Investor Insight

Recent QROPS pension changes has meant that over 300 pension schemes which are based in Guernsey have been suspended by the government.

This move has caused a shock wave within the offshore pension industry. QROPS pension changes in Guernsey mean that after April 6th 2012 any new transfers will not be able to be transferred.

Thankfully, those already existing in the scheme in Guernsey will not be effected.

In the next year or so up to 2013,  QROPS pension changes will eventually cause each QROPS scheme to require the reporting of all benefits paid out for 10 years from when a member joins a scheme, rather than the current five years.

QROPS Pension Changes In Reality

To be a functioning QROPS (Qualifying Recognised Overseas Pension Scheme) it must be registered and supported by HM Revenue and Customs. As a tax saving scheme for expats, it works on the premise that the company running the QROPS pension scheme must be regulated and taxed in the country that it’s based, which also means it can base itself in a country which has much lower tax rates than the UK, such as offshore destinations.

The scheme is complex and is best handled by experts in the arena because there are different regulations governing the various pension funds. All QROPS set up in the last 10 years will continue be open to HMRC scrutiny right up to 2013 when more changes are coming into force as part of the Finance Bill. With a QROPS pension you must plan to retire abroad. There are strict rules about how much time you can spend back in the UK in any given year whilst in the QROPS scheme.

Non compliance, even by accident, can put you at risk being re-qualified as a UK resident again for tax purposes and hence losing the advantages of QROPS. Experts suggest that only pension funds worth more than £100,000 are likely to generate sufficient tax savings to justify set-up and running costs, which vary between one per cent and five per cent of the fund transferred annually.

An Alternative To QROPS For Tax Protection

The problem with any government scheme is that HMRC will always retain the right to change the agreement at any time.

After the QROPS pension changes then, what alternatives are there?

By transferring the pension into a Pension Trust instead, it enables freedom of choice about where you live. Trusts allow the extraction of tax free lump sum of up to 85% of the value inside the Trust. trust funds can be passed on to your beneficiaries -tax free. The Pension Trust costs less than a QROPS scheme and requires a £60k minimum transfer.

The Pension Trust allows many benefits which you cannot get with other pension tax saving schemes, and it can never be changed by the government of the day. If the new QROPS pension changes affect you, a trust can be a much better solution, especially if after you move it you reinvest some of it in something SIPP compliant.