Expats can be ‘blinded’ by QROPS tax sweeteners, it is claimed

by Ray Clancy on November 22, 2011

Expats need to consider more than just tax benefits when choosing a QROPS

Expats are in danger of overlooking key factors when choosing a Qualifying Recognised Overseas Pension Scheme (QROPS) rather than choosing one that suits their circumstances, it is claimed.

It is important to consider more than just tax benefits and examine whether a QROPS is the best option, according to Gavin Pluck, European director of Guardian Wealth Management.

In particular he believes there is a myth among British expats that all QROPS are recognised by the UK taxman and regulated but this is not the case.

‘There is little doubt that QROPS are a useful and popular financial planning tool, but our experience shows that expats are increasingly being blinded by tax sweeteners, rather than taking full stock of the right scheme for their particular retirement aspirations. As choice increases, I believe it is crucial expats should address any regulatory implications and not be swayed simply by an attractive tax inducement,’ he said.

In particular, he believes that expats must look at the where the QROPS is based and question whether it is the best jurisdiction for them.

‘Unfortunately, there is a general misunderstanding among British expats that because schemes are HMRC recognised, they are also regulated by the UK’s Financial Services Authority (FSA). This is not the case. The rules that govern these schemes are those of the regulatory authorities in which the scheme is based,’ he explained.

‘And, as we all know, regulations of any country can and do change swiftly. You might start out with a QROPS with an attractive no withholding tax promise, but there’s no guarantee this will remain, nor is there any guarantee that the scheme itself will remain recognised by the UK’s HMRC once the foreign jurisdiction’s government has changed its own regulations,’ added Pluck.

He is also concerned that while QROPS are a really useful financial planning tool, it’s important that advisers don’t simply focus on ‘jam today’ when choosing the right scheme for their clients.

‘Regulatory considerations are equally important, along with how to achieve retirement income expectations in their chosen retirement location. I firmly believe that if expats want a successful retirement, they need to assess all these options equally,’ he said.

QROPS is a growing sector in retirement investment which allows expats to transfer their pension funds abroad. Guernsey is one of the major QROPS destinations. Figures from the UK tax authorities show that 32% of pension transfers out of the UK into QROPS in the first six months of this year went to Guernsey, 28% to New Zealand, 20%to Australia and 5% to the Isle of Man.

The Isle of Man is launching an international push to persuade more British expats and international companies to domicile their pensions on the island. Its financial promotional body, the Isle of Man Finance Partnership, has joined forces with the Isle of Man Association of Pension Scheme Providers (APSP) to attract more of the business.

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