As more expats become increasingly alarmed at the damage austerity measures are doing to their UK-based pensions, they are seeking alternative options, Qualifying Recognised Overseas Pension Schemes (QROPS) are witnessing a huge surge in transfers.
Those expats with LGPS still based in the UK could previously have been forgiven for assuming their retirement funds were the safest of all public sector schemes, however, the fact that their fund has effectively been used as leverage in attempting to turn around lesser performing funds throughout the sector, has meant that many are facing up to the reality of being forced to wait longer until they are able to draw on their savings.
Once they eventually are able to retire on their pension, the level of reduction in benefits is still the subject of varying degrees of opinion, however all industry analysts agree that over the course of the next 10 years, retirement benefits will be reduced for LGPS.
The fact that there are a lower number of contributors than five years ago – due to local government outsourcing, and more demands being placed on divisions in-house – have also led to fund managers looking at more aggressive investment strategies to try to plug the gap.
The reality is that as more people retire each year, and less people contribute, the only way out is to extend the retirement age, reduce the drawdown level for retirees and aggressively invest a proportion of the funds available.
These three factors – combined with the fact that as of April 2015 their funds will be locked into the UK forever – have meant that an increasing number of government pension holders living abroad have decided to remove their retirement money as a matter of urgency.
QROPS Providing the Answer
QROPS have improved as a product hugely since their inception in 2006. So many options now exist that there is an option for every requirement. Now that HMRC rules are clear, five or six jurisdictions stand head and shoulders above the rest, and within these jurisdictions lay hundreds of fund options for every appetite.
While a QROPS may not be appropriate for everyone, it is certainly an option being explored by the majority of expats with defined benefit schemes who have become disillusioned and concerned at the lack of clarity represented by the UK’s pension market.
A QROPS provides benefits which simply can’t be matched by the UK’s schemes:
Up to 30% lump sum tax-free upon retirement
Retirement age is 65, or earlier
Fully flexible investment options in a range of asset classes suiting individual appetite
Death benefits and IHT-free for beneficiaries
Currency choice to avoid exchange rate fluctuations
Stability and a clear view of fund performance
A consultation for Local Government Pension Scheme transfers to QROPS is the next logical step. Nobody really has a clear idea on to what extent the constantly changing UK pension landscape could impact on their personal retirement plans, but if an alternative is available which offers a clear view, many see this as being an option worth investigating.
BEWARE- it seems that QROPS is the easy answer, look again. Check you you have used a Regulated and Qualified Pension Investment adviser and a regulated trustee. Avoid expensive Bonds like Skandia or Friends provident – they will tell you these are essential, but they are not. Be aware at all times that once your UK pension is out of the UK system you will have no one to turn to when things go wrong – as they did in my case!