Only six weeks left until flexible access for Qualifying Recognised Overseas Pension Schemes (QROPS) and still only two financial centres have announced they will be ready to let retirement savers drawdown up to 100% of their funds.
Gibraltar and Malta were both quick out of the blocks to let QROPS investors know they can draw as much of their funds as they wish from April 6, 2015, in line with the British government’s new rules for onshore pension savers.
What is QROPS flexible access?
Flexible access gives pension savers aged 55 years old and over three main options –
- Take a tax-free lump sum and invest the rest in an annuity providing a guaranteed income for life.
The returns are poor, but are hiked up for investors with a lifestyle or health condition that could mean they die young
- Investors can draw cash as they wish – up to the first 30% is tax free and the balance is taxed as income.
The cash can be taken as and when required as a number of smaller withdrawals with no restrictions on spending
- Investors can withdraw their entire pension pot, with up to the first 30% tax free and income tax paid on the rest
So far, the other 43 QROPS financial jurisdictions have made no announcement about their intentions for joining flexible drawdown.
Even though the regulators in Gibraltar and Malta are allowing flexible access, providers do not have to offer the service to QROPS clients.
Out of 3,673 QROPS worldwide, Gibraltar has 45 and Malta 22 – adding up to a tiny percentage of the market.
Tax and forex worries
Unless QROPS providers get their act together quickly, thousands of QROPS pension savers will be left high and dry when flexible access starts.
Another consideration is how income tax will affect flexible access pension withdrawals.
Generally, QROPS benefits are paid gross by providers and income tax is paid locally. That means tax residence will play a big part in how much cash someone retains from their QROPS.
For example, two retirement savers could end up with vastly different pension lump sums if one lives in 0% income tax Dubai and has a Gibraltar QROPS and the other lives in a European Union country and pays 20% basic rate income tax or higher rate tax.
Volatile currency exchange rates should not pose a problem as QROPS can pay out in a number of major currencies.
