Once you reach retirement age you need to carefully consider all your options for your pension funds, and how they affect your income, tax bills and the transfer of the balance to your heirs. British retirees have a wide range of possibilities to choose from today, and expatriates have the further option of Qualifying Recognised Overseas Pension Schemes (QROPS) to consider.

QROPS were introduced in 2006 to enable Britons who have permanently moved abroad to simplify their affairs by taking their pension savings with them.

It has been an eventful nine years for QROPS. HM Revenue & Customs has made various revisions to the rules to close loopholes – and where it deems rules have been broken, it can apply a 55% tax charge of the transfer amount – and delisted large numbers of QROPS from various jurisdictions. There is now far more complexity in the QROPS market than people realise.

QROPS have been widely advertised as the answer for British expatriates. In some cases they are, but QROPS are not a ‘one size fits all’ solution. You need to look at how they work, what the alternatives are, and your personal circumstances and objectives before establishing what would be the most effective solution for you.

Should a QROPS prove to be the best option, you need to consider which one – all QROPS are not the same. Look at the jurisdiction they are based in (legislation, restrictions, investment environment etc), how the product is structured and the provider. It is important to consider the tax implications in the jurisdiction, the UK and here in Portugal.

Today there is the further question of whether and when QROPS can apply the new UK pension freedom.

Previously, in order to prevent QROPS from paying out all the benefits, HMRC made non-EU QROPS providers declare that at least 70% of the transferred fund would be used to pay an income for life.

HMRC were going to remove this rule to bring QROPS legislation in line with the new UK pension freedom, but in March said that that non-EU QROPS must continue to ‘temporarily apply’ the rule.

The UK tax authority has now confirmed that from April 6, 2015, a QROPS can allow the same degree of flexible access as a UK defined contribution scheme. However, for those jurisdictions that are bound by QROPS rules to offer an income for life from 70% of the transfer fund, HMRC has yet to agree how they can overrule that provision. So for now those schemes must continue with the pre April 6, 2015 regime.

These schemes include Guernsey, Gibraltar, New Zealand and Isle of Man among others.

EU QROPS have not needed to comply with this 70% rule and are free to offer full flexible access – provided the jurisdictional domestic legislation allows it. Malta was the first jurisdiction to change local legislation to allow full flexibility.
The flexible access rules do not apply to Qualifying Non-UK Pension Schemes, which continue to use capped drawdown and the GAD (Government Actuary’s Department) basis of income withdrawals.

Earlier this year, HMRC sent a “legal request” letter to all global QROPS providers, requesting that they must satisfy themselves that their scheme adheres to Recognised Overseas Pension Schemes (ROPS) rules and meets the minimum age test (55).

HMRC wants to see that the laws of a jurisdiction, or the specific scheme rules, prohibit payment of benefits to members under 55 where UK tax relief was paid on the pension contributions.

In July, HMRC delisted thousands of schemes. Australia went from having 1,600 to just one; a few have been added to the list since then, but they are not public offer funds.

Individuals who transfer to a non-QROPS could face a personal 55% tax charge, so you have to be diligent when transferring pensions into overseas schemes.

A 2015 regulatory development also affects those wanting to move into QROPS. Under Financial Conduct Authority (FCA) rules, transfers from defined benefit (final salary) schemes over £30,000 require a review by an adviser with a suitable pension transfer qualification and regulated by the FCA. This applies whether the transfer is to a defined contribution scheme or a QROPS.

However, expatriates should also take local advice, particularly tax advice for Portugal, so ideally you need an advisory firm which has both advisers living locally and the UK regulated pension transfer specialist.

Pensions are a specialist area and care must be taken to make the right decision for your personal circumstances and objectives. It is always advisable to have an adviser who is FCA regulated and capable of carrying out the in-depth analysis you need to establish whether to ‘QROPS or to not to QROPS’.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. |

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