QROPS: Advantages and Disadvantages

What are the potential benefits of QROPS?

Tax efficiency. Subject to the laws of the overseas country in which you become resident, it may be possible to receive income from your retirement fund at lower tax rates than would apply in the UK.

Investment choice. There is no need to buy an annuity, so you can retain control of your pension savings capital, and you can hold assets such as residential property, which are not usually allowed in UK pension funds.

Passing wealth between generations. QROPS enable you to pass the portion of your pension savings that you do not spend to your heirs and, depending on the tax laws of the country where you choose to become resident, there may be a lower rate of Inheritance Tax to pay or – as is the case in Cyprus – be no local equivalent of this tax.

Avoid or diminish exchange rate risks and costs. You can take income and capital from your QROPS in the currency of your choice.

What are the potential disadvantages of QROPS?

Costs. Legal and administrative fees involved in setting up and maintaining QROPS vary widely and need to be considered carefully in advance. Take account of initial and annual fees when assessing whether their impact on your retirement fund can be justified by increased choice and tax-efficiency.

Investment risk. If you decide not to buy an annuity and to keep your QROPS invested in stock market-based assets, or any other assets whose value is not guaranteed, there is a risk that your income and capital could fall and you may not get back as much as you invested.

Regulation gap. Some countries with lower tax rates than the UK also offer less investor protection in terms of regulation of financial services and they may not offer any statutory compensation scheme. That is why it is vital to seek pension advice only from professionals who are fully authorised in the UK as well as the overseas jurisdiction to which you are considering retirement.

Fiscal change. Some experts reckon the opportunities offered by QROPS are simply too good to last. Critics claim QROPS enable British savers to obtain generous tax relief while accumulating pension funds and then to avoid British taxes when it comes to enjoying the benefits. If too many people take up these opportunities HM Revenue and Customs may act, subject to European Union rules.

Consider your options carefully but without unnecessary delay

No decision affecting your retirement capital and income should ever be taken in a rush. Remember the old maxim: ‘Act in haste – repent at leisure.’ If any adviser seeks to put pressure on you for an immediate decision, then your answer should be ‘No, thank you.’

However, as mentioned earlier, the sooner you start to plan for retirement, the easier it will be to ensure that this really is the holiday of a lifetime. The earliest pounds you invest in a pension will have the longest to accumulate for your benefit. The sooner you begin to consider how – and where – you enjoy the fruits of your prudence, the more likely you are to reach the right decision for you and, where relevant, your family.

Quicker, cheaper and more comfortable international travel has widened everyone’s choice about where to live. People who retire overseas need no longer wave goodbye to friends and family forever.

QROPS extend that choice into one of the most important financial choices many people ever make: how to fund and enjoy retirement. Make sure you consider your options carefully and in a timely manner with a specialist pensions professional who is fully authorised to advise on all the options you enjoy today.