Expat Banking and Finance


British expats left with less choice in pension schemes investments

by Ray Clancy on July 9, 2015

British Expats are seeing the number of overseas pension schemes that they can use to move their investments abroad being cut back drastically.

In the UK, the tax man, HM Revenue and Customs, has removed thousands of Qualifying Recognised Overseas Pension Scheme (QROPS) from its approved list. Globally, the number of schemes has fallen from around 3,800 to 663.

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British expats are seeing their options for pension scheme investments dwindle.

Australia now (one of the world’s biggest providers of QROPS) has just one Qrop, the Local Government Superannuation Scheme, remaining on the list and more from other countries are expected to be removed soon.

In Ireland the number of approved schemes has fallen from 797 to 56, in Switzerland they are down from 100 to just one, in Spain they are down from 16 to two and in South Africa they have been cut to seven from 29. Canada is expected to see a cull in the coming months.

A QROPS is generally regarded as an attractive option for expats who want to invest their pension but are worried about the effect of currency swings on their payments. They offer tax advantages when drawing pension benefits and can be transferred upon death. Transferring a UK pension fund into a scheme can reduce taxation and avoid UK taxation as long as the pensioner remains tax resident outside of the UK.

But they are being affected by pension changes in the UK. Earlier this year HMRC wrote to overseas schemes that accept UK transfers warning that they must comply with the new pension freedom rules which came into force in April.

Under the new rules, which allow savers to take their whole pension pot as cash, pension schemes must prohibit members from accessing their savings before the age of 55, unless the member is retiring early due to ill health; however, many overseas schemes allow under 55s to take some of their funds early in some circumstances, such is if they are suffering financial hardship. They are unlikely to change their rules to accommodate the UK requirements because this would disadvantage their local members.

Nigel Green, chief executive of deVere Group, many of whose 80,000 clients have transferred their retirement savings into an HMRC-recognised QROPS, explained that while many QROPS which have been withdrawn from the list are highly regulated financial vehicles, they fail the UK’s pension age test.

‘They allow the early payment of benefits before the age of 55 and therefore, these funds do not meet all the stringent requirements needed to be recognised by HMRC as a QROPS,’ he said, adding that he is in favour of the move.

‘This measure further impedes funds being transferred to certain destinations with the sole aim of the pension holder then being able to withdraw a large proportion of the cash as a lump sum. This is not how QROPS were ever intended to be used. They are meant to provide an income in retirement for those living outside the UK,’ he pointed out.

‘HMRC’s stance on this issue and the deployment of more and more of its resources in the area is further evidence that QROPS  are fully part of the retirement planning establishment, and that the overseas pension transfer market has fully come of age,’ he added.

He also pointed out that ultimately it means that clients are even more protected, making QROPS, with all their enormous financial benefits for expat retirees, an even more attractive option. He added that it is likely that other jurisdictions will benefit from HMRC’s new list, including Malta, the Isle of Man and Gibraltar, which have amendments that meet the UK rules.

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