More and more expats are turning towards Qualifying Recognised Overseas Pension Schemes (QROPS) according to figures from HM Revenue & Customs.
From a standing start of zero when QROPS first opened for business on April 6, 2006, HMRC expects around 10,000 QROPS transfers out of British pensions this year.
Part of this steadily increase number comes from QROPS providers seeking out investors with smaller pension funds to maintain their businesses.
The average British pension pot is surprisingly low for a lifetime of savings – somewhere between £35,000 and £40,000 on average.
However, many of the high-powered QROPS providers are geared up for transfers of £100,000 or more, which can leave some of the smaller investors out in the cold.
Tax firepower
HMRC does not impose any minimum or maximum transfer levels, but providers do set their own business rules to attract the customers they want.
This leaves some cherry-picking only the wealthiest clients.
Now, some QROPS providers are recognising that many expats and international workers with UK pension rights are retirement savers with small pension pots.
To make a transfer attractive, they are offering a QROPS lite pension for funds adding up to just £20,000.
A QROPS lite is the sawn-off shotgun of offshore pensions.
The tax firepower remains the same, but to make administration and fund charges cost-effective for smaller funds, investment options are limited.
For instance, one provider only offers a limited range of funds managed by The Prudential.
Bringing QROPS to the retirement saving masses brings other advantages, even with fees of between £650 and £1,000 a year factored in.
Treasury whispers
One major benefit for an expat is saving foreign exchange fees when switching cash from Sterling, if the pension remains in the UK, to Euros, US dollars or any other major currency as a QROPS will pay benefits in many currencies straight into the bank.
Another is many QROPS will offer an extra lump sum payment of up to 30% of the fund, rather than the 25% paid in the UK.
Whispers coming out of HM Treasury also suggest the government is looking at capping or reducing this tax-free payment, but as overseas QROPS jurisdictions set these levels, the 30% opportunity should still remain available.
Another option is consolidating a number of smaller pension funds into a single QROPS to cut costs.
The message for expat retirement savers struggling with money is a QROPS is definitely something to look to for financial relief.
