QROPS Will Grow Regardless of Legal Reforms
Much speculation has surrounded the new legal reforms regarding flexible drawdown being introduced in April 2011 and in turn, how this will affect QROPS (Qualifying Recognised Overseas Pension Schemes). David Howell, Chief Executive of Guardian Wealth Management, looks at why he believes cross border pensions are still a rapid growth market.
Do QROPS Provide a Better Option?
David Howell, speaking to the Overseas Property Professional Magazine, says that fear of the reforms killing the QROPS market is “wide of the mark”, adding that this is a different issue “aimed at a different type of client.”
QROPS offer an alternative solution to overseas property buyers, affording them a legitimate way to bypass the restrictions of UK pension rules and the subsequent effects on how and when they can take their pension benefits. This alternative option could in fact see a rise in interest surrounding overseas pension schemes, especially for those affluent investors whose pensions aren’t of a size that can fully benefit from the flexible drawdown reforms.
Most overseas jurisdictions won’t be under such stringent rules as those imposed in the UK, so people planning to invest and live abroad are likely to want to take advantage of them as a better option. Howell says that flexible drawdown, while suiting some, will disappoint others – highlighting the need for choice.
The Advantages of QROPS
QROPS allow expats to transfer funds from their UK pension – with no obligation to declare this to HM Revenue and Customs after a 5 year period providing they remain outside the UK. The feeling of security this has given to those moving abroad has helped thousands to make the choice to retire to an overseas location – especially as this has the potential to enable the transfer of pension money without the extra taxes that would have been incurred under the UK tax system. Funds can also be secured in the resident country’s currency, which eliminates the risk of suffering exchange rate loses on transfers.
Another great advantage of QROPS, in direct reference to the new UK legislation being introduced in April, is that there is no condition to secure a minimum yearly income or make an annuity purchase, which allows a greater degree of flexibility on investments.
QROPS investments can include property, private assets, offshore funds, stocks and bonds and there is the additional potential benefit of lower taxation on lump sum death benefits than is payable in the UK. Pension funds in the UK have been liable for Inheritance Tax on death, in contrast to QROPS which can offer tax free withdrawals up to 30% – and if the person has been resident outside of the UK for 5 years or more, the remainder can be passed to the estate with absolutely no inheritance tax liability.
So despite the times of change ahead, it seems clear that there is still a place in the financial industry for QROPS and the many benefits that they can offer for overseas retirees.