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Pension FAQs – Questions we are Frequently Asked
Yes, we know exactly when a QROPS should and should not be considered; the truth is, “Rarely”.
Due to new rules, QROPS rarely have advantages over retaining a British or UK pension and often have dis-advantages. The UK Budget 2017 changed the goal-post s!! – Any UK or British pension, post 9 March 2017, transferred out of the UK and outside of the EEA to an offshore pension (some International SIPPs or QROPS) located in a different country from where the recipient is tax resident, is likely to result in the pension transfer being taxed 25% on the full transfer amount. This is true where someone lives outside the EEA, but moves their pension from the UK but keeps it in the EEA. However, for those people resident in the EEA, it will not (currently, but consider Brexit) have a 25% tax imposed if the pension is retained in the EEA, however, it is not tax free. Why?
Pension taxation on both the lump sum and income (and even the internal growth sometimes) will come down the Double Tax Agreement between where your pension is based (For example: the UK, Gibraltar or Malta) and the way in which local taxes apply where you live now, and where you live when you retire. This last part is critical, it is where you retire that counts for lump sum and income, not where you currently live, and not purely where your pension resides!
Also, you should consider where your beneficiaries live as well. Once you die then funds will be made available to beneficiaries and the basis of taxation will be based on where they live, not where you live!
However, the real point is that even if you live in the EEA, QROPS have little additional benefits for those people less than 74 and who are below the Lifetime Allowance and, indeed, can have some serious disadvantages when compared to UK pensions due to loss of protections and status. Additional “benefits” often advertised or sold by salesmen are nothing of the sort in many cases, so beware
No, you do not avoid taxes and could end up with higher taxes! This will be a shock to anyone being recommended a pension transfer out of the UK pension system as you are often told the opposite. The exception will be certain countries in the world (they number about 10) or if your pension exceeds or is close to the Lifetime Allowance but then you should be seeking professional advice from a UK regulated adviser directly.
The key is understanding that pension income and any lump sum is declarable exactly as before. In fact, even where there is a tax advantage of a QROPS (rarely) you are likely to pay higher charges when using the QROPS which wipes out any supposed tax efficiency.
Indeed, those offshore companies claiming that additional tax is saved from utilising a QROPS over a UK pension fail to point out that, in most cases, HIGHER potential taxes will apply within a QROPS and there can be potential penalties. The exception maybe those with funds in excess of £1,030,000 that may be hit by the Lifetime Allowance ; contact a UK registered adviser to understand the Lifetime Allowance and its tax implications.
Budget 2017 – Any UK pension transfer post 9 March 2017 sent to a QROPS in a different country from the recipient, where either the pension or the recipient is outside the EEA, is likely to result in the pension transfer to be taxed 25% on the full transfer
In essence it will come down the Double Tax Agreement between where your pension is based (For example: the UK, Gibraltar or Malta) and the way in which local taxes apply where and when you retire. This last part is critical, it is where you retire that counts for taking assets, not where you currently live and not purely where your pension resides!
However, the first point should be that is a pension transfer even necessary? You should consider your current british pension first and the options that it provides
Assuming you are 55 or older then the Double Tax Treaty (DTT) between your country and the UK and the local tax rules will dictate whether the Pension Commencement Lump Sum (PCLS) is free from tax. Many jurisdictions tax it, even if the UK or the QROPS provider does not, talk to your local tax advisors.
This question comes up as a result of expat advisers outside the UK, or more likely product salesmen, marketing UK pension transfers to “International SIPPs” or QROPS usually in Gibraltar or Malta where the regulation is less “tight” than the UK.
Understand that product salesmen are driven by commission and getting you to transfer for this reason so they may be paid!
The number one issue we find when reviewing overseas advice is hidden commissions that are not declared to you, the client. Our view is that only an Advisor, correctly regulated in both the UK and in the relevant jurisdictions where you live, can advise on all the options in tandem with a local tax adviser. Further, only a UK regulated adviser will have access to the full pension market to get the best deal for the client. Most expat advisers only have access to the expensive ‘International SIPPs’ or QROPS.
The issue is the local adviser. Are they really regulated, do they have local qualifications, do they have PII cover, who provides the protections for their advice?
In most expat advisers are product salesmen looking to sell a QROPS or International SIPP rather than giving advice about the best options for a British or UK pension, and most of them have limited or no UK qualifications, and no local qualifications either, and pretend to have access to a UK specialist firm producing a document which is worthless in terms of protection. Therefore, the answer to this question is a resounding “no”!
A professionally qualified adviser is unlikely to use such phraseology (“fully qualified”) or make such a claim as he/she does not need to. It is a meaningless phrase used outside the UK by salespeople who often have basic introductory qualifications or no local qualifications. We always recommend that you ask to see evidence of any qualifications and cross-check with the FCA Register on their website, or the local regulator in the country where you are receiving advice.
Non-regulated advisers use such terms as ‘Qualified to UK Standards’, “fully qualified” without in fact being qualified at all. Even where they do hold some qualifications they are often not regulated to operate in that country through the firm that is signing off the advice (thus making advice worthless). See the answer to the FAQ – What qualifications should I be looking for the adviser and his / her firm? – as this explains more.
NOTE: UK qualifications standards were dramatically increased in 2013, which resulted in a exodus of some UK advisers who did not meet the new increased standards to work outside of the UK. Far from being current UK advisers or regulated, you should ask to see due diligence since 2013.
So, to assist, we can confirm that the following: FPC, CertPFS, Cert CII, CII(Award) and FAIQ are “woefully” short of current FCA requirements or standards. Be wary of CeMap, often used as a title, it only related to UK mortgages and has no value or purpose for expat financial planning. Note CII and CISI are not allowable titles or qualifications.
Your pensions adviser should have G60 or AF3 OR THE NEW AF7, AND be registered on the FCA Register website with the IDENTICAL firm that you are receiving advice from. We recommend these checks if any adviser is advising on any form of pension transfer. There are many rules about protections that could be lost as a result of an unqualified/inexperienced adviser getting it wrong.
You should also be looking for level 4 qualifications and above (Diploma, Chartered or Certified) in investments as recommended by the FCA in April 2018. Ask for evidence. The CII actually has a member search here http://www.cii.co.uk/web/app/membersearch/MemberSearch.aspx , to check out if someone is a professionally qualified member.
Finally, we highlight that the adviser should be working with the IDENTICAL firm that you have cross-checked and you are receiving advice from. For example, if your adviser is registered on the FCA register with “FORMBY X WEALTH Ltd” and you are receiving advice from the same adviser with the firm “FORMBY X Ltd” or “FORMBY X WEALTH LLC” then you could be about to be scammed, or lose your money! A Trading name can be used by more than one registered company in a group and scam firms will use such tactics.
One way is to use the internet and look for titles such as DipPFS, APFS, FPFS, MSCI,FSCI, DipFA and Certified Financial Planner.
The CII has a Find An Adviser facility that allows you to find the closest qualified CII member to you.
See our previous FAQ for further information on how to avoid being scammed.
This is the biggest lie in the expat IFA community! If there is no fee, then there is very large commission usually (about twice as much as afee which increases charges on a product by about 3 times over the first 5 years). In the UK, a regulated IFA does not use commissions which were banned in 2012.
Any comment stating that the pension provider or investment company pays the fees is only used by commission-only salespeople. They obtain large hidden commissions from an insurance company and also from the investments- usually between 7% and 12% is taken out of your investment which results in additional charges of 10-20% (around 100% higher than an advice fee based investment strategy) in the first 7 years of your investment or offshore pension, which may never properly recover from this monetary attack on your savings.
Always demand a fee agreement when you meet your adviser and agree what your adviser will be paid before you agree to invest any of your money. Make absolutely sure there are no exit penalties on your investments. Peoples’ plans and circumstances change and your investments must be able to be changed accordingly without hefty penalties