The first steps to creating some form of best practice code for Qrops transfers should be welcomed by the industry. But there is a long way to go before the offshore pensions industry will be able to describe itself as squeaky clean.
The best practice code being created by a group of advisers from around the world will aim to give advisers guidelines on what processes to follow when dealing with the pension needs of clients with an international dimension. Whether that will extend to requiring providers and advisers to make public the charges, investable asset options and tax benefits they offer, remains to be seen.
It is no secret that Sipp providers and the Qrops industry have been squaring up over the destination of valuable assets under management. As long as sharp practice remains, Sipp providers will continue to be vocal about what they see wrong in the way Qrops operate.
Problems with Qrops fall into two categories. First there is sharp practice – the exorbitant fees, commissions and other charges. With so much of the offshore world shrouded in secrecy, many of the worst examples are anecdotal, such as the Liechtenstein Qrops planning to levy charges of £250,000 on a £1.4m fund, or the international firms of advisers putting clients in funds they themselves ultimately own, through webs of brassplate companies. But nobody denies there are sharks offshore.
The second area of dispute is the argument of tax leakage. This issue does touch on sharp practice, where rules are bent to allow borderline cases to benefit from the freedoms some Qrops plans allow.
But the wider issue is how HM Revenue & Customs deals with the complexities of the modern world. Facilitating freedom of movement of assets to jurisdictions that do not share our generous tax on the way in/taxed on the way out structure is not straightforward.
Some Sipp providers say one way to solve these problems is to change the rules so you can only effect a transfer once you have become resident in another country – and you can only transfer to a Qrops in that country. This would stop all but bona fide Qrops transfers at a stroke, while leaving channels open for those genuinely planning to retire abroad.
Supporters of the Qrops status quo argue that would make the system unnecessarily cumbersome and would make the UK an unattractive and unfair place for internationally mobile workers to come and accumulate a pension.
A code of practice will help reputable IFAs avoid the pitfalls when dealing with genuine cases but it is unlikely to stop sharp practice altogether because so many operators in the Qrops space are unregulated and would not sign up to the code. Even if they did, who is to say they would abide by it. As with other codes of practice in the industry, they are by their very nature voluntary. Those that have most to lose by following best practice are least likely to sign up.
The worst excesses surround-ing Qrops relate to those providers and advisers that are unregulated. One solution would be for HMRC to make it a requirement that a transfer from a UK plan into a Qrops should have the involvement of a UK IFA, regulated by the FSA.
The Government has no jurisdiction over the providers assets are transferred to but it can have a say in how and why Qrops transfers are being made.
John Greenwood is editor of Corporate AdviserMoney Marketing