GBP 1.3 billion in transfers – what’s next for QROPS?

According to the Office for National Statistics, since the QROPS legislation was launched in 2006, over GBP 1.3 billion QROPS transfers have been made.

Qualifying Recognised Overseas Pension Schemes (QROPS) are HMRC-compliant schemes based outside of a UK that can receive a UK pension.

They allow a UK pension holder to consolidate all their UK pensions (minus state pensions or annuities) into one manageable fund, allow up to 30% as a tax free lump sum, protect the fund from the UK’s high income and death taxes, and offer a much larger range of investment choices due to favourable treatment of pensions in certain jurisdictions.

As the market continues to grow, we take a look at some of the factors determining the strength of the QROPS offering, and examine how the market may look in the future.

LTA limit

Many financial advisors have talked to the press about the jump in QROPS enquiries ahead of the LTA limit cut in April 2014.

The reduction sees the Lifetime Allowance (LTA) threshold – the upper limit on how large a pension can grow before becoming subject to tax – is being slashed to GBP 1.25 million.

Anyone with a pension totalling over this amount may be charged as much as 55% in taxes upon the excess.

Proposed pension cuts

Labour has announced that if it wins at the next General Election, it will make a cut to pension plan tax reliefs for the UK’s high earners.

Specifically, the party will slash pension tax relief to GBP 00.20 (currently set at GBP 00.45) for every pound invested in a pension by individuals earning over GBP 150,000 a year.

The introduction of France’s Wealth Tax – and the subsequent mass exodus of the country’s rich – taught the world that people do not like to pay taxes they believe are unfair or unreasonable.

It may be that in time, the slashing of pension tax reliefs provides the impetus for the UK’s rich to also fly the coop – and consequently research the more preferable pension options available to them.

Market stabilisation

In the early years of the QROPS legislation, uptake was slow, and the lack of experience of advisors meant that many were using guesswork when they advised on transferring pensions abroad.

A number of issues then plagued the market, leading, famously, to the Singapore ROSIIP pension scheme. The scheme was one of the quickest applicants to HMRC stating that it confirmed to QROPS legislation, but in fact it was not, and five years later the High Court ruled that members of the scheme had to pay a 55% tax charge.

However, HMRC was recently beaten in court on this case – with the judge also criticising the aggression with which HMRC pursued the case – and the tax charge was lifted.

Whilst this would seem like this is a negative occurrence in the QROPS industry, it has in fact strengthened the market; as in April 2012 clarifications came from HMRC.

Part of the shakeup now means QROPS trustees are under obligation to report back to the UK for the first ten years of the scheme.

The same legislation saw an introduction of the rule which states a country’s residents must be able to benefit from the scheme – which led to the delisting of 300 schemes in Guernsey and a market shakeup which has seen Malta and Gibraltar both become larger players in the QROPS industry.

What the future holds

And what does this mean for individuals seeking to transfer a pension, and the larger QROPS market as a whole?

Generally that the market is more stable, advisors have become more experienced and both sides (HMRC and pension trustees/financial advisors) are more sure of the rules, and legislation in the UK has made expats increasingly on the lookout for more preferable pension options.

To learn whether a QROPS transfer might be the best option for you, you should consult with a regulated independent financial advisor who has experienced in the QROPS market.

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