Qualifying Registered overseas Pension Schemes (QROPS)
QROPS were introduced in 2006 as a means to simplify the transfer of UK pensions overseas. A QROPS is an overseas pension scheme that has registered with HMRC to accept a transfer from a UK pension scheme.
To be a QROPS, an overseas scheme must adhere to certain rules, such as it must be a 'pension scheme' designed to provide income in retirement, and must undertake to report various events to HMRC.
Over the last few years HMRC has looked to clamp down on schemes and jurisdictions that have abused these rules. However, the basic tenet of pensions, that the fund is to be used for an income in retirement, and that the receiving scheme must be a 'pension scheme', remains.
There are some benefits to QROPS, (although with new UK legislation these have, in part, been negated), but these must be weighed against the risks and additional costs that you will face. There is no "one-size-fits-all" and QROPS are certainly not appropriate for everyone. In a lot of cases, a UK scheme can offer a cost-efficient alternative that will achieve your aims.
Unfortunately there is a lot of misinformation on QROPS to be found on the internet; much of it perpetuated by commission-only salesman with no regulatory responsibilities!
If someone is advising you to transfer your pension to a QROPS, you should check:
- Are you forgoing a guaranteed pension (final salary pension)? These are extremely valuable and cannot be reinstated in the future.
- How much will the QROPS cost? Most QROPS are more expensive than comparable UK schemes.
- How much is the 'advice' costing? Is the 'advice' apparently free? If so it is likely the adviser will be receiving money from the pension company. This will be paid out of your pension fund!
- What is the reason behind the transfer? The new UK pension rules offer a lot of flexibility and a QROPS may not offer any benefits over those available in the UK.
- Has the adviser compared UK options as well?Overseas advisers cannot advise on UK regulated pensions. It is therefore unlikely they would even look at these options when making recommendations to you.
Risks
It is important to remember that advisers do not have to be regulated or qualified to give advice on QROPS. We have seen many instances of poor advice in this area over the last few years. Most overseas advisers are unfamiliar with UK rules, (for example, many will still refer to the requirement to purchase an annuity; which was removed as far back as 2006).
Overseas advisers are not subject to the same regulations regarding pension transfers as UK advisers. In most situations they are not required to divulge their fees/commission, nor to conduct a true like for like comparison between what is being given up and what is being advised. This can lead to wild claims and guarantees about investment performance.
A pension transfer can result in the loss of guaranteed benefits. These cannot be replaced if the advice is incorrect and you may have no recourse if the adviser is unregulated.
HMRC do not routinely check the validity of QROPS applications. Should you transfer to a scheme that, on investigation, did not qualify to be a QROPS there could be tax charge of up to 55%.
About Us
Financial Ombudsman Service
