The Big Question: QROPS

What are the key challenges facing advisers who have clients who could use QROPS as part of their retirement planning?

Andrew Gadd is head of research at The Lighthouse Group:

The position regarding QROPS reminds me of the argument used by the IMA regarding their sector classifications.

After the Arch Cru Investment Portfolio which was listed in the cautious managed sector despite the fact that it invested heavily in private equity and private finance failed, the IMA said the sector’s name related to the sorts of assets held in funds listed in their sectors rather than their risk levels. 

In fact, an IMA spokesperson specifically commented at the time: “The word ‘cautious’ should not be taken literally.

It’s actually asset-based rather than risk-based. None of our sectors are risk-based.”

The person went on to ­confirm that: “You have to read the ­definition and that does tell you exactly what it is invested in.”

Now with QROPS, we have a ­position where although schemes may have appeared on a list of ­recognised QROPS issued by HMRC, they have now issued a qualifying statement that being listed did not necessarily mean the scheme was following the rules!

Eric Bruce is international distribution manager at Standard Life:

Advisers face a number of ­challenges with clients who could use QROPS as part of their ­retirement planning.

Potential ­benefits include reducing currency risk and wealth preservation.

However, the benefits do need to be balanced with the potential implications. Due diligence on the provider, including the jurisdiction they operate in, is essential to avoid the potential nightmare scenario of choosing a provider which is ­subsequently delisted by HMRC. 

The tax consequences of the ­transfer being deemed ­unauthorised could prove to be a financial ­disaster.

We have already seen some schemes falling foul of HMRC, so it’s worth bearing in mind the phrase ‘If something looks too good to be true, it usually is’.

Access to up-to-date technical, taxation and legislative information may be a challenge for advisers as the market continues to evolve.

They will have to quantify the tax position in the UK and in the destination country for example, the existence of a double taxation agreement.

The cost of some QROPS has ­reduced recently following ­increased competition and more widespread use.

The challenge is to review both the cost and benefits provided by the ­existing ­arrangement (particularly any ­guarantees for defined benefit members) or new UK arrangement compared to QROPS.

Peter Carter is product marketing director at Metlife:

The challenges around ­QROPS are focused firmly on ­compliance and legal issues.

Advisers need to be aware of the regulatory and legislative risk involved in QROPS as HMRC regularly reviews ­jurisdictions and schemes to ensure they continue to be valid homes for UK pension money.

Choosing the right jurisdiction will be vital as the country should have the appropriate investor protection rules in place.

It is also important that advisers check there are well-qualified staff to administer schemes.

The Treasury has indicated that it will apply UK tax to all QROPS ­pension income as part of its ­general crackdown on tax ­avoidance.

HMRC is ­challenging schemes which were on the ­approved list through the courts, with the result that it can be ­difficult for advisers to know which schemes are bona fide.

However, it remains the case that QROPS are a valuable option for advisers to use with the right clients as they allow pensions to be used flexibly when clients move overseas.

Rachael Griffin is head of product law and finiancial planninng at Skandia Intenational:

The adviser needs to review the client’s existing pension ­arrangements. Questions such as, ‘What type of scheme does the ­client currently have?’ and ‘What benefits, guarantees, protection, costs and investment opportunities does the current scheme provide?’ will all influence a decision to ­transfer.

Therefore, an analysis of the value of these benefits to the client is ­essential as part of the advice ­process.

While a transfer analysis is not mandatory in order to ­transfer from a UK-registered pension scheme to a QROPS, it may be prudent to consider obtaining one of these before transferring.

The outcome of such a ­review will, of course, need to be ­balanced with the client’s ­current and future plans.

Additional ­considerations such as ‘Where does the ­client ­currently ­reside?’, ‘Is this ­permanent?’, ‘Where will the ­client be resident when benefits are taken?’

‘Does the client intend to return to the UK?’ all these questions will have an impact on whether a transfer is ­appropriate and also ­potentially where the ­client may want to ­transfer to.

Benefits such as locking into a local currency for benefit ­payments, diversification of investments, ­competitive charges and the ­reputation of the QROPS jurisdiction and provider will all be factors.