QROPS: Looking beyond the tax breaks

There’s no doubt that Qualifying Recognised Overseas Pension Schemes (QROPS) have provided the solution to many a pension plan of those either moving, or intending to move, overseas, but experts are issuing new warnings to look beyond the immediate benefits of tax breaks.

These benefits include the potential elimination of UK tax on all pension income, up to 50% in some cases, as well as freedom from death taxes. And, in addition to the exemption from UK tax, some countries impose no tax on foreign income, so depending on the destination country, and the QROPS chosen, there could be no tax levied at all.

Financial experts, whilst acknowledging these obvious benefits, simply warn that expats must ensure they select the right scheme for their particular needs and aspirations, understand all regulatory implications and are aware that despite being recognised by HMRC, QROPS are currently neither regulated nor protected by the Financial Services Authority (FSA). Instead the schemes are governed by the regulatory authority of the jurisdiction where the scheme is held.

Should the regulations of the chosen jurisdiction change, it could affect HMRC’s recognition of the scheme, or impact negatively on the once-attractive promise of no withholding tax. Therefore, it would be wise to consider a QROPS which could be transferred from one jurisdiction to another at no additional cost to the pension holder. It is essential to get the right information and to choose a QROPS provider who can cater for any and all possible changes in regulations and circumstance.

Other factors also need to be considered, such as exactly how long the expat intends to be overseas, as there is little benefit to a QROPS if the move is anything other than long-term; what pension provisions have been made for a spouse or partner; and exactly what the retirement income expectations are.

David Erhardt, Pensions Director at STM Fidecs says, ‘Choosing a QROPS in a jurisdiction which best suits your circumstances is very important. For example, if you’re a resident in the EU, you should choose an EU jurisdiction in order to enjoy the maximum benefits of your QROPS.’

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