choosing your QROPS

Choosing the scheme itself will involve considering how much the various scheme administrators wish to charge in fees. Your adviser can tell you which schemes offer value for money.

However, another issue to bear in mind is how user friendly the schemes are. Does the scheme let you take sizeable lump sums as early as you want to? Are there any particular asset classes that you want your pension scheme to hold?

You may also want to make the decision on the basis of how easy it is to transfer assets in and out of the scheme.

An hour

The first task that you have to perform when you are thinking about getting a QROPS is to find and read the documents that are related to your current UK pension arrangements. The time that this takes depends on how organised your paperwork is at home!

A couple of hours

The next thing to do is look for a QROPS adviser. If you look at a few when you are online, you may wish to consider how experienced firms are in dealing with overseas as well as UK based pensions. Other factors to take into account include the reputation of the firm that you choose, and the links that they have to the United Kingdom. Given that a scheme’s QROPS status depends on HMRC’s opinion of it, it is important to choose an adviser with strong links to the UK tax community.

24 hours or less

Once you have chosen an adviser, they should take less than 24 hours to get back to you, and obtain details from you about your current scheme. Depending on how straightforward or complicated your financial situation is, your adviser will then shop around the QROPS market on your behalf.

If you have chosen an independent QROPS adviser, they will have the world’s market to look around. A seasoned adviser will have years of experience to draw on to find the best QROPS for you.

4 to 6 weeks

When you sign up to use a QROPS adviser, you may be asked to sign a release letter, which authorises the adviser to deal with your pension scheme and open a new one on your behalf. Accordingly, assuming that your current pension scheme deals with the adviser in a timely manner, the transfer may be complete within 4 to 6 weeks.

Standard Life’s focus is primarily on the UK market, so its results were expected to mirror the roller coaster ride that the British economy has had. However, the upturn in pension sales has come as a pleasant surprise to commentators and initially to the Standard Life management team.

Despite a level of doom and gloom that exists in the economy, a spokesman for Standard Life said that the man on the street was more resilient than analysts had thought, and had continued to invest in pension products. New Chief Financial Officer Jackie Hunt said that she believed people were beginning to appreciate the need to save for their retirements, and that they had experienced a large increase in the number of people who were seeking advice on the subject.

The strong results were also underpinned by new deals the insurer has won to manage employee schemes, although a spokesman did confirm that existing schemes they managed had been affected by falls in recruitment and lower salary rises (which would have affected the amounts paid in as contributions).

It remains to be seen whether the strong results were due to Standard Life’s recent advertising campaign aimed at younger people, encouraging them to get a reality check on their finances. The campaign was launched over a variety of media including the TV channel Dave. Some of Standard Life’s competitors were initially sceptical, but the move seems to have paid off.

Legal and General and Aviva are due to announce results in the coming weeks, so it will be interesting to see if they have enjoyed a similar period of growth.

Stage 1: getting some advice

The first thing you need to do is go to a specialised QROPS adviser and get them to review the information you have about your current scheme. The adviser needs to see this information because:

• some schemes may prevent transfers if the member has already started taking benefits (i.e. payments). Accordingly, your QROPS adviser needs to check first of all that a QROPS transfer is actually possible; and
• for a small number of people with final salary schemes, the adviser may decide that the high level of guaranteed income that a defined benefit scheme offers may be too good to give up. In this case, the QROPS adviser may recommend that the investor sticks with what he has.

Stage 2: choosing a scheme

Once the QROPS adviser has taken down your information and learnt about your investment preferences, he or she will scour the market for the right deal for you. Fortunately, there are hundreds of QROPS out there for you to choose from, so whether you are an extremely cautious investor or have an appetite for the high risk and potentially high return type of scenario, you will be able to find something to suit you.

Your QROPS adviser will also explain the tax consequences of your decision at this point. Whilst there will be no UK tax to pay, the scheme may attract tax from the jurisdiction in which it is based and possibly from your place of residence, if that is different.

Stage 3: the transfer

Assuming that you have signed all the appropriate forms, this is the stage where you can relax and let the adviser get on with it. The length of time a transfer may take to effect may vary, according to the efficiency of the scheme administrators. Investors should allow around 6 weeks for the process.

If you choose the wrong person, you could end up with less than you were expecting in your elder years. If you have the misfortune to have an incompetent adviser, you may even be mis-sold a product.

The importance of experts

If you have dipped your toe into the world of overseas pensions, you may appreciate how complex that world is. Not only do you need to contend with the UK rules and regulations on QROPS and QNUPS, but you also need to deal with whatever the jurisdiction in which you choose to invest may have to throw at you.

Accordingly, whilst a generalist financial adviser may have offered your family first class advice on your finances so far, getting a pension specialist to run their eye over your overseas plans is a good idea.

International reach

If you are going to be sent abroad on a work posting, using a firm of QROPS advisers with international reach is particularly important. After all, if you intend to be moving around from country to country, continuity in the advice that you receive is essential for a joined up understanding about your finances.

The bigger the better

As a private individual, being a customer of a large financial institution can sometimes feel a bit “David and Goliath.” Being just one voice, it may seem as though you have little bargaining power when it comes to fees and charges. However, if you use a large firm of QROPS advisers who are accustomed to dealing with investment houses day in day out, they may be able to secure a better deal on fees than one person alone.

If you have already retired or your retirement date is imminent, you may assume that your pension is all sorted out and that it might as well stay where it is – back home in the United Kingdom. As customers of financial institutions we are conditioned to be loyal customers, but refusing to move your business may be costing you money.

There are a number of options that may be available to you if you are prepared to consider moving it abroad to a Qualifying Recognised Overseas Pension Scheme.

The following questions may help you make up your mind about what to do.

How much tax do you want to pay?

You may not consider this to be an issue over which you have any control, until you actually think about the options that are available. The main thing that attracts QROPS customers is the fact that, once their pension is safely outside the UK, it does not attract any UK tax.

The pension may attract tax in the country where you choose your QROPS. However, you and your QROPS adviser are free to choose any scheme in a number of jurisdictions – many of which are tax neutral.

What currency will you be spending?

Until you have watched the value of your pension being eroded by the changing exchange rates the fees that banks charge, you may not appreciate the value of being paid your pension in the same currency that you spend. With a QROPS, you can choose to hold your pension in pretty much any major currency.

When do you need your money?

Finally QROPS may be particularly attractive if you want to take early lump sums. QROPS may be more flexible than UK pension schemes, which may enable you to get your hands on your pension sooner than you would in Britain.

However, a thorough appraisal should also involve a discussion of what getting a QROPS might set you back. So how much does a QROPS cost?

Providers’ fees

When QROPS were first introduced, QROPS providers basked in their investors’ delight at the ability to get their money legitimately away from the taxman. Accordingly, QROPS providers felt able to charge high fees.

Now that there are over one thousand schemes that have been approved for QROPS transfers, however, the tables have turned. QROPS investors have so much choice that the providers have had to make their prices much more competitive. You may even find that some providers offer a QROPS for around £500 per annum.

The price you pay in fees may depend on how individual the scheme is. On one hand, it may be that you want a bespoke scheme where you are the only member. In this case, you may have to bear the brunt of disproportionately higher administrative costs than you would for an off the peg scheme with hundreds of members.

Tax

One of the main points of QROPS is the ability to pay less UK income and inheritance tax. However, your QROPS may be taxable in its own country, and the payments you receive may be liable to local income taxes where you live. On the positive side, your country of residence and your QROPS country are both places that you will choose. Accordingly, you may be able to choose locations which do not place a high tax burden on your finances.

Advisers’ fees

Some QROPS advisers do not make any charge for their services – instead they get a commission from the providers themselves. However, a good QROPS adviser should be able to save you money by negotiating a discount on what the providers charge. This is particularly true when you are dealing with a large firm of advisers who place several hundreds of thousands of pounds’ worth of business every year.

For members of UK pension schemes who move abroad, a Qualifying Recognised Overseas Pension Scheme may be the answer to their problems. QROPS, as they are known for short, are overseas schemes that were introduced in 2006 which enable UK pension scheme members to transfer their pension assets free from UK tax.

A further advantage of QROPS is that they are exempt from UK inheritance tax.

There may be tax due on payments from a QROPS in the country in which you live. However given that the choice of where to put your QROPS is completely up to you, you are free to choose one in a country that treats pension payments favourably from a tax perspective.

Many people focus on the tax benefits of QROPS when they are thinking about getting one. And why not, when you have been paying tax for the whole of your life!

But there may also be other benefits involved in getting a QROPS.

Part of the criteria that an overseas scheme has to meet to get QROPS status involves being regulated as a pension in its own jurisdiction. However, this requirement does not necessarily mean that the pension needs to be identical to a UK pension. Accordingly, by choosing a QROPS from the 1,000 or so approved schemes on HMRC’s list, you may be able to find a scheme that offers what UK arrangements cannot.

For example, an advantage that a foreign scheme may offer over a UK one may be earlier access to larger lump sums – which may be useful if you want to get your hands on some money to put down a deposit on your new home abroad. There may also be a wider range of underlying assets that could be held by your scheme.

As always, getting any kind of financial product requires professional advice from someone that you can trust. Accordingly, you should seek the help of someone who is well versed in tax and overseas pension issues when you come to choose a QROPS.

The deficit currently sits at an estimated £2 billion. However, the liabilities of final salary pension schemes are typically difficult to value as they change according to life expectancy predictions and stock market performances. The liabilities may also change according to variations in how payments are expected to be indexed.

But no matter how you do the sums, the BBC pension scheme is in trouble, and needs to sort out its defined benefit scheme to make it sustainable. There has even been talk of selling the BBC’s flagship building television centre and putting the proceeds into the pension scheme.

Senior managers are reported to have agreed to give up around £1 million worth of pay in lieu of pension contributions, to be seen as doing their bit towards reducing the deficit. However, this has had little effect on regular employees on more modest packages, for whom the idea of having £1 million of benefits to give up seems a world away.

So far the other proposals on the table have proved to be unpalatable to the staff. They include reduced payments, increased contributions and potentially retiring later. One proposal which has infuriated BBC staff is that increases in their pensionable salaries will be capped at 1% per year. This suggestion would erode the value of the pensions that members have already accrued, thanks to inflation.

But who on earth will vote for retiring later for less? The National Union of Journalists has indicated that unless the current rights that have been built up are protected, they will strike on the issue.

The BBC is not the only big organisation with a large deficit that is struggling with negotiations with staff. British Airways has famously had many heated discussions in recent weeks, leading to strikes that have been called off at a moment’s notice.

Following Liberal Democrat leader Nick Clegg’s surge in popularity since his television triumph last week, he has enjoyed a rise in support in the polls. But whilst an outright Lib Dem win is unlikely (due to the very first past the post system that Clegg is so desperate to reform), a hung parliament is possible, with his party being able to punch above its weight.

Would this be as disastrous for the economy as the Tories make out? There hasn’t been a hung parliament in the UK for decades. Given the unfamiliarity of this possibility, people are holding their breath to wait and see. Both main parties have warned that having no decisive winner could mean the UK’s credit rating could be downgraded, due to the unpredictability of this scenario.

However, senior Lib Dems have been quick to rebut this suggestion. Former party leader Paddy Ashdown pointed out that out of the top 8 countries in the OECD (Organisation for Economic Cooperation and Development), 7 have coalition governments who have managed to make a decisive response to the economic crises. Further, he pointed out that Greece’s majority government has not really done it many favours.

Political stability is a key factor that is taken into account when investors choose a place to grow their money. Not only does a change of government threaten tax changes, which could affect the overall profitability of the investment, but changes in the rules can bring unwelcome restrictions.

Perhaps this explains why many offshore financial centres are backwaters as far as politics is concerned, who boast about nothing happening for hundreds of years.

What is a QROPS?

First and foremost, what is a QROPS? QROPS stands for Qualifying Recognised Overseas Pension Scheme. They were introduced by HMRC so that members of UK pension schemes who were no longer resident in the United Kingdom for tax purposes could take their UK pensions overseas without incurring a tax charge.

Is there much choice?

There are over a thousand QROPS to choose from. The schemes are offered by a number of recognised financial services providers.

QROPS do not have to be based in the same country as the expat who is looking for one, which means that an investor can choose from a variety of jurisdictions that offer them. Accordingly, your QROPS could be on the other side of the world from you, if one is available in a jurisdiction you like the look of.

Is there a catch?

There is no catch, but there are rules that have to be adhered to strictly – otherwise you may risk a large tax bill and possibly a penalty if HMRC suspect that there was any skulduggery involved.

The first rule is that the QROPS must be one that HMRC have vetted. Whilst they do not recommend schemes, they do check over the details of individual arrangements to make sure that they are taxed and regulated as pensions in their own countries.

The second but no less important rule is that the expat concerned must reside outside of the United Kingdom for at least five years after their pension has been transferred. If you do not plan to be away from Britain for as long as that, you may wish to consider an alternative investment vehicle. However, if your plans to emigrate are long term, a QROPS may be ideal.

It was announced recently that the government changed the rules about how pensions should keep up with the reality of inflation.

Up until now, the commonly used index was the RPI, which tracked a number of prices including accommodation costs. It typically gave a figure of 5%.

However, the CPI excludes the costs of mortgages, and stands at around 3.2%.

It’s true that such actuarial changes may not be the most exciting news to read about, but for millions of members of UK private pension schemes, the change presents a significant drop in their income.

Investment company Hargreaves Lansdown have estimated that some on a pension of £10,000 per year would find that indexed up to £25,270 in twenty years’ time if their pension is based on RPI. However, if their pension is increased in line with CPI, they would only receive £18,875. The difference is clearly significant, especially if by that time the retiree is very elderly and in need of expensive care and sheltered accommodation.

Some pensioners may escape this rule because their pensions are expressed to be specifically indexed in line with RPI. Others, however, merely state that pension trustees must use the index that is prescribed from time to time by the government – which is now CPI.

Aside from the impact that this move may have on pensioners’ incomes, part of the controversy surrounding this change is the fact that the coalition did not consult on it. Instead they presented it as a fait accompli. Pensioners’ groups have been furious, and the Department of Work and Pension’s response has done little to appease them.

When asked why the DWP did not bother to consult on the issue, a spokesman said that it was always open to firms to pay more and choose RPI instead. Are any firms likely to do this in the present climate? That seems as unlikely as a new employee in the private sector getting a final salary pension.

The previous government had planned to make the state retirement age 66 (up from 65) from 2020, but David Cameron’s government’s emergency budget has speeded that change up to 2016.

However, the NAPF has said that workers simply need longer to factor this change into our retirement planning. Joanne Segars, the NAPF’s Chief Executive, said that many people in their fifties had been planning with retirement in some detail for years, and that it is now too late for them to make any adjustments to take into account an extra year without a pension.

Whilst criticising the speed with which the changes are being implemented, Segars did admit that changes need to be made. To make a state pension sustainable and indeed sustaining for those trying to live off it, Segars conceded that the state pension age does indeed have to rise. However, if the retirement age must rise, then people need to be helped to stay in work for longer.

Dr Ros Altman is an independent researcher and commentator on the pension industry, who offer advice on policy. She is also on the same wavelength as the NAPF when it comes to raising pension ages.

In fact, in order to make the state pension a more meaningful amount, Dr Altman proposes a tiered system where the payments that a retiree may receive are tiered in accordance with their age. Such a system would take into account the gradual reduction in the amount of work that the older person did, until they were entitled to a higher level of pension payments from, say 70 or 75.

Terrible as that sounds, that is a £17billion improvement on the position of the schemes at the same point last year.

Only five of the FTSE100 companies have a surplus. The situation has become so severe that ten FTSE companies have liabilities bigger than their market capitalisation. Some companies even have pension liabilities that are twice the size of their own market value. British Telecom, Invensys and British Airways are among such companies.

Final salary schemes are onerous for companies to provide for their employees, because the member’s employer guarantees a certain income for the retiree, for the rest of their life. If the scheme has not performed well enough, the employer has to make up the difference from its own resources.

PCS’ research revealed that 57 of the FTSE100 had to make such contributions in the last twelve months. The total amount that was contributed reached £11.8 billion.

From the pension trustees’ perspective, it must feel as though they are going two steps forward and one step back. For example, just as the cash contributions have been made, actuaries have claimed that the life expectancy of men and women has gone up, adding a few more months’ worth of payments to the liabilities that pension schemes have to meet.

No doubt some relief was felt when the government announced that payments can be indexed in line with CPI rather than RPI (which was traditionally higher). Indexing is necessary because otherwise inflation would wipe out the value of a final salary scheme without it.

However, the announcement must have sent pension trustees to their lawyers to get the small print of their schemes checked – some schemes may have RPI written into their DNA as the index that must be used.

Given that the UK system forces members of private pension schemes to purchase an annuity at (or before) the age of 75, many investors find that their hands are forced into opting for a deal that may not be the best for them.

Not only is this unfair from the point of view of your own retirement planning, but also from the point of view of your beneficiaries. Put simply, if you die after the age of 75, the taxman gets most of the residue left in your income bearing product. If you die before the age of 75 (assuming that you haven’t yet purchased an annuity), the taxman will still get a hefty sum if your estate is worth more than the IHT threshold. Given that the UK IHT threshold, though changed every year is around the value of a family home, more and more pensioners are going to find their estates qualify.

If you have moved abroad for your retirement or are planning to do so, there is another alterative. If you have a private UK pension scheme, why not consider a QROPS? By transferring your pension into a Qualifying Recognised Overseas Pension Scheme you can take the opportunity to try to outmanoeuvre the taxman and let your beneficiaries enjoy the benefits of your hard earned cash.

QROPS are spread among around a hundred countries across the globe, and some of those will permit the direct transfer of your pension assets to your beneficiaries without the crystallisation of any IHT liability at all. Such direct transfers are completely lawful, and may offer a considerable saving on the UK pension option.

Taking a moment to consider the IHT aspects of a QROPS may also focus your mind on your estate planning, and provide the opportunity to update your will, if appropriate. Administering an estate is a difficult enough task if the deceased held assets in one country, but if your affairs are not in order your executors may have considerable difficulties in completing this task if your assets are spread in different countries.

Researchers Mercer have confirmed that FTSE 100 companies have added 7 months to the life expectancy projections of future retirees, while current retirees are estimated to live a further 5 months longer than had previously been estimated.

Women have statistically been far more likely to outlive their male counterparts, but the difference between their projected lifespan and men’s is getting smaller – men are expected to live to 87, and women to 89.

The changes can be put down to medical advances, and healthier lifestyles. If you are 45 now, your total lifespan is predicted to be two years longer than someone who is 65 now.

So how does this affect pension liabilities? The schemes who are affected most are defined benefit arrangements. In these schemes members are promised a certain level of income. Sometimes such schemes are drawn on a final salary basis, where the income that will be paid is a proportion of the member’s last wage with that employer.

As employers have found to their cost over the past few years, poor stock market performance, miscalculation of how much needs to be contributed and increasing longevity mean that there is less available in the pot to meet those obligations.

FTSE100 companies are estimated to have plugged £17 billion into their final salary schemes last year, but announcements such as this latest about longevity merely open up greater holes.

For employees and self employed people with defined contribution arrangements the news is also bad. It means that their pension pot must be spread over a longer time period, which means that their annuity rates will go down.

At least people will be able to work for longer now that the government is scrapping the default retirement age. The question is, will be working into our nineties?

The Panthera ROSIIP pension fund was formerly granted status as a Qualifying Recognised Overseas Pension Scheme, which meant that it was authorised by Her Majesty’s Revenue and Customs to receive UK pension assets free from UK income tax.

However, following an investigation into the way in which the Singaporean scheme was run, it was stripped of its QROPS status. It was widely reported that HMRC were concerned that the scheme was permitting unauthorised asset classes and allowing investors assets to larger cash lump sums that the QROPS system was designed for.

Under the QROPS rules, an authorised foreign pension scheme must be regulated and taxed as a pension in its own jurisdiction. Those requirements do not have to be carried out in the same manner that the UK system treats its own pension schemes, so investors have a wide range of different jurisdictions to choose from among the 1,000 or so QROPS that are on the HMRC’s permitted list.

Choosing a scheme that has not been authorised by HMRC, or continuing to have assets invested in an unauthorised scheme means that the investor risks facing a penalty tax bill at a rate of up to 55%.

HMRC struck the Singaporean QROPS off their list some time ago, and Panthera have been keen to get themselves restored to it.

However, HMRC are reported to have been less than keen to listen to their protestations. The current ruling was under a pre-action protocol in the English courts, where HMRC tried to strike out Panthera’s challenge to their ban on acting as a QROPS.

Now that the High Court has ruled that Panthera’s case can be heard, the fight between Equity Trust (Singapore) and HMRC can well and truly start.

This is not the case with QROPS. If you have a UK pension and have left or are thinking of leaving the United Kingdom, a QROPS is well worth a look.

The thing that attracts most people to QROPS is the fact that they are exempt from UK income tax. Accordingly, British expats can release their pension assets from the UK without making a substantial donation to the Treasury of a country where they no longer live.

Another tax advantage of QROPS is their exemption from inheritance tax. It has recently been confirmed by HMRC that assets that have been transferred into a Qualifying Recognised Overseas Pension Scheme are exempt from IHT from the moment that the transfer takes effect – which has a considerable advantage over other IHT saving schemes because they may typically take seven years to take effect.

However, a significant advantage of getting a QROPS over leaving your pension at home is the choice of schemes at your disposal.

Given that you have over 1,000 QROPS to pick from, there is a scheme out there for every investor. Do you need to get your hands on a lump sum quickly? If so, there will be a QROPS that will allow it. Do you have a particular asset that you want to carry across to your foreign scheme? If so, as long as it is not residential property, you will be able to find a scheme that can accommodate you.

Even if there is not a QROPS out there that matches your requirements exactly, you can create one around your own needs. While the fees may be slightly higher than for an off the peg solution, this option gives you the comfort and the convenience of designing your pension scheme around your individual future plans.

The basics

QROPS stands for Qualifying Recognised Overseas Pension Scheme. Introduced in 2006 as part of the government’s Pension Simplification initiative, they give members of UK pension schemes the chance to free their pensions from the UK taxman.

QROPS are available for the transfer of UK private pensions only – it is not possible to transfer your state pension entitlement.

When a QROPS adviser decides whether an investor is an appropriate candidate for a QROPS he looks at:

• whether the investor’s current scheme will allow a transfer; and
• whether it is a good idea from an investment perspective.

Your QROPS adviser will look at the rules of your current scheme’s rules in detail to ascertain your current provider’s policies on pension transfers. If you have already started to take benefits from the scheme, you may find that a transfer may not be allowed.

QROPS are available in so many countries around the world that, if your UK scheme is a defined benefits one, your adviser should be able to find an international arrangement that can at least match its investment potential.

However, if your current UK scheme is a final salary one, it could be difficult to find a solution with a guaranteed income to match that level. In which case, a QROPS may not be the answer for you.

Are there any other advantages to QROPS?

The main benefits to QROPS are their tax advantages, because you can free yourself from the obligation to pay at least 20% of your hard earned pension to the taxman. However, in the process of looking for a QROPS, you may find that you can select a scheme that gives you far greater flexibility than you had in your UK scheme regarding the availability of lump sums.

Accessible

Overseas and offshore investments may be more accessible than you think. Some providers may have minimum levels of contributions for their QROPS, but many do not set any such limit.

As long as your pension pot is large enough to justify the fees incurred by the transfer, then you are as welcome as anyone to enjoy the low tax benefits that a QROPS can offer.

Beneficial

Speaking of the benefits of a QROPS, what are they? QROPS are famous for offering members of UK pension schemes the chance to transfer their pension assets overseas without having to pay UK income tax. However, they can also offer greater choice of underlying assets, exemption from inheritance tax and the chance to get your hands on a larger lump sum sooner than you would have done had you left your pension in the UK.

Cheap

How much do you pay in fee for your current financial arrangement? The chances are that this information is not at your fingertips, because as British investors we tend to pay the management fees of a financial product without complaint.

However, with QROPS, competition in the international marketplace to manage your money has become so intense that there are over a thousand schemes crying out to accept your pension assets.

The fees that are payable depend on the service that you need, but some QROPS are available for a couple of hundred pounds per year.

When you are weighing up the cost of pensions, don’t forget to add tax into the equation. With a QROPS, even if the fees you pay are no cheaper than for your UK scheme, you may find that with no UK tax to pay, you are much better off over all.

In one fell swoop, the deficits in private salary pension schemes were reduced by this announcement, because the amounts that now need to be found to meet the schemes’ liabilities have been cut. A move to CPI will only be possible in schemes where the rules explicitly allow it – some pension schemes had it written into their DNA that the amount they would provide would rise with RPI and are therefore impossible to change.

As you might expect, employees’ groups and unions were furious with the announcement, but employers’ organisations welcomed the announcement as a positive step forward. Employers collectively heaved a sigh of relief that their pension liabilities would now be more affordable.

After today’s announcement from The Pensions Regulator, a different sigh might be heard at the Confederation of British Industry. David Norgrove, the Regulator’s Chairman, has claimed that any savings that would have been made from the switch should be applied to reduce the pension schemes’ deficits. In real terms then, employers will be no better off but employees’ defined benefit schemes should be safer.

It seems that an enormous pension deficit is announced to the press every day, and we have become so used to the large sums involved that a pension deficit of a couple of billion pounds no longer has the impact on the news that it used to. The issue is compounded by the fact that actuaries argue about how bad the same scheme’s deficit is – pensions are such long term liabilities that there is as much art as there is science in coming up with realistic figures.

But whatever the exact numbers may be, UK final salary schemes are in trouble. 160 schemes have been taken over by the Pension Protection Fund. Poor stock market returns and increasing longevity compound the problem. Whatever The Pension Regulator or the Pensions Minister comes up with next, this is an issue that will run and run.

Your current scheme

Ironically, the first step involved in getting a new QROPS is looking at your current proposals. Some UK private schemes have rules about when transfers can take place. Accordingly, some members may find that a transfer is impossible after they have started to take benefits. On the other hand, it may also be the case that your current scheme is such a good deal that your QROPS adviser does not recommend transferring. However, this is only likely to be the case if you have a gold plated final salary scheme.

For most people with a standard UK private occupational scheme or a SIPP a QROPS is worth looking into.

How much will it cost you?

QROPS are priced in a variety of ways. Some may charge fees for transfers in and out, whereas others may simply charge an annual fee. Given that there are several hundred QROPS available, you may be pleasantly surprised at how competitively they are priced.

The tax consequences

The tax consequence of getting a QROPS that you will be most interesting in is the part where you do not have to pay any UK income tax. However, there may be a tax charge for the country where you live, and for the country where your QROPS is based.

Your QROPS adviser will take these into account when selecting an appropriate QROPS for you.

Other issues

Other issues that you may have to bear in mind may include when you want to get hold of your pension funds, and how you want them to be invested. These issues may depend on how far into your retirement you are. Some QROPS do allow early access to lump sums, but there are also some that are more restrictive.

The default position for people who leave the United Kingdom but continue to draw a pension that is based here is that they must pay UK income tax on their withdrawals. That tax rate depends on the individual’s personal circumstances.

If you are no longer living in the United Kingdom and therefore no longer benefitting from the services that these taxes are meant to be providing, then no doubt continuing to pay UK income tax must be immensely frustrating.

QROPS are available to people who leave the United Kingdom for at least 5 years. The exemption is dependent on the scheme member being non-resident for tax purposes during that time. The occasional visit back to the United Kingdom is permitted to visit relatives, but QROPS investors need to be careful not to get clawed back into UK residence accidentally. If you are in any doubt about this, it may be best to consult a professional financial adviser on the issue.

From a practical perspective, if you go back to live in the United Kingdom during that time period, you may be faced with a penalty and a large tax bill on your return.

During that initial five year period, QROPS administrators must make reports to HMRC about the QROPS’ activity – e.g. what, if any, withdrawals have been made. However, after that period, HMRC has no right to know about these things and the reporting requirements fall away.

It should not be forgotten that whilst your pension may have escaped UK income tax, you may be liable for taxes in your new country of residence. However, your QROPS adviser should be able to take steps to mitigate your tax bill.

Tax efficiency

First and foremost, investors are attracted to QROPS because they offer a chance to stop paying UK income tax on their pensions when they are abroad. But it is important to remember to take into account the effect of foreign tax systems when you are looking for a QROPS. There are potentially two tax systems that you need to be aware of. Firstly, there is the country where your QROPS is based. Your QROPS adviser should explain the tax consequences of wherever you choose to site your QROPS.

Secondly there is the country where you live, if this is different from your QROPS country. Many investors choose a QROPS in a “tax neutral” place like Guernsey (which means that they pay no tax there), and only pay tax in their country of residence.

IHT efficiency

Whether it is because people don’t like thinking about their own death or about taxes, IHT is often forgotten about. But IHT planning is an important part of wealth management. It has been confirmed this year that QROPS are exempt from IHT in the United Kingdom. However, there may potentially still be a charge in the country where your QROPS is based.

Adaptable

Have you got your retirement all mapped out, or will you just take it as it comes? If you plan to do certain things at certain times, you may need access to lump sums early on in your retirement. Accordingly, you will need a QROPS that allows you to do this.

Some QROPS insist on compulsory annuitisation, but others have no such requirement, so discuss the mater with your QROPS adviser to see whether this is an issue that affects you.

Iain Duncan Smith had previously said that the retirement age should go up to 66 by 2016, but over the weekend has told the press that even this fast rise could be accelerated.

In order to “sell” the idea, IDS pointed out that by deferring your pension by just one year an older person’s pension pot could be increased by up to ten percent. This is a significant factor at a time when the state pension is famously tough to live on.

IDS has made great efforts to make it clear that he wants to help older people back into work, and intends to give training and support to help them. However, employers are reluctant to give up the idea of a default retirement age.

If you are approaching retirement, what are the considerations you might bear in mind if you are thinking about whether to give up work?

Can you afford to retire?

This will no doubt be at the top of your list. The prospect of giving up a wage to live on a pension can be scary, particularly in a world where the costs of accommodation, food and utilities seem to be going up all the time.

What about a part-tirement?

Of course, as long as your employer agrees, there is a middle way. A recent survey showed that more and more older people are opting to work part time and draw a pension, thus easing their way into retirement.

What will you do with yourself?

Finally, you may wish to consider what you will do with yourself when you retire. Some older people have been dreaming about this for years – decades even. Others may be terrified by the prospect of all that free time on their hands.

Since 2006, there has been no excuse for this. Qualifying Recognised Overseas Pension Schemes were introduced that year as part of the Pension Simplification initiative. Not only does it mean that the pension regulations were meant to become more straightforward, but the scheme was also meant to ensure that the tax consequences of moving abroad were fairer for British expats.

How do QROPS work?

The exact mechanisms of a QROPS will depend on their individual rules. Generally speaking, a QROPS is available to someone who is going to leave the country for at least 5 years for tax residence purposes. So if you plan to come back within that time, you may like to consider other tax planning opportunities.

The QROPS rules only apply to those schemes that are on the HMRC’s list, so you cannot simply pick any foreign scheme and relax in the knowledge that you will never pay UK tax on your pension ever again.

What other considerations are there?

A QROPS may offer other benefits too. For example, QROPS are exempt from UK inheritance tax, and depending on how efficiently you plan the transfer could also be structured so that no death duties are attracted in any country. Accordingly a QROPS could offer you the opportunity to transfer your assets in their entirety to your beneficiaries on your death.

There are other advantages too. If you consider that your QROPS can be located in a number of countries, you have the choice of several hundred pension schemes to choose from. QROPS may of