Tuesday, 17 August 2010

New Zealand QROPS

Much has been written about Qualifying Recognised Overseas Pension Schemes (QROPS) in the press and on the web. Some of the articles I have seen are helpful and accurate, others are less so. The purpose of this article is to set out how QROPS in New Zealand operate in the context of UK and New Zealand law.

The relevant UK law is to be found in the Finance Act 2004, and the accompanying regulations, in particular “The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006” (SI 2006 / 206). New Zealand law is to be found in the Superannuation Schemes Act 1989.

The key attractions in transferring UK pension rights to a QROPS are the avoidance of the effective compulsion to secure income with an annuity by age 75, and the ability to pass on the benefit of the member’s pension fund to nominated beneficiaries after death without the burden of taxation.

New Zealand schemes are also able to offer capital distributions beyond the levels available from UK schemes and beyond the levels available from most other QROPS jurisdictions.

Some QROPS trustees in other jurisdictions have been rather disingenuous about how New Zealand pension schemes work and their QROPS status. It is time to set that record straight.

Setting the record straightIn terms of SI 2006/206 a key condition is that of tax recognition. By that is meant tax recognition in the country where the QROPS operates.

The tax recognition requirements are described as Primary conditions 1 and 2, and conditions A and B. To meet the tax recognition requirements the overseas scheme must meet both Primary conditions, and one of conditions A and B.

Primary condition 1 states the overseas scheme must be “open to persons resident in the country or territory in which it is established”. New Zealand Superannuation schemes and Kiwisaver Schemes are open to New Zealand residents.

Primary condition 2 is concerned with how local residents (New Zealand residents in this instance) receive tax privileges on their pension savings. In other words the nature of the New Zealand pensions system.

There are two possibilities that each satisfy Primary Condition 2:

(i) A system where local residents get tax relief on their pension contributions, and benefits when taken are taxed or
(ii) A system where local residents do not get tax relief on their pension contributions and benefits when taken are not taxed.

New Zealand resident members of New Zealand pension schemes do not receive tax relief on contributions and are not taxed on the emerging benefits. On achieving the scheme retirement age a retirement benefit may be taken from the scheme as income or as a capital sum. New Zealand schemes therefore satisfy Primary condition 2.

However, New Zealand pension funds are taxed on income and capital gains. The provisions are complex and depend on the asset make-up of the fund. But to think in terms of an effective tax charge of about 1.5% p.a. on the fund value is about right. The New Zealand government is expected to remove this tax charge later this year.

Now to Conditions A and B - the overseas scheme only has to meet one of these.

Condition A is that the overseas scheme “is approved or recognised by, or registered with, the relevant tax authorities as a pension scheme in the country or territory in which it is established”.

New Zealand pension schemes meet this requirement so we need not trouble ourselves with Condition B.

This is because Condition B only applies if “no system exists for the approval or recognition by, or registration with, relevant tax authorities of pension schemes in the country or territory in which it is established” and sets out that in the absence of such a “system” the overseas scheme must provide that at least 70% of the fund is available to provide an income for life (the 70% rule)

Wednesday, 9 June 2010


Qualifying Non-UK Pension Schemes - QNUPS
QNUPS were introduced on the 15th February 2010 and came about through amendments detailed in Statutory Instrument 2010/51 relating to the UK Inheritance Tax Act regulations. Before changes were made to the pension tax rules in 2006, protection from UK Inheritance Tax (IHT) applied to certain non-UK pension schemes. When the changes were introduced this exemption was unintentionally omitted which resulted in certain overseas pension schemes losing their IHT exemption. With these amendments both QNUPS & Qualifying Recognised Overseas Pension Schemes (QROPS) now enjoy exemption from
The Plan is a tax efficient wrapper for pension assets, all funds within the Plan are free from IHT, there are no tax charges on death and the fund will enjoy tax free roll up. Contributions will be made by the member from taxed income or from personal capital, there is no tax relief on payments into the Plan. Contributions can either be single or regular (subject to minimum limits). There are no limits on the amount that can be contributed to the Plan but any transfers into the Plan must be justifiable in line with the client's overall wealth position. QNUPS are not a deathbed planning tool.
Investment choice within the Plan has very few restrictions. Permissible investments include; equities, bonds, gilts, insurance products, bullion, private & public listed company shares, commercial property and previously excluded investments known as Taxable Property; Taxable Property covers investments such as residential property, antiques, fine wine and collectables. Whilst there are virtually no restrictions on allowable investments it is important to remember that the scheme is a pension plan and a low risk strategy must be pursued.
It is possible for the member to borrow up to 25% of the Plan funds, this must be arranged at a commercial rate of interest (which will be paid to the the Plan) and must be repaid before drawdown can commence. It is also a requirement that security must be held against the loan.
Income will be paid gross from Guernsey and subject to the client's marginal rate of tax in their country of residence. It is important that each client receives tax advice in their country of residence to ascertain the tax position there. A lump sum of up to 25% of the fund can be paid to the member (tax free for UK resident members, clients in other jurisdictions will need to seek advice).
Standard retirement benefits and termination events as follows:
■ Normal Retirement Age of 65;
■ Early Retirement Age of 55;
■ Death & Permanent Disability;
However there may be greater flexibility, determined by an individual's circumstances, which will need to be considered on a case by case basis. The member must start to draw an income by the age of 75.
■ A cash lump sum benefit up to 25% of the Plan value, tax free when paid into the UK;
■ A number of flexible benefit income options to be agreed with the client such as fixed term payments and variable income options.
Upon death of the member, all remaining funds within the scheme will be free of IHT. The funds can then be used to pay a dependants pension, be held in trust for future beneficiaries or be paid as a lump sum. Again, it is vital that the member seeks appropriate taxation advice relevant to both themselves and their potential beneficiaries before registering their wishes for disbursement with the trustee. The trustee retains ultimate discretion on any distribution but the member's wishes will be carefully considered before any decision is made.
The Plan is a pension plan that will appeal to high net worth UK residents seeking an alternative to a traditional pension.
Potential clients may have maximised their UK registered pensions and are looking for alternative options or they may be restricted with the new anti-forestalling rules in the UK and are looking for greater flexibility in their retirement plan. It also provides clients with the peace of mind that all funds can be passed upon death to the member's beneficiaries free from IHT and any withholding taxes in Guernsey.
The Plan will also appeal to UK expats with a QROPS that have been non-UK resident for a minimum of 5 complete tax years and are considering returning to the UK, as a QNUPS will prevent their pension funds once again falling under the UK pension regime.
A number of expats may also still be UK domiciled with a potential liability to UK Inheritance Tax. A transfer of assets to the Plan will provide total protection against this potential liability.
In summary the plan offers the following benefits:
■ No UK Inheritance Tax liability;
■ Up to 25% tax free lump sum at pension commencement;
■ No requirement to purchase an annuity;
■ Tax efficiency: no tax on the pension assets within the Plan; pension income paid gross.
■ All remaining funds within the Plan, following death, can be distributed to chosen beneficiaries;
to make contributions with no lifetime limit;
■ Increased flexibility when taking pension income on retirement;
■ Ability to continue making contributions once drawdown has commenced;
■ Up to 25% of the Plan value can be loaned to the member;
■ Choice of investment management;
■ Wide choice of investments, including residential property;
■ Open to all nationalities;
■ No trustee reporting requirement to HMRC;

Contact Derry Thornalley on 0044 1664 444625

Tuesday, 18 May 2010

QNUPS and QROPS Advice: Regulation & financial stability still key to QROPS advisers

Regulation and financial stability are still paramount to IFAs when it comes to selecting a QROPS provider, according to a survey by Skandia International.

The firm said the events of the last few years, including the collapse of banks, a global recession and the offshore review, had ensured these two issues continue to be key priorities for advisers when selecting a QROPS provider and jurisdiction for their clients.

Investors protection was ranked third on the list of important criteria to consider, said Skandia, which suggested advisers should consider the protection available not only from the jurisdiction of the QROPS provider but from the jurisdiction of the underlying investment.

The availability of low or no inheritance tax ranked fourth, while the potential to receive a 30% tax-free cash sum allowance came in fifth. The requirement that the QROPS jurisdiction be English speaking and the perceived privacy of the jurisdiction ranked low on the list of essential criteria.

Skandia also found 73% of advisers preferred to use Isle of Man or Guernsey as the jurisdiction for a QROPS while Hong Kong came in as the third most popular.

“Pensions and therefore a QROPS are a long term investment and it is for this reason that it is so important to look at the jurisdiction that the investment is held in,” said Rachael Griffin, head of product law and financial planning at Skandia International.

“When making a decision on jurisdiction, a number of factors need to be considered such as financial security and of course the jurisdiction tax rules. For example it may be that the QROPS provider insists on a member being a local resident, or the particular pension rules of a jurisdiction insist on certain restrictions on investments."


QNUPS and QROPS Advice: Malta's entry to QROPS arena offers regulatory certainty

In April 2006, HMRC enacted 'Pensions Simplification' on what is generically now called 'A Day'. This piece of legislation, amongst other things, replaced the previous regulations governing the application to transfer pensions from UK Regulated schemes to an overseas arrangement.

The fundamental change in the legislation is that HMRC now provides a list of schemes that it is prepared to register as QROPS, which gives scheme administrators a streamlined process in transferring.

If an overseas pension scheme/fund has a QROPS number and is on the list, UK pensions may transfer to it without attracting an "unauthorised payment charge".

Caveat emptorHowever, there is an important caveat, in that HMRC has changed the terminology in relation to what it means to be "qualifying".

The original list published by HMRC had the following heading: "This is a list of Qualifying Recognised Overseas Pension Schemes (QROPS) that have consented to have their details published – not all QROPS will necessarily feature within it. It is not to be taken as a recommendation for a particular scheme or product."

This gave the impression, together with the letters issued to the individual schemes, which stated that: "I am pleased to accept that the scheme is a QROPS with effect from ......" that HMRC had actually individually approved schemes.

HMRC backtrackIt would appear that HMRC has had second thoughts and has dramatically changed its wording, which now reads: "... Publication on the list should not be seen as confirmation by HMRC that it has verified all the information supplied by the scheme in its application. If the scheme has been included on this published list in circumstances where it should not have been included because it did not satisfy the conditions to be a QROPS, any transfer that has been made to that scheme, could potentially give rise to an unauthorised payments charge liability for the member (RPSM14102020)"

What this means is that HMRC may at any time remove a scheme from the QROPS list at its discretion.

Jurisdictional riskThe risk, therefore, is in members transferring to schemes in jurisdictions that have lax pensions legislation, and which have abused or been seen to abuse the spirit of the regulations, even if not the actual regulations themselves.

They might find themselves caught up in un-authorised payment charges, due to the actions of their trustees who have not followed the legislation in conducting investments or distributions etc, for themselves or other members of that scheme. A number of overseas/offshore jurisdictions have comparatively lax domestic rules regarding the management of International Pension Schemes, which may lay them open to retrospective action by HMRC.

The Maltese optionMalta has a unique advantage in the QROPS market, in that it has no legacy business, and its pension legislation is based on the domestic UK model and was only passed last year.

The Malta Financial Services Authority (MFSA), requires companies who wish to transact pension business not only to apply for a Pensions Administration Licence, demonstrating their ability to administer pension schemes, but also each and every individual scheme has to be individually approved and regulated. This makes Malta one of the most comprehensively regulated QROPS providers.

Malta therefore offers potential members the important comfort factor, of not only being an EU member state (not a "tax haven"), but also a very strict detailed regulatory system.


Friday, 23 April 2010

QROPS News:HMRC has finally approved the first Maltese Qualifying Recognised Pension Scheme (QROPS).

The Melita International Retirement Scheme is to be administered by Malta-based -Custom House Global Funds Services, the global funds specialist, and will be marketed by Panthera, according to a statement released by Panthera this afternoon.

As previously reported by International Adviser, a number of Maltese companies have been eagerly awaiting the chance to offer and administer QROPS, which enable UK expatriates to transfer their UK pensions abroad in a way that can be tax advantageous.

HMRC recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. That development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) were eligible for QROPS status. However, until now none had received the UK authority's approval.


Thursday, 22 April 2010

Expats enjoy a better life, says NatWest Int'l

Nine out of ten British expatriates say they enjoy a better quality of life abroad, according to the third annual NatWest International Personal Banking quality of life report.

According to the study, which was undertaken in conjunction with think tank, Centre for Future Studies, expats ascribe much of their happiness to maintaining a good work/life balance with 87% of respondents rating theirs as either excellent or good.

The survey asked expats to rate 16 key ‘life experience’ factors in their order of importance and how satisfied they are with them. Interestingly the natural environment, climate, culture and leisure, healthcare and education were all rated ahead of financial security and financial wellbeing which are rated sixth and eighth respectively.

Fewer return to UKNatWest International also found, despite the global economic downturn and the subsequent pressures put on people’s wealth, the number of expats who said they would return to the UK has fallen to 19% from 26% in 2008.

Dave Isley, head of Natwest international Personal Banking, said: “It seems the grass really is greener for Brits living abroad as our study shows.

“The fact fewer expats say they will return to the UK in the future, compared to three years ago, proves that the pace of life, work life balance and earning potential abroad means life as an expat is sunnier in more ways than one – and that they are weathering the financial storm.”

Higher WagesFurthermore, professional expats on average earn over £20,000 more than their counterparts back in the UK, according to the survey, with 92% reporting a salary increase over the past three years. The highest reported salary increase was in Hong Kong at 19% followed by the UAE at 17% and Spain at 14%.

In addition, while moving abroad often comes with fears of financial insecurity, the survey found the majority (63%) said they were comfortable with their financial position, while 27% said they were either very well off (10%) or quite well off (17%). Meanwhile, 59% said they were confident they will be better off financially in five years time.

“The dream shared by many Brits of living a happy life abroad is alive and kicking, despite the global economic factors which have to some extent affected British expats,” added Isley.

“Believe it or not, there seems to be more to having and leading a fulfilled life than just money. British expats have built their lives abroad on solid foundations - with the climate, culture and leisure, healthcare and education all deemed more important than financial security or financial well being for them.”


Tuesday, 20 April 2010

QROPS Advice: Guernsey moves closer to QROPS code of conduct

A code of conduct for QROPS providers in Guernsey is one step closer with the sub-committee’s first meeting set for tomorrow.

The sub-committee has been formed by the Guernsey Association of Pension Providers (GAPP) and contains a cross-section of QROPS providers from the jurisdiction. Its aim will be to establish a voluntary code of conduct, with additional input from tax and legal professionals, which will be displayed on the GAPP website along with a list of members aligned to those codes.

Members of GAPP will then be able to refer to their adherence to these codes in their own marketing material and provide additional comfort and assurance to clients and introducers.

Roger Berry, managing director of Concept Group and also chair of the sub-committee, said a code could be established as soon as one month from now.

“GAPP has been working on this for some time, and things are coming along quite nicely,” said Berry.

“I would hope within a month or so we should have something out there which is going to be helpful to not only the providers here, to ensure we are singing from the same hymn sheet, but also the users, intermediaries and members of these schemes.”

Furthermore, Berry said while the code would initially be voluntary there is a possibility in the future it could have some regulatory support.

“Most if not all the providers in Guernsey are now represented on the sub-committee so it has a huge amount of clout and the regulator and the tax office deal with this committee as well,” added

“My hope is if we demonstrate to our local government that we are serious and we get this off the ground it is highly likely there may be some time found by the regulatory side and we might get some support from them. It may ultimately end up in something more formal.”


Saturday, 10 April 2010

QROPS Advice: Full QROPS encashment still taking place

Intermediary firm Windsor Pensions has said it will accommodate British expats wishing to fully encash their pensions immediately upon leaving the country, despite this conflicting with UK regulations.

In particular, the firm said certain New Zealand-based QROPS schemes are willing to allow the practice. According to HMRC, QROPS must be treated exactly like domestic pensions for five years after the holder has left the UK, otherwise they will be liable to tax charges of up to 55%.

Steve Pimlott, an intermediary at Windsor Pensions, said: “Strictly speaking it is against the rules [to take full immediate encashment] but there are some schemes that will allow it. Most schemes which will allow this are based in New Zealand. We have used them, but I cannot go into details of the specific schemes.”

Windsor’s business largely comes from clients and IFAs based outside the UK and the company will not share its commission with UK intermediaries.

The claims by Windsor follow a report by IA in January that concerns had been raised by HMRC about the conduct of schemes in New Zealand.

Axa Life head of pensions and savings policy Steve Folkard offered a word of warning for those considering undertaking full immediate encashment.

“Potentially HMRC could try to recover the tax charge from the client, although this will depend on what jurisdiction they are in and whether there are any double tax treaties in place and so on – this aspect is complex and clients should seek professional advice,” he said.

In addition, Pimlott mentioned two Latvian-based schemes that have attracted some client money. One is the Wenns International Pension Scheme, which has proven particularly popular with ex-military personnel.

“The Latvian schemes are much more rigid in their rules – Wenns International is typically used by ex-servicemen – they have a lot of good packages, as well as the pension transfers for ex-servicemen,” he added.


QROPS Advice:Canary Islands pensioners able to enjoy life as planned

British expats abroad can now get more control over their pension plans thanks to new rules that remove many restrictions for people who retire overseas.

They can pay lower tax on income drawn from a relatively new form of pension (Qualifying Recognised Overseas Pension Scheme) QROPS avoid being forced to invest capital in an annuity which dies with the purchaser and pass their wealth to friends and family free of tax on death.

QROPS, as its name suggests, this is a form of pension based outside the UK which is recognised by the British authorities as being eligible to receive transfers from registered UK pension funds. Reputable advisers will only recommend transfers to countries which provide consumer protection equivalent or greater than the safeguards in the UK.

People who are living inside or outside the UK can transfer their deferred company and personal pensions to a QROPS. Any pension can be transferred as long as an annuity has not been purchased or, if it’s a final salary scheme which the pension has not commenced.

Where the pensioner has not been resident in the UK for five complete and consecutive fiscal years – and the tax rules determining residence will be examined in detail later in this guide – HMRC restrictions on how income and capital are spent no longer apply.

The best option for you will depend on your personal circumstances and it makes sense to take professional advice which can take account of your individual needs and objectives.

British pensions that can be transferred to a QROPS include former employers’ occupational schemes (but not final salary or defined benefit schemes already in payment); Superannuation Schemes; Executive Pension Schemes; Self Invested Personal Pension Schemes (SIPPSs); Small Self Administered Schemes (SSASs); Section 226 Personal Pension Schemes; Section 32 Pension Transfers and Personal Pensions.

Although QROPS is a relatively new product, what has become clear is that both Professional Advisers and clients should be cautious regarding their choice of QROPS provider and QROPS jurisdiction and a poor choice can lead to frozen pensions, high tax bills or both.

To discuss this further and to get the best Professional QROPS Advice please e-mail or call direct today for full details and to find out how we can assist you and start living the life you planned for……….

Post Script.
It does not matter what nationality the UK pension fund holder is, for example I am dealing with a French National who worked in the UK for 5 years and took out a pension plan. Now she lives in Spain with her Portuguese husband and we are looking to transfer her fund into a QROPS. What is important is do they hold a UK registered pension fund? what are their circumstances? Where have they expatriated too? And which jurisdiction suits the client best for tax purposes?

Email: 360canaries@live.com
0034 680 832 708 / 616 718 903

Tuesday, 30 March 2010


• A QNUPS is a Qualifying Non UK Pension Scheme
• Not to be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).
• Came into force on 15th February 2010 by HMRC.
• Generating opportunities for British expatriates concerning tax efficiency of local taxes and inheritance tax (IHT).

Who would consider a QNUPS?
• UK Expatriates or soon to be Expatriated
• UK Expatriates with existing QROPS schemes.
• Expats who my wish to return to the UK in the future.
• The high net worth UK resident or domiciled individuals with maximised income tax relievable pension contributions.

Benefits of QNUPS?

Retired British Expats Can Benefit From;

• UK inheritance tax and local succession taxes will not be payable from the QNUPS fund upon death.
• QNUPS will avoids local succession law, enabling you control who inherits what and how much. Thus removing the need for PETS (Potentially Exempt Transfers) as part of Inheritance Tax Planning.
• Income can be taken from age 55 (after 6th April 2010)
• Income can be deferred until age 75.
• No need to have any employment income to make contributions.
• Ability to continue investing even after age 80 even though you have been retired for many years giving rise to substantial tax advantages.
• Ability to take a lump sum as you would with any other pension scheme.
• There are no limits on contributions to the fund, nor fund size.
• Income is taken from the fund as drawn, leaving the remaining assets invested with an opportunity to grow in value tax free.
• Investment flexibility, with investments in stocks, bonds, alternative investments, deposits, real estate, private equity, options and life policies. Due to the non reporting freedom the fund manager in essence has the ability to invest in an even wider range of assets in comparison to QROPS, including; art, wine, boats aircraft and even residential property.
• Take income and benefits in currency of your choice reducing currency risk
• Trustee has no reporting requirements or obligations to HMRC on all assets transferred in outside of authorised UK pension Schemes

Disadvantages Of QNUPS
• You don’t receive any tax relief on the amount you invest.

What Opportunities Does QNUPS Offer to High Earners as UK Residents or Domiciles?

The introduction of the highest rate of income tax of fifty percent has meant that Higher Earners (UK Resident or Domiciled) will be experiencing restrictions on the levels of tax relief they can gain via pension contributions. As UK Residents or Domiciled individuals they will have the ability to contribute to a QNUPS and capitalise on all its benefits.

What’s the difference between QNUPS and QROPS?

• A QNUPS has no Double Taxation Agreement between the UK and the country where the QNUPS is therefore it has no reporting requirements or obligations to HMRC.
• A QNUPS is a Qualifying Non UK Pension Scheme
• A QROPS as per of the Double Taxation Agreements in place are required to report to HMRC for the first 5 years.
• Existing QROPS can be transferred into a QNUPS as an more tax effective wrapper.

In essence A QROPS can be definition as a QNUPS and a QNUPS can be (but need not be) a QROPS

HMRC are looking very closely at non-UK domiciles (recent case of Gaines-Cooper http://talkqrops.blogspot.com/2010/02/qrops-advice-qrops-newsgaines-cooper.html ) and you could be resident overseas but still deemed to be domiciled in the UK and liable to pay IHT, if HMRC can establish that Britain was the country which you still regarded as home at the time of your death. QNUPS helps with this issue as it makes your assets exempt from IHT UK domiciled or not even if you have returned to the UK.

QNUPS Jurisdictions
• Guernsey
• New Zealand
• Hong Kong
Others likely to join
• Isle of Man
• Gibraltar
• Malta

Where can I get QNUPS Advice?

Email your enquiry to qrops@aifsg.com or call 0044 1664 444625. For further information go to www.qnupsadvice.com. QNUPS Advice is provided by Argent International Financial Services Group. International is a highly respected financial services group of companies, specializes in comprehensive and independent financial advisory, wealth management, company and trust administration services to private, corporate and institutional investors. For over 22 years we have assisted investors to enhance their financial position and make the most of the opportunities available in the global financial market. For details of all our services including QROPS and QNUPS go to http://www.aifsg.com

QROPS Advice: Which Jurisdiction ticks all the boxes.

With a number of jurisdictions now offering QROPS, David Piesing from Praxis Fiduciaries and Stephen Ward of Premier Pension Solutions assess the relative benefits and which one comes out on top.

It seems like an eternity since QROPS became available back in April 2006. Four years on prospective client now have plenty of schemes and jurisdictions from which to choose.

The choice for most people is from schemes operating in jurisdictions which are open to both residents and non-residents.

The main markets for QROPS transfers are:

Isle of Man
New Zealand
Malta will soon come on stream as well. We have not included Hong Kong as there are only 10 active schemes on the HMRC list and those are mainly occupational ones.

Here we assess these main jurisdictions and consider:

benefit flexibility for members who have been non-UK resident for at least five complete tax years;
investment flexibility;
ease of transfer in and out.
Benefits for life
The key advantage of a QROPS when compared with a UK scheme is not having to buy an annuity by age 75. The jurisdictions on our list allow the fund on death to pass to nominated beneficiaries with no UK inheritance tax (IHT) liability.

Maximising benefit flexibility may require an onward transfer to a non-QROPS mirror scheme. This is possible without tax implications if the QROPS is non-investment regulated.

Most Guernsey QROPS have confirmed non-investment regulated status. Gibraltar, the Isle of Man and New Zealand QROPS, as well as those from Malta, generally meet this condition. Guernsey QROPS may allow access before age 50 (55 from 6 April, 2010) as a loan of up to 25% of the fund. Trustees can allow flexibility through a temporary annuity. Full commutation remains possible where the fund is small.

New Zealand schemes are not subject to the 70% income for life rule because of how they navigate the HMRC QROPS conditions. This allows capital payments from the fund. The lump sum from Isle of Man schemes is up to 30% of the fund. Guernsey (currently restricted to 25%) is expected to match this figure soon. Maltese schemes restrict lump sums to 25%, as do Gibraltar's.

Investment path

All jurisdictions offer investment flexibility. Member directed investment is generally avoided as schemes might otherwise be considered investment regulated with indefinite reporting to HMRC. Some schemes have allowed investment in residential property yet surprisingly still claim they are not investment regulated with no tax charge arising.

For the majority, traditional forms of investment are sufficient. More exotic choices are best delivered in a non-QROPS, such as a Qualifying Non-UK Pension Scheme (QNUPS), having received a transfer value from a QROPS without triggering an unauthorised payments charge after completion of the five-year non-residency period by the scheme member.

Taxation issues
The fund accumulates free of tax (except tax deducted at source on some dividend income) in all countries on our list except New Zealand. Fund taxation rules in New Zealand are complex, and are made on a comparative-value basis or assuming a 5% pa 'fair return', with the calculation of asset valuations required in NZ$. But the government is expected to announce it is exempting pension funds.

Isle of Man schemes deduct local tax on pension income, typically at 18%. This creates issues unless the Isle of Man has a double taxation treaty with the country where the member is resident. For example, a Spanish resident can neither offset nor reclaim Isle of Man tax deducted. On death, it applies a 7.5% IHT charge with a £100,000 cap.

The cost of QROPS

There is great variation between schemes and jurisdictions, and between providers within jurisdictions. However, there are two main models:

A packaged QROPS product with a menu of preapproved investment funds and management houses.
These are available in Guernsey, Isle of Man and New Zealand. Some claim to be fee-free. This is achieved through retrocession commissions which are at best only partially disclosed. In a new era of transparency and commission disclosure, it is hard to see how these schemes will be able to be marketed as such in their current form.

A transparent one-off setup fee and an annual fee, sometimes accompanied by a service-driven fee menu. This is found in all jurisdictions except New Zealand.
Some Isle of Man schemes can appear to be slightly cheaper than Guernsey ones, but the menu approach requires careful comparison. Some Gibraltar schemes seem comparatively expensive but volumes are currently small. Maltese schemes are expected to be priced at Guernsey levels. In New Zealand, where the fund remains in place for the longer term, scheme pricing can involve an annual charge of around 1.65% but no setup charge.

Ease of transfer

A look at both directions of transfer is important because personal circumstances can change. UK schemes give members the right to transfer, while overseas schemes do not. The transfer experience can vary from simple to horrific, although whether that is down to the jurisdiction or the provider is arguable. UK schemes can be freely transferred to any overseas scheme which is registered with HMRC as a QROPS.

QROPS providers in all countries generally deal well with the transfer process, which takes anything from a few weeks to several months. Transfers out of QROPS can be expensive. Some schemes apply seemingly punitive exit fees even though their service may have fallen short.

In addition, some QROPS do not state at outset a freedom to transfer out to QROPS in other jurisdictions, even where such transfers are expressly permitted by local law and by the tax authority of the existing scheme, and the new scheme is able to acceptthe transfer.


So which is the best jurisdiction for QROPS? Gibraltar is regarded as expensive, while the jury on Malta – a brand new entrant to the market – is still out, though it has considerable potential and an excellent double tax treaty network.

New Zealand has the most flexible benefit regime, but distance complicates the transfer process and the fund is taxed in a way which includes exposure to currency risk. The Isle of Man can be relatively low cost, but has an irritating exposure to local taxation which has deterred many potential users.

Guernsey ticks all the right boxes, and has sought HMRC input and guidance to prevent potential abuse by its sizeable community of QROPS providers. Ongoing dialogue with HMRC has benefited its status as arguably the world's leading QROPS jurisdiction.

Expatriate Wealth Services

Qualifying Non-UK Pension Schemes (QNUPS)
New tax planning opportunities for British expatriates

On the 15th February 2010, a new UK HM Revenue & Customs (HMRC) statutory instrument came into force, which creates significant opportunities for British expatriates to save local taxes in the country in which they are tax resident as well as UK inheritance tax (IHT).

The UK legislation created a new type of trust known as Qualifying Non-UK Pension Schemes (QNUPS) - which should not be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).

The tax rules for pension schemes are generally more favourable than other investment structures.

QNUPS allow retired expatriates to continue to put money into a pension scheme -
Firstly, there is no maximum age at which you can invest in a QNUPS.
Secondly, you do not need to have any earned income from an employment in order to make a contribution.
Thirdly, there is no maximum contribution that can be made into a QNUPS.

The rules are sufficiently flexible to allow someone who is 85 years of age and has been retired for 25 years to put large investments into a QNUPS and immediately create significant tax advantages for themselves.

The benefits of QNUPS for retired British expatriates

A QNUPS is a pension scheme trust and as such you are entitled to take a cash lump sum and income during your lifetime, with the remainder of your fund being able to be passed to your spouse or heirs on your death free from all taxes.

The following advantages are available to you through a QNUPS:
As a pension scheme, a QNUPS is very tax efficient in most countries as it can avoid both local wealth taxes during your lifetime and succession taxes on your death.
A QNUPS also avoids local succession law, so that you are free to choose exactly who inherits your money and in what shares.
Income can be taken from age 55 (after 6th April 2010) or it can be deferred as it does not need to be taken until age 75. In certain countries it can be paid in a manner where a significant portion can be paid to you tax free.
When income is taken it is drawn down from the fund, thus leaving your scheme assets invested. Otherwise the assets grow free from tax.
On death the value of the QNUPS will be exempt from UK inheritance tax and local succession taxes.
A QNUPS offers considerable investment flexibility and choice. Furthermore your assets can be invested and any benefits taken in a currency of your choice, giving you the opportunity to remove currency risk.
The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme. You can have both a QROPS and a QNUPS.


Friday, 26 March 2010

QNUPS Advice

QNUPS - the next major offshore pensions planning opportunity for UK tax-relieved pension funds and the interaction with QROPS.
The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010 [SI 2010 / 0051] came into force on 15 February 2010 and have introduced QNUPS.

The purpose was to correct an error in the Finance Act 2004. Without these amending regulations UK pension funds once transferred to a QROPS would become liable to UK Inheritance Tax (IHT) charges. These regulations now mean a non-UK resident may transfer UK pension rights to a QROPS and upon death, whether before or after age 75, no Inheritance Tax liability arises.

These regulations apply to overseas schemes generally. But they have wider application for two reasons :
1. taxable property rules associated with one form of QROPS and
2. a restriction on the tax relief available on pension contributions to high-earning UK residents.

The technical side
To be a QNUPS the overseas scheme must satisfy the same conditions necessary for a Recognised Overseas Pension Scheme (ROPS) (SI 2006/206) with the importannt exception that there is no necessity for there to be Double Taxation Treaty (DTA) with the overseas scheme’s jurisdiction if the scheme is outside of the European Economic Area. A DTA is not necessary because there are no reporting requirements from the QNUPS to HMRC.

The outcomes are that a QNUPS benefits from UK IHT exemption in respect of:
(a) UK tax-relieved pension funds that have been transferred to a QNUPS.

(b) contributions to a QNUPS and

(c) assets held by a QNUPS generally.

A QROPS will by definition be a QNUPS. But a QNUPS need not be a QROPS. This leads to the feasibility of using QNUPS as an ultimate destination for UK tax-relieved pension funds to gain further advantage.

A QNUPS (which is not a QROPS), is a good home for UK pension funds which were originally transferred to a QROPS. A QNUPS (which is not a QROPS) need have no specific investment restrictions and may for example invest in residential property and the like. But the key to this is transferring from the QROPS to a QNUPS.

For clarification we need to differentiate between “investment regulated” and “non-investment regulated” QROPS. This is a consequence of SI 2009 / 2047, effective August 2009. These taxable property provisions (relating to investment in residential property, fine wines, antiques, and the like) extend UK investment rules to some QROPS. If the QROPS is “investment regulated” then Paragraph 7A of Schedule 34 Finance Act 2004, provides for a 70% tax charge where investment is made into taxable property out of UK pension funds which have been transferred to the QROPS. But there are further implications.

What follows are direct quotes from the Registered Pension Schemes Manual (RPSM).
“A transfer from a UK pension scheme to a QROPS constitutes a Relevant Transfer Fund” (RPSM13102130). Then we have to consider whether that fund comprises a Taxable Asset Transfer Fund (TATF). All transfers from UK pension schemes to an investment-regulated QROPS since 6 April 2006 comprise a TATF.

This is important because: “A payment to a transfer member has to be notified to HMRC regardless of whether or not they have been non-resident for more than five tax years if it is deemed to have been made from their Taxable Asset Transfer Fund” (RPSM14101070).

An investment-regulated QROPS means that the member is able to direct or influence the investments made. Most Guernsey QROPS have concluded that they are not investment regulated. Some have not declared their hand and one considers the distinction to be “immaterial”. New Zealand QROPS are not investment-regulated pension schemes. Some Hong Kong QROPS have taken the same view. The same is likely to apply to schemes in Gibraltar, Isle of Man and Malta.

QROPS Advice: Expats Pension Defeat Highlight Importance of Advice

The defeat for the UK state pensioners in the European Court of Human Rights has highlighted the importance of getting sound financial advice when moving between jurisdictions.
The pensioners had their pensions frozen when they moved abroad and they have not been raised in line with increases for their counterparts in the UK. Financial advice may have averted this situation say advisers such as Blacktower Financial Management’s John Westwood.

“It again emphasises the fact that if people are going to leave the UK they do absolutely need to sit down and take some proper advice, preferably before they leave the UK, on their future and intended retirement planning,” said Westwood.

“So often these things are left and are not properly addressed until it is too late and what we are seeing now is expatriates living throughout Europe who are suffering badly because of sterling versus euro conversion rates. We are seeing hardship and unfortunately this only re-emphasises the point that anyone planning to move abroad must and should seek solid and quality financial advice before they make any decision.”

AES International’s Sam Instone echoes Westwood’s concerns and says although this will not put people off moving abroad in retirement, as this is invariably a lifestyle choice, consumers need to fully understand the different options available to them in different countries.

“People need to understand what benefits they are effectively giving up when they move abroad and how they will be treated by the UK government’s pension and benefit laws in different countries,” said Instone.

“Unfortunately people time and again underestimate how much they will need in their retirement and will often end up, despite starting off living the lifestyle they desire, in fairly dire straits. This is particularly the case when proper financial advice is not taken.”

Westwood also doubts whether this ruling will make people reconsider moving abroad as the decision is usually influenced by other factors rather than just for financial motives.

“I do not think people will reconsider. The decision to move abroad is based on a number of factors and it is not just “how big is my pension going to be” there is a whole catalogue of lifestyle issues that are being considered, including family and of course employment issues,” added Westwood.

“It depends on how the retiree views their time horizons – if they view the move abroad as a permanent move as long-term lifestyle option then they should consider the feasibility of removing the pension fund into an international contract, allowing more flexibility and the ability to match currencies versus income and mitigate certain unwanted taxes as well - for example, a QROPS or that type of plan.”

QROPS Advice: 4 Million Expats to return to UK

Almost 4million Brits living abroad are planning a mass return to home shores after seeing their savings and income stripped by the plunging values of the pound and their property.
The dramatic slump has slashed their income by a third and has turned Brits into the paupers of Europe.
Fears over job security and falling property prices are also giving expats second thoughts, according to research from foreign exchange specialist Moneycorp.
Some 845,000 Brits living in Spain and France have suffered an 8 per cent drop in house prices in the year to August 2009 alone. This wiped €30,000 off the average property on the Costa del Sol.
Sterling has slumped from over €1.50 to £1 in January 2007 to close to parity, taking a terrible toll on the estimated 5.5million British expats, and particularly the 1.1million pensioners living abroad. Moneycorp research shows that 70 per cent of all expats are now considering returning to the UK.
A retired couple living in Spain, for example, both drawing a full state pension of £95.25 per week, will have seen their combined monthly income - on their pension alone - drop by €396 over three years, from €1,263 to €867.
The warning signs that hundreds of thousands of Brits may be ready to return to the UK started when the credit crunch began in 2008. That year, the number of expats returning home jumped by a fifth on the previous 12 months.
The number of British homeowners downsizing or selling up and sending money back to the UK doubled last year, foreign currency specialist HiFX reports.
It has seen an 180 per cent increase in the number of euro to sterling transactions and an 11 per cent increase in the number of U.S. dollar to sterling transactions in the past six months, compared to last year. More people over 65 than any other age group are repatriating.

• Retirement dream shattered for British OAPs in Australia after court bid for pension hikes is lost
• Hundreds of British expats stage march in Malaga over plans to demolish 'illegal' holiday homes
• Homes abroad: News and advice
• What next for the pound?
Mark Bodega from HiFX says: 'The pound's fall to historic lows in recent months has meant the cost of living or running a holiday home on the continent has risen to unaffordable levels for many people.'
A weak property market is also proving to be a nightmare for many of the estimated 1.5million Brits who own homes abroad. Many are being forced to sell their property at a loss, particularly in countries like Spain.
The weak pound has proved a blessing for those who receive an income in euros, for example from renting a property. Sterling's slump means they will get far more pounds for their euros.
Brennon Nicholas, managing director at estate agency Cluttons Spain says: 'We have seen an increase in the number of people coming to us who are struggling because their pensions and savings do not stretch as far as they used to. They're selling up because of the favourable exchange rate but the market is extremely tough and there is a lack of buyers.'
Pensioners abroad have arguably been hit the hardest as they rely most heavily on their savings and pensions built up in the UK. They've been hit by a declining pound and falling interest rates.
One in five expats claims a sterling pension, with more than a quarter of Brits living in Spain (28 per cent) and a third of British expats in Germany relying on this as their core source of income, according to Moneycorp.
More than half a million pensioners living in Commonwealth countries such as Australia, Canada and New Zealand suffer a further blow because their state pensions don't rise each year in line with inflation.
Only those living in the European Economic Area and countries with reciprocal agreements in place with the UK, such as the U.S. and Jamaica, are protected against inflation. Yesterday, these pensioners lost their fight in the European Court of Human Rights to prove this pension freeze violates anti-discrimination rules.
Tim Finch, head of migration at think tank the Institute for Public Policy Research says: 'The weakness of the pound will mean more people will lose jobs and find it harder to live overseas and come home. This is likely to be a growing trend over the next few years.
'Generally, the big wave of lifestyle emigration where people got their place in the sun for a better life was a reflection of the boom years when you had high house prices and decent pensions.'
"When moving to a foreign country which has a different currency it is very important to consider moving one's savings into the base currency of their new country of residence. This is ensure that income and expenses are in the same currency in order to mitigate the effect of exchange rates, which for British expatriates holding sterling and currently residing in the Euro zone is very marked as their income has reduced significantly given the devaluation of the pound. A QROPS enables British expatriates to move their sterling based pensions outside of the UK and hold the underlying investments in the same currency as that of their new country of residence. This helps mitigate the impact of foreign exchange rates on income and the real value of one's pension."

Saturday, 6 March 2010

QROPS Advice: Mitigating UK tax hike

As we have entered 2010 and with the introduction of a 50% tax rate we are now only weeks away from the UK moving back to the realms of a high tax country. There has been much discussion about how the full impact can be averted with some individuals making plans to leave the UK altogether.

Those who are now or have in the past been taxable in the UK on the remittance basis have the opportunity to accelerate income through making remittances to the UK before 6 April.

A reminder of the primary new rules:

• The new top income tax rate of 50% applies to those with incomes over £150,000 from 6 April 2010.

• There is a phased elimination of personal allowances reaching zero for those with incomes exceeding £112,950.

• The national insurance employee rate rises and for individuals from 6 April 2011 this will be increased to a 2% levy in place of the current 1% on income above the main table rate. For employers the rate of charge increases to 13.8%.

• The effective marginal rate where UK national insurance, as well as income tax is due will rise in the next year or so from 41% to 52%.

The ability to shelter from the full consequences of this charge is being further diminished. The generous UK tax relief on pension contributions that has been available since April 2006 has been restricted significantly for those with incomes of at least £150,000 per annum. Whilst these rules apply from 6 April 2011, measures were introduced alongside this to discourage increasing contributions beyond regular patterns in place at the last Budget day (22 April 2009). The Pre-Budget Report followed up in December 2009 to bring about further changes that bring taxpayers within these special anti-forestalling rules where income exceeds £130,000.

For these measures (and for the banking sector) the payroll tax has had a significant impact on the thinking of individuals, businesses, and advisors looking again at what can be done to mitigate this higher tax charge.

Amongst possible solutions that may be considered is the advancement of income or profit shares pre-5 April 2010. Where scope exists this might involve designing subsequent deferral mechanisms into Employee Benefit Trusts (EBTs) and Employer Funded Retirement Benefit Plans (EFRBs). For some organisations this may mean maximising share incentives where capital gains (currently at 18%) can be maximised either under approved plans, or by designing incentive restrictions with a prospectively small income tax burden at present, in favour of longer term capital gains tax on growth thereafter.

Those who are now or have in the past been taxable in the UK on the remittance basis have the opportunity to accelerate income through making remittances to the UK before 6 April.

Particularly where that income has already been subject to US tax, the UK savings that can be achieved through remitting before 6 April can be substantial, but the issues involved may be complex and so we urge that this type of year-end planning be addressed as soon as possible.

The ability to plan against the full exposure to the new higher rates has become more difficult but the desire to pursue a capital gains tax rate of 18% in the UK becomes more powerful whilst this increased differential between income tax and capital gains tax rates lasts.


Friday, 5 March 2010

Qrops Advice: Malta’s regulator approves two pension schemes

Malta’s regulator has approved two pension schemes, according to a notice on its website. It was not immediately clear whether these schemes are poised to receive approval for transfers of UK pensions.

HM Revenue & Customs recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. As reported by International Adviser, that development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) are eligible for QROPS status.

However, no Malta companies as yet feature on HMRC's list of Qualifying Recognised Overseas Pension Schemes (QROPS), which was last updated on 22 February.

According to the MFSA, the two schemes it has approved are MCT Malta Private Retirement Scheme in St Julians, and Melita International Retirement Scheme Trust of Sliema, an arm of Dublin-based Custom House Group. Custom House is understood to have approved pension administration operations in Malta.

Sandro Bartoli, managing director of Sliema-based Quest Investment Services, a Maltese advisory firm affiliated with Sparkasse Bank, said the announcement of the two schemes’ approval is being welcomed by IFAs and others on the island. He believes Malta’s membership in the EU will be an important selling point.

Qrops Advice on www.qrops-advisers.com or call 0044 (0)1664 444625


Thursday, 4 March 2010

QROPS Advice: Spotlight on Global Health Care investments

Such is the vast size of the world's leading pharmaceuticals firms, that many investors will already have a small exposure to the Health Care sector, via their exposure in many of the world's global equity funds. What many investors don't realise, however, is that a niche industry of specialist Health Care-focussed investment funds have been available for over 25 years.
Healthcare funds invest in the stocks of companies that operate within the healthcare sector. This encompasses a wide range of industries, detailed further below. The managers of these funds seek out companies that have upside potential from new drugs, discoveries, patents, products and even procedures.
Historically, the fortunes of Health Care funds have been greatly attributable to two major influences; political events and demographic shifts, both of which are particularly topical at the moment.
The appointment of Barack Obama as U.S President has caused understandable excitement in the Health Care fund industry, given his pre-election promise of a shake up in the American medical system. The provision of medical insurance to the estimated 46.3 million residents currently without any arrangements, and the task of improving what has historically been a much-criticised state system could prove extremely fruitful for the many companies in the vast Health Care industry.
The impact of socio-demographic movements over recent years also looks promising for the Health Care fund industry. Whilst such funds are widely considered as a defensive holding (after all, the need for medical care is universal and often independent of economic cycles), the rise in prominence of 'emerging market' countries ensures that the gap between the standards of medical provision and solutions worldwide, become ever smaller. For example, several India-focused healthcare funds have been launched recently as India's healthcare services market undergoes robust expansion. According to Technopak Advisors, the USD35bn Indian healthcare industry is projected to touch over USD75bn by 2012 and USD150bn by 2017. As medical standards in such countries improve, so do life expectancy rates which, in-turn, favours medical supply companies.
There are highly specialised Health Care funds available, with significant differences amongst them. For example, some specialize in big pharmaceuticals, including some of the world's largest drug companies such as Pfizer Inc and Johnson & Johnson. Other healthcare mutual funds specialise in biotechnology stocks. Such funds invest primarily in companies that use biological processes in the development or manufacture of a product, or in the technological solution to a problem. There are also healthcare funds that own hospital companies, makers of medical devices, distributors of medical supplies, and so on.
Well diversified Health Care funds which invest across the many specialist sectors of the industry prove to be the most popular, particularly when held as an investment via a pension or a holding in a life assurance contract. Derek Tanner, manager of the the Hansard Invesco Healthcare fund (MC22, available in both HIL and HEL) looks back at 2009, and forward to 2010, commenting "The health care sector was favoured during the quarter as investors saw more action around the US health care reform efforts.
It is important to note that not all health care companies will be affected by health care reform in the same way. Some industries, like health care equipment and biotechnology, are less exposed. Managed health care will be among the most directly impacted by efforts of health care reform.However, we believe fear is largely baked into these stocks that are now trading at major discounts. As a result, we continue to overweight these sectors.
We tend to believe the future of health care is in biotechnology rather than pharmaceuticals. Within biotech, our emphasis is in profitable large-cap companies that are generating sufficient free cash flow rather than small-cap start-ups that typically lack liquidity and earnings."

Tuesday, 2 March 2010

QROPS – Maximising Your UK Pension Fund When You Live Overseas

When you move from one country to another, you should review your wealth management arrangements to ensure they will work effectively for your new lifestyle and that they are suitable for the investment and tax regime of your new country of residence. You will also want to establish if your expatriate status and/or the local rules provide any new opportunities for increased tax mitigation.

While many people do review their saving and investment arrangements, they often fail to consider their pension funds – perhaps because they know that the UK retains a tight control over them, even if they have left the UK.

However, while UK pension funds may be fairly inflexible and could be liable for UK death taxes even where the owner is non-UK resident, many expatriates do have the QROPS option. If you have left or are about to leave the UK it is now possible to transfer most private pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS).

Deferred pensions, pensions in drawdown and protected rights can all be moved into a QROPS, but you cannot make a transfer if you have already bought an annuity. Final Salary Schemes are only eligible if the pension has not commenced and state pensions cannot be moved either.

Improving pension income and investment opportunities

QROPS can be more flexible in how and when you take your income. You can vary your income (within limits) to suit your lifestyle and financial requirements within your country of residence. A wide range of investment opportunities are available within a QROPS, and with increased control over your fund you can structure it to suit your needs for income and capital growth.

Tax efficiency

Another way to increase your income is of course to pay less tax on it. Your pension can roll up tax free within a QROPS and income will be paid to you gross. You do need to declare it in your country of residence, but in countries like Spain, Portugal and France you can structure your fund so that you pay less tax on it than you would with a UK pension fund.

Removing currency risk

Exchange rate movements between Sterling and the Euro can affect how much pension income you receive each month. While sometimes your income does increase, as we’ve seen over the last few years more often than not you end up with less in your pocket. You may also be paying exchange rate costs.

With a QROPS you can choose which currency your fund is denominated in and which currency you receive the income in. This can be Sterling, or Euro, or indeed any currency. By holding your fund in Euros you will no longer be at the mercy of falling rates. If you want to give the exchange rate the opportunity to improve before you change currency, you can set up your fund in Sterling and transfer to Euros at a later date.

Avoiding the annuity trap

Under current UK legislation, you must either buy an annuity by your 75th birthday or be transferred into an Alternatively Secured Pension (ASP) – but for many people neither is a particularly attractive option.

Annuities are increasingly considered inflexible and annuity rates are currently very low. When you die the balance of your fund dies with you – you cannot pass this asset onto the next generation. Other than perhaps a spouse’s/dependent’s pension, there is nothing to leave your family, even if there is still a healthy balance left in the fund.

With the ASP alternative you would receive lower levels of income than you did when you were in drawdown. While you can leave the balance to your family, it comes at very high price – the tax charges on death can be as high as 82%!

The Conservatives have said that if they win the General Election they will scrap the compulsory annuitisation at age 75. In certain respects this is strange news because, as I have said above, there is currently no legal compulsion to buy an annuity at age 75. However time will tell what George Osborne means by this.

On the other hand, if you transfer your pension into a QROPS it won’t matter whether this goes ahead or not, because with a QROPS you never have to buy an annuity, which means you may be able to leave your family a larger inheritance. If you think an annuity would suit your circumstances, however, the option to purchase one remains open to you.

Avoiding UK death taxes

If you have taken any benefits from your UK pension fund (income or cash lump sum) and have not bought an annuity, it will be potentially liable for a tax charge on death of 35% pre age 75 and up to 82% post age 75. This also applies to non-UK residents and even to non-UK domiciles. Unlike with inheritance tax, there is no exemption between spouses.

However, if you have transferred your pension into a QROPS, and provided you have been non-UK tax resident for five complete and consecutive tax years at the time of your death, your fund will escape the UK charges, that is, both the 35% charge on income drawdown and the up to 82% charge on ASPs.

While transferring your pension funds into a QROPS can provide many benefits, it won’t necessarily suit everyone, so do make sure you understand all the implications before you decide to go ahead. For those whose pension funds total less than £75,000, a move to QROPS is unlikely to be cost effective. You should also make sure that the scheme you choose is approved by HM Revenue & Customs and follows the spirit of the UK legislation which allows pension holders to transfer out of the UK and into a QROPS.


Monday, 22 February 2010

QROPS Advice: Expats Plight

BRITONS struggling to live abroad on pensions as low as £6 a week want their desperate plight to become an election issue.

Of the 1.1 million expats entitled to draw UK pensions, 540,000 are denied their full allowance because of archaic rules.

They have their pensions index linked in all EU countries and in 15 others, including Barbados, the United States and Bermuda.

However, there are more than 150 other countries where they have had their pensions fixed at the rate at which they were first drawn in their new country of residence. Many are being forced to return to Britain.

Labour says it cannot afford the £540million needed to increase the frozen pensions, even though the sum is less than one per cent of the country’s pension fund.

Campaigner John Markham, 76, of the Canadian Alliance of British Pensioners, is visiting Britain to meet officials of all political parties. He said: “In the last general election the expat vote was 10,400, but there will be many more eligible to vote this time around. We want to get Britons living abroad to vote, but only for the parties that support our cause.”

Annette Carson, 67, who emigrated to South Africa just before drawing a pension at 60, is taking the Government to court, backed by 13 others in a similar plight. A judgment is expected in a few weeks.

Friday, 19 February 2010

QROPS Advice: QROPS NEWS:Gaines-Cooper case could prompt migration to QROPS

The collapse of the Robert Gaines-Cooper case could see high net worth individuals flock to Qualifying Recognised Overseas Pension Schemes (QROPS) in a bid to dodge the taxman.
"Multi-millionaire entrepreneur and Seycelles resident Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in England because the country had remained "the centre of gravity of his life and interests", the Court of Appeal ruled in a landmark case this week.

AdvertisementThe decision is being described as the "thin edge of the wedge" for HNW individuals, but they could help protect themselves from HMRC's ire by moving pension assets out of Britain using QROPS.

"UK pensions can be neatly moved to a QROPS scheme and in addition to the many benefits people have over remaining in the UK scheme, for those who have moved abroad there is now the added advantage that it moves a major asset out of the UK," Tim Parkes, director of Carey Pensions and Benefits, says.

Advisers have seen a sharp uptake in interest in QROPS in light of the Gaines-Cooper case.

But specialist QROPS advisers are warning people to beware overseas advisers who make undeliverable promises.

Geraint Davies, managing director of Montfort International, who helped draft guidance on QROPS with the Personal Finance Society (PFS) says: "The facts are you do not have to be a non-UK resident for five years to access QROPS but you do to permanently remove any of the restrictions which exist under UK tax legislation."

"Even then individuals will be subject to the tax regime of the territory of residence and all other areas in which the person has lived."

In addition, he says QROPS are only tax-neutral where the country of residence has been checked by the recommending adviser and there are no tax liabilities levied on unrealised gains or distributions out of the scheme.

"The issue is there is too much advice on QROPS coming from providers and advisers have little experience dealing with the tax regimes of other countries. Plus some unscrupulous overseas advisers are making substantiated claims."

FSA guidelines on QROPS states: "Any adviser who fails to take into account all current material personal circumstances and future plans is failing to treat the customer fairly."
Author: Laura Miller

QROPS Advice: Investment News: Spotlight on Japan

Anybody that has followed global markets over the past 20 years will know that the root causes attributable to the recent financial crisis are by no means new. As recently as the early 1990s, the world's second largest economy, Japan, was in meltdown as a direct consequence of a 'bad debt' issue, caused, in part, to overly-relaxed lending practices by its local banks. This lending fuelled a property bubble which was unsustainable (resting, as it did, on unrealisable land values), turning many debts bad. This ultimately resulted in many banks having to be bailed out by the government, a very familiar story of late...
The fall-out of the catastrophe was appropriately named "the lost decade", owing to the lack of economic activity that followed in the region. As with technology stocks that famously failed in the late 1990s, Japan became massively out of favour with investors, as the value of the local stock exchange spiralled ever lower. Both local market participants, as well as foreign investors have had relatively little exposure to Japanese equities ever since, with many not appreciating the substantial turnaround in Japanese corporate fortunes, as a deeply unloved and under-owned asset class.
However, indicators suggest that Japan is once again returning to favour. It has been a promising start to the New Year for Japanese equities, with foreign investors piling into the market, buying a net USD17.3bn worth of stocks in January alone, the largest monthly purchase in three years. That compares with a net outflow of foreign money in the rest of Asia of USD3.35bn, according to data from Nomura. Japanese machinery orders rose the most in nine years from a record low, and 'domestic orders', an indicator of business investment in the next three to six months, climbed 20.1 percent in December from a month earlier.
Again, as with Technology company valuations, the lessons learned from 'the lost decade' have prepared many of Japan's leading companies for a promising future, with extremely healthy balance sheets and price earning ratios reflecting excellent value when compared to stocks elsewhere.
Whatever your view of the Japanese economy as a whole, the fact remains that Japanese firms still dominate and lead many global industrial sectors from autos, via specialist materials and capital goods to consumer items, e.g., from Suzuki to Nintendo. Therefore as the global economy regains its composure, Japanese firms should disproportionately benefit from their geographically well diversified sales base, particularly their exposure to the BRIC countries.
Looking ahead for Japan, Chris Taylor of Neptune Investment Management, commented "We expect improved corporate earnings from the global companies that have little dependence upon the domestic economy. They will be helped by their substantial exposure to non-OECD economies which will continue to expand strongly, contributing about two-thirds of likely global economic growth. The combination of these factors should see such Japanese firms collectively turn in the highest prevailing rate of earnings expansion across the globe."

Investment News: 11% per annum with early maturity opportunities, ISA ELIGIBLE

Prima Platinum Plan 4
Key Features
• Investment returns linked to the performance of the FTSE 100™ and DJ Eurostoxx 50™ (the Indices)
• No Index growth required to achieve quoted returns
• Early maturity will be triggered as long as the level of both Indices are at or above their Opening Levels at any Plan anniversary.
• Investors will lose some or all of their money if one or both Indices have fallen by more the 50% at any close of business during the investment term and the Final Level of one or both Indices is below its Opening Level, or in the event of the issuing bank failing to make the payments due under the Plan.
• Capital will be returned in full at maturity, provided neither of the Indices have fallen by more than 50% below their Opening Levels during the investment term
• Available to 5 March 2010
Target Market
This investment could be suitable as part of an investment portfolio for investors who
• understand and are used to equity investment, and
• are able to invest for a period of up to 6 years, and
• are prepared to accept a degree of risk to their capital in return for a higher potential growth than would be available via a deposit based investment
Key Dates

Offer period
To 5 March 2010, except for ISA transfers, where applications must be received by 26 February 2010.

Strike Date
12 March 2010

Opening Level
Close of Business on 12 March 2010

Final Level
Close of Business on 14 March 2016

Annual measurement dates
14 March 2011, 12 March 2012, 12 March 2013, 12 March 2014 and 12 March 2015, 14 March 2016

Maturity date
28 March 2016


You should refer to the brochure which contains full details of the Prima Platinum Plan 4.
Telephone enquiries to: Derry Thornalley 01664 444625 or email derry.thornalley@aifsg.com

Key Facts

Investment Term: 6 years and 14 days, with the potential for early maturity. Early maturity will be triggered if the levels of both Indices are at or above their Opening Levels on an anniversary date of the Plan.
Availability: As direct investments, ISAs and ISA Transfers, and for pension funds, trustees and companies.
Indices FTSE 100™ & DJ Eurostoxx 50™
Investment Return 11% per annum (simple) for each year the Plan is in force, so the returns at each possible early maturity date would be 11% (end of year 1), 22% (end of year 2), 33% (end of year 3); 44% (end of year 4); 55% (end of year 5) or, if the plan runs the full 6 year term, and the Index Levels are at or above their Opening Levels, 66%.

If the Index Levels are below their Opening Levels no investment return will be payable.
Capital Return Capital will be returned in full at maturity as long as the Indices have never fallen by more than 50% of their respective Opening Levels at close of business on any day during the investment term. If one, or both, Indices have fallen by more than 50% and the Final Level of one, or both, Indices is less than its Opening Level capital will be reduced. The reduction will be 1% for each 1% the Final Level of the lower performing Index is below its Opening Level. If one, or both Indices have fallen by more than 50% you will receive a full return of capital as long as the Final Levels are at least equal to their Opening Levels. Please see the brochure for a full explanation of the calculation, plus examples.
Counterparty Risk The securities will be issued by Rabobank, which has a current rating of ‘AAA‘ by Standard and Poor’s. If Rabobank were to fail to meet the repayments due to us, you could lose some or all of your investment. The credit rating is subject to change during the offer period and the term of the investment. Counterparty risk is common to all similar investments. All references to the credit rating are correct as at the date of the brochure.
Tax Under current tax legislation gains on assets held in an ISA will be free from any tax, while gains on direct investments will be subject to Capital Gains Tax.
Interest Interest will be credited on subscriptions received and held in our client account up to the investment date, subject to a minimum interest addition of £10.00.
Charges There are no initial or ongoing charges. Charges are included in the pricing of the investment.

Early encashments and transfers during the investment term will be subject to an administration charge.
Commission 3% initial commission.
Securities Securities will be structured to provide the returns shown in the plan brochure, and purchased for each investor. These will be notes or warrants.

QROPS Advice: Proving residency is simply too taxing

How do you escape the taxman by proving you are not a UK resident? It is becoming increasingly hard to know, as Seychelles-based millionaire businessman, Robert Gaines-Cooper, has just discovered.

This week the Court of Appeal ruled that ensuring that you are in Britain for only 91days in any year is no longer enough. It seems that having property here, or children in a British school, or horses in a British stable or even regular attendance at Ascot, may be enough to bring you within the UK tax net.

There will be many who applaud the Revenue’s crackdown on the thousands of super rich who are the leaving the rest of us to fill the gaping hole in the public finances. But a system that encourages bizarre arguments about the “centre of gravity” of a person’s life is damaging.

As Barclays’ John Varley said this week Britain’s increasingly uncertain tax regime makes it a less attractive place in which to live and do business.

A vague definition of UK tax residency may have suited the Government in the past, as it has been able to take either a lax or strict approach, depending on which way the wind was blowing.

The Revenue has also favoured this approach because it has made it impossible for clever lawyers and accountants to come up with fool-proof schemes to keep clients outside the taxman’s grasp.

But it is surely time to set out in law what is meant by UK residency. Having a horse should not be one of the tests.
By David Wighton

QROPS Advice: Are You Resident or Not?

Who stands where in the non-resident stakes

Resident and ordinarily resident People who are resident in Britain and domiciled here pay tax to the British exchequer on their worldwide income and capital gains. People who come to Britain are treated as resident and ordinarily resident from the date they arrive if they intend to live here permanently or for three years or more

Non-resident Non-residents are not generally liable for income or capital gains tax, except on money earned in Britain. They also usually pay national insurance contributions on work in Britain for a British employer. People become non-resident if they leave Britain permanently or live abroad for at least three years, and if their return visits since leaving are less than 183 days in any tax year, and on average less than 91 days per tax year. It is estimated that there are less than 10,000 non-residents

Not ordinarily resident People who are not ordinarily resident are taxed only on the earnings attributable to their British earnings. They are not taxed on the whole of their worldwide income. To qualify, the person must leave Britain after three years

Non-domiciled Non-doms are often people whose families originate from abroad and typically retain affiliations with that country. People born in Britain can claim non-dom status if their fathers were born overseas. Under recent changes to the rules, non-doms can avoid tax on money earned outside Britain and brought back into the country provided they pay the Government £30,000 a year. There are around 65,000 people with non-dom status, around 33,000 of whom are classed as not ordinarily resident

Tuesday, 16 February 2010

QROPS Advice: PBR - IHT planning with trusts clampdown

As you will be aware, the Chancellor took advantage of the Pre-Budget Report (PBR) to announce changes in legislation aimed at what it described as two artificial IHT mitigation schemes involving trusts, which had come to the attention of the Treasury.

The first scheme took advantage of the loophole caused by poor drafting of one particular part of the legislation introduced on 22nd March 2006. It is this scheme that will be considered here.

Planning with interests in possession
To explain. Before the changes, it was possible to create an interest in possession trust and have the transfer treated as a potentially exempt transfer (PET). The downside of this type of trust was that the full value of the trust fund was treated, for IHT purposes, as being in the estate of the beneficiary entitled to the income. Since IHT is primarily intended to tax assets once a generation, treating the interest in possession in this way ensured that aim.

Example: John created flexible interest in possession trust for the wider benefit of his family (excluding himself) but with his daughter Emily entitled to any income generated by the trust fund.

Under a discretionary trust, however, no beneficiary has a right to income and so IHT is not dependent on the life of a beneficiary. You could consider the discretionary trust as having an artificial life of its own – a transfer in is a chargeable lifetime transfer (CLT) and periodic and exit charges also potentially apply.

Example: John created a discretionary trust for the wider benefit of his family (excluding himself), under which no one individual was entitled to either income or capital.

In order to avoid a potential double charge to IHT under any new interest in possession trust, it was necessary to make a change in the legislation. The legislation introduced in 2006 provided that a new interest in possession created after that date would not form part of the Settlor's estate for IHT purposes.

It is worth repeating that: a new interest in possession created after 22nd March 2006 will not form part of the Settlor’s estate for IHT purposes.

That is the crux of the planning in this scheme.

Planning with reversionary interests
Before 2003, if a Settlor created a discretionary trust for the benefit of his family, it was possible to claim capital gains tax (CGT) holdover relief. The rationale for this being that if IHT was payable when creating the trust, CGT should not be so.

Those seeking to achieve the advantage of CGT holdover relief without actually incurring an IHT liability were advised to create trusts under which they retained a valuable right. This valuable right depressed the value of the transfer for IHT purposes, meaning no IHT was actually payable but secured CGT holdover relief nonetheless.

Example: John created a discretionary trust as before, with shares worth £1m having gains of £300k. The value of the CLT was £9,990k. No IHT is payable. CGT holdover relief was claimed in respect of the £300k gains, no CGT was payable at this time.

Clearly this was unacceptable to the Revenue and, having lost in the test case of Melville, legislation was introduced to combat this perceived abuse. However, it was accepted that the mechanism of depressing the initial value for IHT purposes achieved its aim.

Putting the two together!
Settlors were encouraged to create trusts under which they retained a reversionary interest but that reversionary interest was not in the full trust fund but in an interest in possession in it, i.e. a right to income for a specified period, typically 99 years. The initial transfer into trust, although being a CLT, was depressed by the significant value of the reversionary interest, i.e. it was negligible.

When the reversionary interest fell in and the interest in possession vested, at the end of whatever period the Settlor had determined, the full value of the trust fund fell out of his estate!

If he died, there would be no liability to IHT on the trust fund.

If he gave away his interest in possession, there would be no transfer of value. Further, there would be no value in the estate of the donee who received the interest in possession – and so on and so on, ad infinitum!

The “solution”
Whilst it had been anticipated that the Treasury would take steps to prevent interests in possession being treated in this way, i.e. to address the poor drafting which allowed this planning, as we have seen, the measures introduced have gone far further than this, impacting on the tax treatment of reversionary interests in general.

The impact for those caught
Bearing in mind that the changes introduced in 2006 intended to ensure that transfers into trusts that were within the relevant property regime actually gave rise to an IHT liability when the sums transferred were in excess of the available nil rate band, the “solution” might seem apt.

If a Settlor has created such a trust under which his reversionary interest has not yet fallen in or been given away, he will face a charge to IHT at lifetime rates when one or other of those events occurs.

In the PBR it was announced that “The Government announces it is also examining wider solutions to the problem of trusts being used to avoid inheritance tax charges.” It is understood that what is meant by this statement is that the Government will review the legislation introduced in 2006 to ensure, as far as possible, no other unintended “loopholes” exist. Clearly, we will have to keep an eye on developments!
By Deborah Moon - technical manager for Royal London 360° 16/12/2009

Private foundations are legal entities set up by an individual, a family or a group of individuals, for a purpose of providing for the needs and objectives of the individual, family or group.
Foundations are more versatile and can accomplish more than Trusts, Companies, Wills and provide strict rules of confidentiality
No one owns a Private Interest Foundation, so you are not the owner of the Foundation, no one is according to the statutory laws of the jurisdiction in which it is held.
A Foundation is a tried and tested way to protect and shelter your assets including real estate, bank accounts, financial instruments, securities, art, family heirlooms, corporations, cars, planes, boats, etc., from existing or potential financial enemies. There is no limit to what a Foundation can own, and the business affairs of the Foundations are anonymous.
The Foundation’s assets are ring-fenced and are totally separate from the assets and liabilities of the party/ies who establish the foundation.

A foundation can be used in a manner similar to a trust to pass on assets bypassing estate taxes at the time of death.
A Foundation can hold a corporation and a bank account which makes it the cornerstone of some of the best asset protection structures in the world today.
A Foundation cannot engage in business activities in its own right, like marketing and selling a product. A foundation can, however, own an offshore/onshore company and banking accounts. The offshore/onshore company can then engage in business activities.
Foundations do not pay tax on foreign sourced funds. This makes a foundation a great part of any tax planning strategy
A Foundation is an essential tool for asset protection particularly for those engaged in business and HNWIs

Operation of Private Foundation Very Similar to a Trust
Foundation Provides More Protections For Founders
Private Foundation is Multi-Generational, No Limit on Duration
Private Foundation is More Flexible
Founder Retains Full Control
Founder May Add, Remove Assets and Beneficiaries At Any Time
No Taxes within a Private Foundations
It is common for an onshore trust to be broken for any number of different reasons. If you want your wishes followed to the "letter" then a Foundation is your best option.
In the case of a Trust the Settlor has to contend with anit-trust legislation, non-recognition of trusts, sham trusts, defective trusts, thus giving away wealth and losing control. Alternatively, a Settlor or the beneficiaries may wish to change the jurisdiction or the trustees which, in most instances would not be welcomed or be resisted by those effected.
The Foundation, however, provides complete control at all times.
Trust Law a constantly being reviewed, for example in the UK trusts can no longer use trustees based in overseas jurisdictions (which enjoy a low or nil rate of local tax and double taxation treaties with the UK to mitigate capital gains tax)
A Foundation would be immune from such disadvantages.

Ensure Founder’s Confidentiality
Minimize Taxes on Assets and Investments
Protect Assets and Investments From Creditors
Manage Assets and Investments
Defer Income
Preserve Family Assets Over Multiple Generations
Make Distributions to Beneficiaries Like a Trust
Orderly and Quick Distribution of Assets to Beneficiaries Upon Founder’s Passi

No Inventory Tax
No tax reporting requirements
No Income Tax
No Capital Gains Tax
No Interest Income Tax
No Sales Tax
No tax on issuance of corporate shares
No tax on shareholders
No property tax
No estate tax
No stamp duty
No gift tax
No succession tax

What Kinds of Assets Can Private Foundation Hold?
No Limit
Cash in Foreign or Local Bank Accounts
Certificates of Deposit
Interest-Bearing Claims of Any Denomination
Real Property
Intangible Property
Shares (Tradable and Private)
Beneficiary Interests Example: Right to Receive Dividends
Art and collectibles
Boats, planes & cars
Ownership of an existing Offshore Company Can Be Transferred to Private Foundation, No Need to Change Offshore Companies’ Structure, Simply Make Foundation the Owner

Persons Seeking to Manage Taxes
Persons Wanting to Consolidate Holdings Under
Single, Flexible Umbrella
Persons Wanting to Ensure Confidentiality
Persons Who Want a Discreet, Reliable Way to Provide For Loved Ones
Persons Seeking a Vehicle For Retirement
Persons Seeking a Vehicle For Estate Planning

Call 01664 444625 and ask about Foundations

QROPS Advice: Tax relief for migrants

Tax tips from a technical Expert Tax relief for migrantsAs we struggle through what may shape up to become the coldest winter for many years, which followed yet another “wettest summer on record in the UK”, I think I would be sympathetic with anyone who decides enough is enough and goes in search of a warmer climate.

In fact I have since discovered that, every year since 2000 in the UK, over 300,000 people* (*Source: UK Office of National Statistics, October 2009leave the cold British weather to work overseas. What many do not realise is that it is not just the weather that can be attractive. An investment in an offshore bond could bring some valuable tax benefits from any absence from the UK.

Chargeable event liability
A UK resident will normally incur an income tax liability on any gain when a chargeable event occurs, for example, when they cash in the full value of an investment bond.

However, a claim can be made to reduce any gain and any associated tax charge in respect of all time spent outside of the UK during the period the bond has been invested. This is referred to as ‘time apportionment relief ’.

Only an offshore bond can generate this relief, as this is a unique benefit to offshore bonds.

So for any individual looking to invest, if there is a chance they may spend some time working outside the UK, the potential tax advantages of time apportionment relief should not be overlooked.


Here’s an example to illustrate what I mean:
Kate invested in an offshore bond in March 1999 and then spent some time working overseas as a non UK resident. She returned to the UK in June 2003 and was regarded as a UK resident from that date. In November 2007, Kate decided to cash in her bond when she was a higher rate taxpayer, with a chargeable gain of £63,500.

Instead of paying tax of £25,400 (40% of £63,500), Kate has used the time she spent outside of the UK to reduce her tax charge to £13,249, a saving of £12,151 because time apportionment reduces chargeable gain to only £33,122.

The formula for time apportionment relief is:

Gain x Number of days as UK resident/Number of days the bond has been in existence

This benefit applies to additional investments into an existing offshore bond as these may also benefit from time apportionment relief, even though the additional investments may not have been made during a period of non UK residence.

In this way it may also be appropriate to continue to invest in an existing bond after returning to the UK. Topping up an investment could be more beneficial than taking out a new bond as it should reduce the tax charge on the gain from the additional investment with the benefit of time apportionment relief.
By Mark Green

For advice on Offshore Bonds Call 01664 444625

QROPS Advice: Concerns over NZ's QROPS status quelled

Fears New Zealand may follow Singapore in having its QROPS status removed have been quashed after an agreement was reached between HM Revenue & Customs and the country’s government actuary, according to an industry source.

International Adviser reported last month there were growing fears New Zealand could be stripped of its QROPS status because of concerns over some of its registered schemes.

According to Stephen Ward, managing director of pension transfer experts, Premier Pension Solutions SL, the concerns related to a tax break applicable to employer contributions into a scheme known as Kiwisavers.

Ward says he and a number of other advisers flagged the issue to New Zealand’s Government Actuary and, after discussions with HMRC, the problem has been resolved and members of the scheme informed.

While HMRC would not confirm details on the case in its most recent list of QROPS, published on 8 February this year, the New Zealand Kiwisavers scheme continues to appear.

However, it should be noted HMRC states on the list that ‘publication should not be seen as confirmation by HMRC it has verified all the information supplied by the scheme in its application’.

Ward said: “There has been a lot of misinformed speculation about New Zealand as a QROPS jurisdiction.

“We were involved in alerting the New Zealand authorities of this minor Kiwisavers tax issue and are delighted with the outcome and that any possible uncertainty surrounding using New Zealand schemes has now been clarified once and for all.”

QROPS Advice: Spotlight on Protected Funds

Broadly speaking, recent market volatility has split investors into one of two categories; those that are willing to take advantage of the opportunities that market movements represent, and those that are unsure of the future and instead wish to focus, primarily at least, on preservation of their wealth.
Capital protected funds serve as a solution to each type of investor, providing exposure to the upside of equity markets, whilst maintaining a level of protection that gives the investor peace of mind in the knowledge that not all of their investment is at risk.
An 'Investment Sentiment' survey conducted towards the end of 2009 by the UK's Investment Management Association found that almost 70% of investors still want to put money into capital protected funds. For 2008 and 2009, sales by fund type, via an investment bond (as opposed to direct investment into the fund), show that such funds rank as the second and third most popular choice respectively.
The basic principle of most capital protected funds is that the majority of the investors' money goes into an active 'basket' of equity stocks (the basket of many funds available will have a specific focus, e.g. emerging markets), with an amount being kept aside for investment into a capital protection solution; it is this element of the fund that is used to protect a proportion the fund's value, the amount set aside determining the amount of protection available (e.g. 90%, 80% etc).
On this basis, investors in such funds should bear in mind that they will not benefit as much from an increase in value of the active portion of the fund, as they would have done if they were instead invested in a traditional, 100% equity fund. However, the relatively small sacrifice of growth potential, in return for capital protection is what makes such funds so particularly appealing to investors that are approaching retirement, or simply unsure about future volatility.
It is common practice for capital protected funds to be managed by two distinct parties; an investment manager to maximise growth from the active element of the fund, and a specialist provider of capital protection solutions. The latter will have experience in trading sophisticated financial instruments which, ultimately, provides the 'safety net' element of the fund.
Colin Graham of BlackRock, managers of the active element of the Hansard Multi-Asset Protector fund commented "Of the other positions held in the portfolio, the recent strong performance of the BGF (BlackRock) US Flexible Equity Fund has been driven by the Fund's focus on quality stocks, with an emphasis on healthcare and energy, at the expense of financials and consumer staples. Meanwhile, the performance of the BGF World Health and Science Fund was well supported by strong stock selection of the vast majority of sub-sectors, including healthcare providers and services.
While we remain focused on the improving economic outlook, our positions are relatively modest, reflecting the risks to these views and our anticipation of a moderate, rather than buoyant, prospective return environment. As such, and in the expectancy of ongoing economic and market volatility, we continue to allocate risk in a diversified fashion."