QROPS: Are they right for your clients?

Rachael Griffin, head of product law and financial planning at Skandia International, explains what you need to know to advise on QROPS.

Retiring overseas and relocating permanently to warmer climes continues to be a popular choice for Brits who are seeking a lifestyle that the UK cannot meet.

Advisers with clients who are considering the move to a foreign country should be able to answer questions around how best to organise finances pre and post-move.

One of the key areas that needs to be considered – especially for those moving abroad permanently – is the suitability of moving a pension scheme outside of the UK and one solution may be a transfer into a Qualifying Registered Overseas Pension Scheme (QROPS).

The complexity of the QROPS rules set by HMRC, and the interaction of these rules with the local pension legislation of the jurisdiction in which the QROPS is established, has prompted advisers to seek out information to ensure they put the best solution in place for the client. A QROPS can be an effective way to consolidate UK pension assets gathered throughout someone’s working life in the UK and provide flexibility to allow retirement planning to accommodate their new lifestyle overseas.

Holder’s jurisdiction

Because pensions and therefore a QROPS are a long term investment, advisers must give thought to which jurisdiction the QROPS will be held in. The financial crisis has led to clients being more mindful of where they are prepared to hold their assets, it is therefore no surprise that in a recent survey conducted by Skandia International regulation and financial stability top the list of things that many advisers consider when selecting a QROPS jurisdiction for their clients.

Once an appropriate QROPS provider has been identified and a jurisdiction selected, advisers will need to explain the tax, investment diversification, access and currency benefits of the QROPS to the client.

Tax – By transferring to a QROPS it may be possible to avoid any UK income tax liabilities and only pay income tax in the new country of residence, possibly at a lower rate. QROPS are not subject to UK inheritance tax, however, local inheritance tax or wealth taxes may apply and local advice should be sought.

Investment Diversification – Usually, a QROPS will be able to access a wide class of different investments including offshore investment bonds. The breadth of the diversification will be subject to local pension rules.