HMRC might want to consider a new name for Qrops, given the growing belief that these offshore plans are the next misselling scam waiting to happen.
Perhaps they should rebrand them MQPROPS – maybe qualifying, possibly recognised overseas pension schemes – because the current name does little to dampen down the wild claims that some offshore advisers and providers are making about these schemes.
The loss of the Beazley scheme’s Qrops status does pose some questions for the way HMRC currently operates. If, as is being suggested, status has been lost because Hong Kong’s domestic legislation would have meant a Qrops could never technically have existed in the first place, then that does not bode well for all the other schemes in the jurisdiction.
But if that is the case, why should it take so long to come out? I can understand HMRC saying it is not its job to confirm that the laws in every tiny island state in Micronesia are Qrops-friendly but surely it should have figured out where it stood on Hong Kong a long time ago.
Beazley has written to its clients, saying its lawyers have managed to get what it described as an “entirely unprecedented and genuine offer” from HMRC that wherever transfers into the scheme were made in good faith, unauthorised payment charges will be waived. HMRC may be hard-nosed in many situations but I think most of us would have expected it to adopt this position, as it did with investors in Freedom Sipp after it collapsed last year.
As with Freedom Sipp investors, those Beazley scheme members looking to use Qrops arrangements for their intended purposes should get out, alth-ough they will suffer advisory and product costs as well as the inconvenience and delays of an HMRC investigation.
But where advisers have tempted clients into schemes on the basis of inaccurate claims of fund flexibility, trouble lies ahead.
UK investors may report their advisers to the FSA but those who have used advisers based offshore will find recourse harder to achieve.
We do not yet know how much Beazley is the tip of the iceberg. Of course, there are benefits to Qrops schemes and anyone genuinely emigrating can gain advantages by taking one out, provided they use a decent adviser that puts their money with a decent provider.
But the anecdotal evidence suggests there are as many sharks out there as decent operators and any client tempted by the promise of bucketloads of tax-free cash could risk losing a serious chunk of it to charges.
One source has reported seeing a Lichtenstein scheme charging £250,000 for the transfer of a £1.4m fund. Surely you would only make such a transfer if you seriously believed you were going to get your hands on the whole lot.
If ever there was a case of the tax tail wagging the financial planning dog, then Qrops is, in many cases, it. Advisers I speak to talk of individuals being transferred from rocksolid final-salary schemes, public and private sector, into Qrops schemes, with scant regard for the suitability of transfer values or the understanding of loss of benefits. Once funds are transferred, in many cases, they are invested in funds that do not benefit from the trans-parency taken for granted by those investing in the UK.
With way more than £1bn of assets likely to have left the UK to Qrops since their introduction in 2006, HMRC knows it needs to do something and the review of the annuit-isation process is likely to reduce the pressure by making staying at home more attractive. In the meantime, advisers need to handle Qrops with kid gloves.
John Greenwood is editor of Corporate Adviser