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Will Budget flexibilities boost Qrops?

Insurers were the obvious casualties of the Budget pension reforms as the annuity market was sent reeling by the Chancellor’s statement that savers would no longer be forced into buying the products.

But overseas pension schemes, Qrops, were also put on the endangered species list as the drastically improved flexibility of UK pensions suddenly made them look a lot less generous. There were concerns from providers that the new range of options created by the reforms would see emigrating savers prefer to keep their pensions invested in the UK.

However, as Money Marketing revealed online last week, the Government is set to extend the Budget pension flexibilities after holding crunch talks with the industry. According to minutes from a meeting on the draft Taxation of Pensions Bill attended by HMRC and the DWP, seen by Money Marketing, the tax office has confirmed the rules surrounding Qrops will be updated to bring them into line with the Budget reforms.

London & Colonial head of product and business development Adam Wrench says: “Post-Budget there were a lot of headlines saying this was the final nail in the coffin for Qrops. It was all doom and gloom.

“Now that HMRC have confirmed the new flexibilities are going to Qrops as well means those headlines are unfounded and we believe the growth in popularity of the Qrops market looks set to continue”.

Global Qrops director Paul Davies says: “If the rules were not changed, for those people looking for complete and utter flexibility in their pensions UK-based pensions would be more flexible than some Qrops jurisdictions.”

Now that it appears overseas schemes will have the same options as UK pensions, what are the benefits to the millions of Britons living abroad?

Davies says: “One of the advantages is that they allow you to be paid in the currency of your choice, which means you’ve got an income stream that keeps pace with your lifestyle. You won’t have to worry about exchange rates – if the currency markets move against you, you need more of your fund to maintain the same income.

“On top of that, in some jurisdictions, such as Australia and New Zealand, transferred pension benefits are paid completely tax free, where as if you were being paid from a UK scheme it would be subject to tax under foreign source income rules.”

However, Syndaxi Chartered Financial Planners managing director Robert Reid is not convinced the Qrops market will take off.

He says: “Until we see the Autumn Statement we’re not going to have a clear idea of the tax position, it depends what the Government does with people who move offshore. On top of that, at the moment Qrops are far too expensive and the investment abuses in Qrops have been more important than the advantages.

“Advisers need to do some very careful due diligence before pushing people into them.”

Qrops – a troubled history

While the premise of a Qrops – to provide pension benefits to UK residents who move abroad – appears benign, the scheme’s have been subject to increasing scrutiny from HMRC amid fears the rules are being abused.

In December 2011, the Revenue proposed a number of revisions to secondary legislation for the Finance Bill 2012 to increase the reporting requirements for Qrops.

At the time, HMRC said: “The Government has found that Qrops are being marketed extensively as a way of paying amounts or enabling the payment of amounts that are not allowed under UK rules (in particular 100 per cent lump sums) once the UK tax rules no longer apply.”

In April 2012, HMRC culled more than 400 Qrops from its register following the rule tightening.

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