Advice about QROPS
This article is written for those of you who are considering, or already have, a QROPS (Qualifying Recognised Overseas Pensions) and seeking QROPS advice or information.
Whilst on one hand you will be pleased to find out there are multiple regulated solutions available for you, on the other, since March 2017, investors need to be aware of the Overseas Transfer Charge (OTC) and the new regulations that determine just which advisers are able to give regulated QROPS advice.
Let us give 3 examples:
1. You live inside the European Union (EU) and are being advised to consider a Malta QROPS. Who can legally provide QROPS advice with regard to investing and accessing funds?
2. You live outside the EU and UK, and are being advised to transfer your British pension into a QROPS. Who can legally advise you and what is the OTC and how it impacts not only where you live now, but where you can access funds if you retire in a different country?
3. You live inside the UK and have been advised by a firm outside the UK (or with a branch only status in the UK) to take out a QROPS. Do you have any regulatory or legal comeback after you move your funds and can you move your QROPS in the future?
In each of the 3 examples above there can be massive pitfalls resulting in loss of access, loss of funds, no legally enforceable compensation, or funds tied up beyond retirement with penalties or worse. This article will guide you to other relevant write-ups or information that could save you literally your future retirement.
So who are QROPS for?
QROPS advice should be very much a niche market for larger funds or where a Double Tax Treaty between the QROPS jurisdiction and the residency of the investor provides scope for lower income tax (Spoiler alert- the UK has DTAs with more than 130 countries that usually means there are no income tax advantages in moving to a QROPS)
A small number of UK DTAs may be unfavourable- always check this first before transferring
Before engaging an adviser about a QROPS, ask yourself these key questions:
- Does your adviser have professional qualification, ideally current UK pension qualifications registered with a professional body? An analysis and understanding of your British pensions is a must before any advice is given.
- Does your adviser have an investment licence as this is essential for pension investments within regulated territories? The worse case is that they hold no investment licence and are not professionally qualified. Some of these advisers will farm you out to a discretionary fund manager who cannot give financial planning advice.
- Does your company hold terms of business with your current pension provider and at least 10 other alternative providers? Most non-UK advisers will not hold terms with more than 5 providers, which severely limits what they can recommend which is not good for you. These limited advisers may force you to transfer your pension even when it is not necessary to d, and even worse move it into an inappropriate and more expensive QROPS.
- Have the benefits of a transfer been properly explained?
- Has the adviser demonstrated, in writing on regulated paperwork linked to the country you are resident in, why a QROPS will be better for you compared to a perhaps more competitively priced and transparent British pension?
See our NOTES section at the end for more comprehensive details on these matters.
The second rule of receiving pensions advice
It is not about the pension!
It is about what your goals and ambitions are, along with your attitude to risk, and you need to consider your investments as well as your pensions; this was true pre and Post Brexit.
In other words you need a review, and ideally you should be seeking that review with advisers that are qualified and regulated in both territories (you need the local advice about what is available just like you need the specialist advice from the UK side. The Aisa Group have advisers in both the UK and the EU, qualified to both UK and EU standards. Who better to contact about your UK pensions and investment Post Brexit?
The firms operate under both regulatory setups and they use EU passporting within the EEA.
What are QROPS?
QROPS are recognised overseas pension schemes that can accept transfers from UK registered pensions?
Should I transfer to a QROPS if I move abroad?
In the majority of cases, it is unlikely that a QROPS will be a suitable option. However, there may be circumstances where this is considering- depending on Double Tax Treaties, the Lifetime Allowance and the pension rules where you currently reside.
Lifetime Allowance(LTA)- What is it?
There is a limit as to how much you can hold in a UK pension without being taxed on a transfer abroad or when you access the pension.
What is the LTA limit?
It is currently £1,073,100, though there are previous protections that may provide for a larger LTA.
What is EU passporting?
EU passporting enables financial firms in the EU/EEA to provide services to investors in other EU/EEA countries.
What changed in Malta?
Since 2021, the adviser must be regulated to give investment advice in the same jurisdiction as the investor. In the EU/EEA this means a MiFID licence. A basic insurance licence will not suffice- leading some advisers to use a Discretionary Fund Manager(DFMs) to run the investments. However, be aware that DFMs do not offer financial planning advice in the main and so you would be passing discretionary investment control to a third party that will not give you advice and you could be adding a layer of complexity to the whole advice process.
Does the Aisa Group have licences within the EU/EEA?
Yes. In fact they have discretionary investment securities licences making them almost unique in being able to offer the investment advice alongside the specialist pension advice- something DFMS and those with basic investment intermediary licences (MiFID) cannot offer in full.
In additions, the UK establishment has defined benefit pension advice licences. Try and find another group in the EEA that has discretionary investment licences and the highest mark of pensions advice qualifications (CII Gold Standard)
What is the Overseas Transfer Charge?
The OTC is a 25% charge on transfers from UK registered pensions to QROPS if the investor is not resident in the EU/EEA or not resident where the pension is being transferred to(there are different rules for offshore employer schemes)
What about advice to transfer British pensions to QROPS for residents in the USA?
In addition to the Overseas Tax Charge this is likely to be a non-starter and the explanation is here For those that have transferred to a QROPS, prior to 2017, they really need to engage with a local tax adviser and an SEC registered pension specialist. Our firm has an SEC licence for the USA and can advise US residents on their British pensions.
Can I still pay into my UK pension if I live abroad?
You may be able to do this for up to 5 years but they would need to be to a pension you were already a member of before moving abroad. The amount will depend if you have relevant UK earnings or, if not, it is capped at £3,600 pa.
What if I have a QROPS and I plan to return to the UK??
You can maintain the QROPS in the current location and be subject to UK tax rules or consider transferring it back to a more competitively priced UK Pension.
There appears to be a misconception, particularly among EU based advisers, that UK advisers cannot advise EU residents on their UK/British pensions. It may be due to a lack of understanding or a deliberate attempt to encourage people to transfer their UK pensions to alternative arrangements for the purpose of generating commission for themselves.
The end of EU passporting services into the EU by UK advice firms means that UK advisers cannot market their services within the EU or travel to the EU to offer their services. It does not prevent those with UK pensions contacting their UK advisers in the UK to advise them about their current UK pensions- provided their Professional Indemnity Insurers allow this.
In fact, given the UK requirement to achieve a professional level standard of qualifications it is far more likely that a UK based firm will be better placed to understand your UK pensions and advise you accordingly. Further, the MiFID rules for the EU do not actually cover pensions at all- a myth further exploited by EU based advisers looking for business by moving UK pensions.
That being said, if you have pensions left in the UK- Post Brexit- you really ought to have a review of these, in conjunction with your other pensions and investments. The Aisa Group have advisers in both the UK and the EU, qualified to both UK and EU standards. Who better to contact about your UK pensions Post Brexit?