The opportunities offered by QROPS (Qualified Recognised Overseas Pension Schemes) are well documented, with the potential of more flexibility and involvement by the individual in the choice of investments, and the ability to remove the pension funds from the UK tax net.
But how significant is the market in reality? An estimate by Close Trustees puts it at £575 billion, encompassing all UK nationals who have moved overseas and have been contributing to their own UK private pension scheme, along with potential non-UK nationals who have worked in the UK and have their own UK pension.
This is obviously an important sector, and further estimates reckon that some £1.5 billion has already left the UK to go into QROPS.
In any relatively new concept there is a grab for market share and an element of ill-informed advice which could be potentially very damaging to an individual's pension pot.
Currently, the majority of QROPS cases are generated (quite rightly) by UK IFAs and/or online lead generators, who pass these on to a QROPS provider (as opposed to an adviser) for processing the scheme. It could be argued that the exact choice of QROPS provider is partly driven by the commission and rebate dynamics offered to the introducer. Invariably these providers are only based in one jurisdiction.
This would be fine if the mantra "one size fits all" was true. However, each jurisdiction is different and, more importantly, an individual's tax implications could be determined by which jurisdiction their QROPS is hosted in. It's possible that a 50 year old exporting their pension scheme could be taxed immediately at 55% of the pension pot in his country of residence without him actually receiving a penny of it in his pocket.
A number of IFAs have now recognised that the international nature of both QROPS and their clients complicates the matter dramatically and may even mean they simply don't have the resources to fully advise on QROPS.
For an individual to reap the benefits of a QROPS, getting the right jurisdiction and provider is vital. Taking the correct advice and finding the QROPS that best suits a client can make significant difference to how their fund performs.
Under QROPS law, the provider must notify HMRC of certain transactions and investments for up to five years after an individual has become non-UK resident. Penalties for not doing so can be up to 50% of the QROPS fund for breach of investment limitations or if the jurisdiction does not appear on, or is removed from, the HMRC list of approved jurisdictions. (The law does allow for retrospective claw-backs of tax in relation to these breaches.)
Deciding where is the best place to hold the QROPS is a key decision. The choice of jurisdictions is large, yet some are inevitably far less risky than others. Guernsey is currently the market leader in terms of QROPS volumes, partly because there are more providers there and also due to its proximity to UK IFAs. However, the island is generally seeing significant pressure on its establishment and annual management fees for QROPS. This has, in certain cases, led to poor service (can a £500,000 QROPS be managed on an AMC of £300 per annum?) resulting in a second wave of business as individuals move their QROPS from one provider to another.
This, in turn has led to a further issue for clients concerning a lack of transparency in fees. Some QROPS providers have introduced the concept of exit fees, giving the outgoing provider one final bite of the cherry by charging a percentage of the QROPS for the client to leave. In the world of pensions and trusteeships, this doesn't appear a morally acceptable stance.
In addition, certain QROPS providers will require the individual to invest in their own range of funds which, whilst discounting the QROPS fees so as to make it look attractive, will mean that the individual will have restricted investment opportunities as well as embedded annual charges within the funds offered to the QROPS.
A cross-border solution
Solving these issues requires a transparent and honest approach to providing QROPS. For example, STM Group, which specialises in cross-border structuring for affluent individuals, is regulated in five different jurisdictions and accordingly has wide-ranging experience. STM recognises that advice needs to be clear, particularly when demonstrating why one jurisdiction is more appropriate than another for an individual's circumstances.
As a truly independent trustee, STM deliberately doesn't give investment advice, which avoids the usual conflict of interest scenario; a trustee that has invested the QROPS in its underlying investment funds is less likely to consider moving the monies to a different investment manager because of poor performance.
To solve these problems, David Erhardt, Managing Director of STM Fidecs Life Health and Pensions Ltd., has developed the concept of a QROPS-Wrap (Q-Wrap) as part of the STM advisory arm. He explains, "While STM provides HMRC-listed QROPS in both Malta and Gibraltar, we've provided a wrap concept that allows us to service and administer QROPS in Guernsey, Switzerland, Isle of Man and New Zealand in conjunction with a provider based in that jurisdiction.
"Uniquely, the multi-jurisdictional STM Q-Wrap lets an individual transfer their fund between QROPS members without incurring any exit charges (other than a small administrative charge), so that as jurisdictions evolve the QROPS can be hosted in the one most suited to each individual's circumstances.
"The STM Q-Wrap has been well received by clients and I see it as a step towards pan-European pensions which don't currently exist, but which I believe are inevitable."
To find out more about QROPS, please contact STM Group, the leading HMRC approved QROPS provider www.stm-qrops.com or e-mail firstname.lastname@example.org or call 00350 200 51356 begin_of_the_skype_highlighting
To read more about our Malta QROPS please visit www.stmmalta.com