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Qrops clash over effects of annuity reforms

Standard Life says the Government’s annuitisation reforms will dramatically reduce the demand for qualifying recognised overseas pension schemes.

But Qrops specialist adviser Monfort International has attacked Standard’s stance and suggests there will be a continuing need for Qrops among expats.

Last week, the Government set out plans for a flexible and capped drawdown regime to replace annuitisation at 75. Individuals in flexible drawdown who take benefits abroad will not face an income tax charge if they are a non-UK resident and do not return to the UK within five years.

Standard Life head of pensions policy John Lawson says to get the full benefits of Qrops, the individual needs to live outside the UK for five years.

He says the flexible drawdown regime compares favourably with other jurisdictions in terms of cash restrictions. People will be able to take 100 per cent cash, above the minimum income requirement, 25 per cent tax-free and 75 per cent according to residence status on withdrawal if outside the UK for five years.

Lawson says it is “a game changer” for Qrops . He says: “I have seen people charged tens of thousands of pounds in initial fees for a Qrops. Why transfer to a foreign pension when you are already in just about the most flexible retirement benefit regime in the world?”

AJ Bell marketing director Billy Mackay agrees the reforms will dampen appetite for Qrops but adds: “A number of firms will aggressively target UK pension money and play quite heavily on things like the 55 per cent tax on death penalty.”

Montfort International managing director Geraint Davies says: “If a person is going to live in another country, you have to know what the impact is of retaining a UK pension whenever UK or local legislation changes. To say they will be significantly damaged is rubbish. This is insular, parochial and worrying thinking.”

AES International managing director Sam Instone says: “I think overseas pensions, provided they remain HMRC-sanctioned, will remain very clearly in the best interests of lots of clients.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. I think John Lawson is quite right here – why on earth would anyone bother with QROPS now? pay high up front fees, pay higher fund management fees and run the risks of lower quality regulatory environments?? Its only the QROPS cowboys would go for this in future

  2. The indications are that the transfer to QROPS market will remain unabated. The price of flexibilty under the UK regime will be having to use a large chunk of pension capital to buy an annuity.

    The QROPS benefit on taking income is for a Spanish resident (as an example) immediate. The tax charge on income drawn from a Guernsey QROPS is for a Spanish resident as little as 1.6%.

    And on death (subject to five complete tax years of non UK residence the tax charge on the remaining fund is of course zero instead of 55%.

    With proper advice the asssociated costs need to be little more than those associated with a UK SIPP.

    Whilst others may think that the QROPS market is not worth bothering with we will continue to increase our already substantial market share.

    For most expats a transfer to QROPS remains a “no brainer”.

  3. The new flexible drawdown rules should have very little impact on the QROPS market. For fund sizes of £350,000 and below, clients are unlikely to be able to benefit from the increased flexibility. Clients with larger fund sizes are generally more concerned with succession planning, and are happy to pay in the region of an extra £400 per annum to save the 55% scheme charge on death. The taxation in a clients country of residence also needs to be taken into account, for instance is there a double tax treaty with the UK. In many cases it is negligent not to consider a QROPS for an appropriate client. Just make sure an FSA regulated adviser is involved with the advice.

  4. Advisors only bother with QROPs as a means to sell the obligatory Portfolio bond. If offshore clients were told about the charges they would run a mile – the Portfolio Bond charges………..

    Qrops trust charges are no different to the cost of any other trust – its a case of the ensuring the investment suits the trust in size terms as well as benefits.

  5. Agreed. It’s not even as if 55% is going to be payable that often on funds on death in registered pension schemes. There will often be legitimate ways of getting the value out to beneficiaries at their local income tax rate, or less.

  6. Joh Rawicz-Szczerbo 17th December 2010 at 10:01 am

    A certain life company also espoused the idea of residential properties to let in SIPPs and herded transfers in preparation pre-A day – Boy, that worked too! Remember who carried the can for that one.

    Careful what you believe!

  7. The reasons for considering a QROPS are far wider than just the annuity issues. Matthew Nash is right, not considering a QROPS for someone who has left the UK is negligent, however you need to ensure that the FSA regulated adviser has experience of QROPS, it is clear from some of the comments that much ignorance about QROPS still exists.

  8. Dion Lindskog, you are 100% right about ensuring clients take advice from REGULATED and PI covered advisors. So one big question, why are Trustees and life companies accepting business from non regualted advisors and more to the point why are the life companies paying outreageous commissions of up to 8% PLUS up to 5% when a client switches funds????

    QROPs is not the problem, its the investement vehicle being used thats the problem as well as these so called professional QROPs companies accepting highly charged portfolio bonds as part of the deal.

  9. These comments are most interesting and a healthy debate is well over due on this subject, amongst us delivering advice. For those doubters please understand there is fundamentally nothing wrong whatsoever with an overseas transfer if it is best advice – the trouble is the option is being clouded by some distinctly unhelpful overseas participants

    I have been involved with delivering international pension transfer advice essentially since the day I started in this wonderful world of financial advice in 1982. It’s no different now to what it was then as to deliver best advice must always be our goal. So indeed if you ignore the existence of Qualifying Recognised Overseas Pension Schemes (QROPS) then one day you will, I can 100% assure you, come a cropper.

    There is no denying it a QROPS is an option for all UK pension holders bar those who have purchased an annuity or those taking company pensions in their retirement. It can and I have demonstrated this in the past and yet again, only last week it can be an option for a UK resident.

    If you live ex-UK or intend to live ex-UK then a UK pension solution could well turn out to be a very nasty square peg for a round hole. This can easily be exampled, in 2002 as the Australian Senate called a Public Enquiry to consider the taxation regime that applied to foreign pensions for Australian residents – please note the following link.

    http://www.aph.gov.au/Senate/committee/superannuation_ctte/media/17may.pdf

    4 years before QROPS, Australia was demonstrating the need to consider the interaction of tax, visas and social security – some of the essential features in the delivery of QROPS retirement advice. In this enquiry Montfort International tabled real life examples of those Australian residents who had received inappropriate advice from UK advisors whilst resident in Australia as well as examples of UK advisers giving inappropriate advice to someone they knew was leaving for Australia. There were some dreadful examples of financial advice. These examples were also shocking indictments of advisers not only failing to know their clients, but actually failing to know their clients future plans and failing to knowing the options available. They were simply flogging products and not delivering advice.

    Indeed I will go further, we were able to demonstrate examples of poor adviser supervision, lack of training and lack of technical capacity as well as a lack of common sense.

    I am afraid advisers need to learn quickly as advising in this field is highly specialised. If you have clients who reside or intend or could reside ex-UK then you have to accept and embrace that their tax and legal positions will be different if the move ex-UK is made – that is a fundamental that simply cannot be ignored. Perhaps put another way if an advisor refuses to consider a QROPS then are you indeed “treating a customer fairly” if you ignore the benefits of a QROPS?

    It is a dreadful state of affairs that advisors and technical experts are being put off QROPS by the stories I hear and they are hearing, sadly many a true.

    There are those out there pounding out stories of how clever they are in cashing out pension funds. They do no good for QROPS, they do absolutely no good for the profession and clearly no good for the jurisdictions which are none too pleased at being dragged into and being labelled pension laundrettes.

    And finally as its Christmas beware those who think that if you leave for overseas then the logic of moving a UK pension fund to a QROPS is as simple as a turkey shoot. It most definitely is not.

  10. Geraint Davies you make a very eloquent contribution to this discussion. However, in the main, the poor name that the international advisors have been able to create for QROPs is not down to the advice, or rather lack of it, but more towards the rape and pillage of the pension fund in the name of COMMISSION.

    I have also been party to QROPs transactions and seen first hand advisers giving reasons for QROPs as being

    **Commission

    **Commission

    **Commission

    When I have queried the lack of advice and the amount of commission being taken through the portfolio bond, the answers are simple.

    1. We have to earn a living

    2. We are allowed to transact business this way – if we weren’t, the product advisors would accept our applications.

    When I have asked the product providers, their answer is also simple, it has nothing to do with the FSA, we are acting outside their jurisdiction.

    Product providers claim to undertake due diligence on their introducers. However, when I come across clients where QROPs has been advised, along with the Portfolio bond or is being advised, along with the Portfolio bond and the advising “firm” doesn’t know the difference between a company and personal pension, it does beg the question, exactly how much due diligence have the Product providers undertaken.

    Bottom line is, how much QROPs business would there be if the Product providers reviewed commission levels on portfolio bonds from 8% + + down to a more acceptable level as well as investment managers ceasing to offer up to 5% commission for a fund switch. By all means pay an advisor, but for heaven’s sake, don’t rob the client at the same time.

    There are very good reasons to move to a QROPs, however, there has to be a line of responsibility for the advice and irrespective of whether the FSA are interested or not, some should be. The product providers by accepting Portfolio bonds which they know is Pension money and the Trustees of the QROPS trust accepting the investment vehicle, there has to be a degree of acceptance for the advice instead of their get of jail cards – the massive paragraphs of disclaimers.

    When this QROPs missale hits, it will make the endowment missale look like kids stuff.

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