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What Are The Things To Consider With QROPS Pension Plan


3 Things to Consider in QROPS

QROPS are not right for everybody. However, for most UK pension holders a QROPS can be significantly beneficial, so long as the following factors are considered carefully:

There can be less regulation and investor protection

Your QROPS must be set up in an approved QROPS jurisdiction, but your pension pot can be invested in financial products anywhere in the world. There are some countries where less protection is provided than in the Britain. This may mean that there is little or no recourse or compensation if something goes wrong. This lack of regulation can open up opportunities for companies selling unlicensed, unregulated and high-risk investment products and schemes.

Many companies target UK expats selling investment products without explaining their true risks and implications. Implications can include extortionate charges and penalties for cancellation as well as no liquidity and no reporting obligations or compliance procedures.

Always make sure that your advisor is suitably qualified and that the products they recommend you invest into are regulated in a jurisdiction that has a proper regulatory compliance practices in place. Such jurisdictions include the UK, US, Channel Islands, Switzerland and the EU member states. There are ombudsman schemes for investor recourse and compensation schemes for regulated financial services products in these locations.

Remember, just because the investment is in an investment scheme in a highly regulated country, it does not mean that the product itself is regulated. Therefore insist that any product recommended to you is regulated in that jurisdiction and ask for proof of this to avoid any doubt. For Example, investments in land in Costa Rica, shipping containers in Hong Kong, self-storage units in London, or commercial property in Detroit promising income of 18% per year, all exist and are heavily marketed to expats by companies in the UK. Investments like these are unlikely to be regulated. That is not to say that investors cannot choose to invest in these products if they want to but merely that they should be aware that investment schemes like this are very high risk and illiquid and should you choose to put your money in this type of investment, you should limit the amount to a small portion of your total pension pot.

The best advice is to use common sense, be vigilant, use regulated financial products and remember the adage; if something sounds too good to be true it probably is.

There could be issues if you choose the wrong QROPS jurisdiction

It could be possible that the wrong jurisdiction is selected for you. One key factor in deciding which QROPS jurisdiction is right for you is where you plan to retire in the future. If you live in France, for example, a Malta QROPS may be the best option due to the direct tax treaty between the two countries – meaning you would not pay income tax twice. If you live in Thailand however, a Malta QROPS would not be appropriate – as there is no direct tax treaty and you would be hit with their highest rate of income tax - a hefty 35%! Instead, a Gibraltar QROPS may be the best option, as Gibraltar offers a low, 2.5% tax on pension income wherever you are based.

Just this simple example hopefully demonstrates some of the complexities one might encounter; just staying up to date with the multitude of QROPS jurisdictions, opportunities and pitfalls is an enormous task, which requires the attention of a trained professional. This is another reason that you should always seek advice from a properly qualified financial advisor before making any decisions. Every jurisdiction has its own criteria to consider, but this is complicated by the interactions of the rules and regulations between these jurisdictions.

Maintaining flexibility and selecting a trustee that provides access to multiple QROPS jurisdictions and free switching between them is also, in our opinion an important an important consideration.

Will QROPS be around in the future?

Transferring to QROPS lets UK expats to accumulate substantial pension funds with tax relief throughout their working life then later avoid paying British tax on pension income in retirement.

These benefits are very generous and there is a concern among expats in the financial planning industry that QROPS are simply too good to last. It is quite likely that HMRC may decide to alter or completely remove QROPS (as happened with the delisting of Singapore’s schemes) in the future.

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