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In April 2006, we saw the introduction of 'A-Day' and the so called “˜Simplification’ of the UK pension system. Amongst the many changes that were made, was the ability for a UK pension policy holder to transfer his / her pension into a QROPS. Anybody with a UK pension scheme either leaving the UK, or currently living abroad can transfer all existing private pension provisions into a QROPS.


Investigating The Need For Astute Pension Planning

Anybody with a UK pension scheme either leaving the UK or currently living abroad can now transfer all existing private pension provisions into a QROPS (Qualifying Overseas Recognised Pension Scheme). 

Careful and astute financial planning, however, may not always deem the transfer as the obvious or indeed the most appropriate advice to take.

Pensions – A complicated minefield?

Many UK citizens and expatriates believe the UK pension system is over-complicated and suffocated in layers of regulation and restriction. 

They view retirement planning with scepticism and choose to opt for other solutions such as purchasing property for investment purposes in order to fund their retirement in years to come, be it through rental income or capital from the sale of the property.

There is a real paradox here and it leaves the individual unsure and worried about what they have worked their working lives to try and achieve: a comfortable, relaxing and fruitful retirement.

In a declining property market, where many are now experiencing “˜negative equity’ people are now beginning to question their own judgement. The access to credit remains tough and the number of repossessions continues to rise.

Many individuals, both at home and abroad are now asking “˜What next for the UK retiree?’ 

QROPS – The Expats Retirement Solution?

In April 2006, we saw the introduction of A-Day and the so called “˜Simplification’ of the UK pension system. Amongst the many changes that were made, was the ability for a UK pension policy holder to transfer his / her pension into a QROPS.

The benefits can be fantastic to the discerning individual:

  • Avoidance of Inheritance tax on the pension fund.
  • A greater degree of investment management flexibility.
  • A tax free lump sum of up to 30%
  • All income and proceeds in a currency of your choice
  • No need to ever purchase an annuity, although this is still possible.
  • Protection against any future creditors.
  • And most importantly, you can take income from your pension in a much more tax efficient way.
  • The ability to leave 100% of your pension to a nominated beneficiary.

If we begin to dissect some of the obvious tax advantages, it could be argued that, in some circumstances the transfer should indeed be a “˜no brainer’.

The essential benefits come into play when one has been out of the UK for at least 5 years or does not intend to return in the foreseeable future. 

In essence, the QROPS provider does not have to report any withdrawals or payments to the HRMC as the pension is simply subject to the laws of the relevant overseas jurisdiction.

In addition, the requirement to purchase an annuity by age 75 to avoid a possible 82% tax charge is no longer applicable and the age at which you draw the pension 50/55 can indeed remain the same.

At first glance, there appears to be very little argument to suggest that a transfer could be detrimental.

How “˜safe’ is your pension?

The structure or “˜type’ of pension scheme one holds within the UK will have a fundamental bearing on whether it is “˜Best Advice’ to transfer the scheme into a QROPS.

The majority of QROPS schemes are “˜Money Purchase Schemes’ or “˜Unsecured Pensions’ whereby no capital guarantee will be given and the fund is subject to standard market movement volatility. They are often contracts set up by individuals or through an employer after the introduction of Stakeholder legislation in September 2001.

Such pensions do not provide the guarantees and security that a “˜Final Salary’ or “˜Defined Benefit’ scheme would give. 

Not only are there certain guarantees placed within this type of contract it is also the case that if things do not quite work out as planned the door is firmly shut and there is no option to transfer the money back. 

Catastrophe planning is indeed fundamental when addressing retirement planning.

Such are the advantages of these Final Salary pension schemes, it is highly unlikely, although not set in stone, that a QROPS scheme would be deemed the “˜Best Advice’ for a professional Financial Adviser to give.

At what cost?

In terms of costs as a percentage, typically, the larger the transfer value the lower the costs involved. Most schemes will indeed incorporate monetary maximum charges. It stands to reason that those with a lower pension amount would suffer disproportionately. 

Holding other investable assets and cash deposits however, means that it is quite often possible to work out an exit strategy should this be the appropriate advice to give.

In short, a QROPS transfer is not the “˜Best Advice’ for everybody. Only a UK qualified and registered adviser will be able to definitively analyse and recommend whether it is indeed appropriate to transfer your retirement savings out of its current scheme. 

Legislation imposed by the FSA ensures that a financial Adviser who does not hold a UK license CANNOT give advice on UK based contracts. 

In many cases it is indeed appropriate to transfer out of the current scheme but only into a different scheme within the UK.

Treating Customers Fairly

{mosbanner right}A number of Acts have been enforced to protect the individual against inappropriate financial advice and we should only welcome and appreciate the work done by the Financial Services Authority to ensure this doesn’t happen again.

Inherent within their current philosophy is the notion of “˜Treating Customers Fairly:’

“Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture”

“Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly”

“Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale”

“Where consumers receive advice, the advice is suitable and takes account of their circumstances”

“Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect”

“Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint”

If we pay close attention to these principles, it is easy to see what changes need to be made and how important careful, honest and timely planning is to ensure retirement security.

Financial Advice

All pension schemes, In particular, a Final Salary scheme really do need to be analysed with extreme caution. No two individuals have the same needs and more often than not other financial assets, liabilities, and tax positions need to be taken into consideration. 

Before we build the house, we need to position the foundations and this is a fundamental within the realms of financial planning.

Transfers into QROPS can indeed be made right now but it’s absolutely fundamental that one knows and understands ALL of the options available and not just those available on the offshore market. 

Given the wide range of factors that needs to be considered, it would seem sensible to choose a UK qualified and registered financial adviser when planning your retirement and QROPS needs.

In many countries in the Far East, there is no regulatory requirement to hold any professional financial qualifications to give advice to the expat community. The personal finance society ( recently confirmed that in Thailand there are indeed only a handful of “˜Advisers’ who hold such qualifications.

Do you not have the right to be treated “˜fairly?’. It’s your financial future and your security of mind. 

About the Author: Lee Wood Cert PFS is Managing Director of Expat Financial and is a UK registered and qualified financial adviser.
Email: [email protected]
©Lee Wood