UK workers aiming to retire abroad face the dilemma of either leaving their pension in the UK or transferring it to an alternative vehicle overseas. One option available to expatriates is a pension transfer via a Qualifying Recognised Overseas Pension Scheme, or QROPS.
These type of schemes make a lot sense for those who are eligible. There are many online resources that detail the benefits of such schemes; however it is always necessary to identify and weigh up the various advantages and disadvantages as part of the decision making process.
Don’t be blinded by the tax advantages of a pension scheme!
QROPS disadvantages: they may be unsuitable
It is important to be prudent and speak with a financial adviser who will review your personal situation and determine if a QROPS Pension Transfer is appropriate for you. Suitability depends on how long it has been since you left the UK, your current pension benefits, your ability to survive on your pension income in a given country, the eligibility of your personal pension scheme for transfer overseas, etc.
Lost Benefits Through QROPS
Many defined benefit/final salary pension schemes offer guaranteed minimum pensions and cost-of-living-adjustments that are linked to an inflation index. These benefits are built into the final salary scheme. They are not however transferable to a QROPS; only the actual value of the retirement fund is. As you cannot replicate these benefits following a transfer, they are forfeit.
Conflict over interpretation of QROPS legislation
Many providers are established in jurisdictions within Europe, and thus are subject to EU pension regulation; Malta is a prime example. However, QROPS established outside of the Eurozone do not have to comply with EU regulations. This can lead to two issues:
1. Exposure to foreign regulators and legislation that may be disadvantageous to, or even target expatriates specifically. This may include fees, taxes, disclosure, and areas of compliance that either damage your retirement income or make it more difficult to manage.
2. Lack of effective regulation, which may lead to financial malpractice. Individuals may be targeted by disingenuous advisers due to the commissions/fees at stake.
Whilst schemes recognised by HM Revenue and Customs are obliged to offer certain minimum requirements and benefits, those that operate in certain foreign jurisdictions may have rules and regulations that are inconsistent with those of HMRC.
This issue is especially prevalent with smaller pension schemes. A small scheme administered in Italy or Greece, for instance, is less likely to apply effective communication practices in the English language. This can lead to misinterpretation of rules and procedures at the pension transfer stage and lead to mistakes that can not be undone at a later date.
Potential Scheme De-Registration
Schemes that currently qualify as QROPS are not necessarily guaranteed that status going forward. If your scheme finds itself in trouble with the regulators for some reason or other and is stripped of that status or delisted, your transferred funds may be subject to the very taxes that you initially tried to avoid.