Wednesday, 23 March 2011

10 tips for international pension transfers

With increasing pension deficits and retirement ages, the way forward in pension planning after the global recession may already be here, as evidenced by the spread of defined accounts where the benefit depends on individual earnings and UK system of personal accounts.

With all the boundless information available on pension transfers it is not surprising that advisers and private clients alike may feel caught in the headlights when making decisions on retirement related issues

Chris Davies
Managing Director
There is certainly a case for a comprehensive international pension account that may be used as a structure for a consolidated pension transfer and contribution. With offshore ‘tax havens’ becoming more open to scrutiny and taxation, the retiree needs to think long and hard about transfer options.

Yet it is clear what will not change is the onus on the individual to engage completely with the need to provide for retirement, obtain the best possible professional advice and ensure they are up to date with the latest knowledge and options available to make the correct choice.

With all the boundless information available on pension transfers it is not surprising that advisers and private clients alike may feel caught in the headlights when making decisions on retirement related issues.

ECM has therefore devised 10 key considerations for as a guide to advice given and transfers made:

1. Taxation: Ensure the jurisdiction employs double taxation agreements and that non-resident status on taxation on pension income is fully understood.

2. Trustees: Complete comprehensive due diligence on the QROPS scheme trustees.

3. Residency: Be certain of taxation obligations in the country of residence. Also if the pension member is returning to the UK, take the chance explore the all other options available.

4. HMRC conditions: Ensure the conditions for transfer are met, i.e. tax free cash allowance, 70% minimum of transfer value to pay an income for life and the 5 year residency rule. Beware of advice pertaining to any significant increase in tax-free cash available at retirement and ensure crystallisation benefit and unauthorised pension transfer charges are understood.

5. Diversification: Employ the principle of investment diversification and modern portfolio theory once transferred.

6. Custodian: Ensure due diligence is completed and understood on the investment vehicle that will hold the pension transfer value and on the jurisdiction where domiciled.

7. Jurisdiction: Homework needs to be completed on the strengths and weakness of the territory and its regulations, to which the pension scheme is to be transferred.

8. Be in the know: Ensure a QROPS is the right way forward and transfer value analysis is conducted especially for final salary pension schemes. Keep abreast of any changes to related legislation or HMRC rulings such as the UK government’s recent relaxation on compulsion to purchase annuities from age 75 to 77.

9. Review: Keep QROPS clients reviewed at least annually.

10. Life after QROPS: The UK pension landscape is changing: Read the Foot review, Lord Hutton pensions commission report, OECD/EU directives, HMRC website and other related literature to prepare for potential changes to retirement and tax legislation and/or pensions transfer, QROPS or QNUPS retirement opportunities in the future.

For expert QROPS advice go to or call 01664 444625

Guernsey publishes QROPS code of practice

The Guernsey Association of Pension Providers has published a draft code of practice for QROPS providers based on the island.

Published on the GAPP website, the voluntary code outlines a set of principals covering critical areas of the QROPS business including transfers, reporting, tax requirements and investment.

GAPP is encouraging members of the QROPS industry to comment on the proposed code and has given until 28 February for people to submit their views. The draft will then be reviewed and a final code of practice is due to be issued on 31 March.

Plans to create a code of conduct were first announced at a Guernsey Finance event in London in March last year. Since then members of a committee, drawn from GAPP members and others in the industry, have worked to create a first draft.

Roger Berry, chairman of the code group which worked on the draft, said: “The QROPS market is sometimes a confusing place with different people saying different things. We want to minimize that confusion for anyone looking at choosing a Guernsey QROPS by having on our industry body website a code of practice with a list of those providers complying with that code.

“It should prove helpful to clients, introducers and members of the GAPP and allow Guernsey to stay in the forefront of safe and prudent QROPS provision.”

The code of practice follows legislation passed at the end of last year and introduced on 1 January, which aims to protect investors in Guernsey-based retirement schemes.

When the Retirement Annuity Trust Schemes (RATS) Rules, 2010 were introduced, the Guernsey Financial Services Commission faced some criticism for not including QROPS, arguably the largest part of the jurisdiction’s retirement market, within the protection measures.

Nik van Leuven director general of the GFSC said: “The Retirement Annuity Trust Schemes Rules, 2010 were made by the commission and came into effect on 01 January 2011.

“These rules apply to licensed fiduciaries who are acting by way of business in respect of RATS where the members are resident in Guernsey or who have made Guernsey tax relieved contributions. The commission's first consideration was to get the rules in place for the local market, and then consider to what extent something is needed for QROPS at a later point.”

Leuven added the commission had commented on the code of practice and that these comments have been included in the published draft.

Rex Cowley, head of marketing for the international division of Close welcomed the introduction of the code.

"The industry code of conduct, in Guernsey, is an important step forward for QROPS generally as it provides better visibility over what 'best practice' is in relation to the management of a UK pension transfer to Guernsey," he said.

"In the absence of any pension specific regulation in Guernsey, IFA's would do well to use firms that prescribe to the proposed code. It is without doubt that the code will come under criticism from some quarters but anything that aims to ultimately inform and protect clients has to be a good thing."

For expert QROPS advice go to or call 01664 444625

Fairbairn's Overseas Pension in international sales drive

The Overseas Pension, the QROPS from Fairbairn Trust Company, has appointed an international sales manager.

Alex Cockerill has worked in the QROPS sector for the “past couple of years”, according to Overseas Pension, mostly in South Africa. His role will be to expand distribution of the Overseas Pension, particularly in the Middle and Far East and South Africa.

Nathan Lihou, Fairbairn Trust chief operating officer, said Cockerill’s appointment marked the start of a new expansion phase for Overseas Pension, whose ultimate parent company is South Africa’s Old Mutual, which owns Fairbairn Trust as well as Nedbank and Skandia.

Lihou added: “[Cockerill] not only knows the QROPS market but has a key understanding of our home territory in South Africa and will be able to provide support to Fairbairn Trust Company’s QROPS team.

“If you look at what has happened in the UK pension market, the winners are firms that put their clients first and provide first rate service and technical support.

“We have been building our back end QROPS team and believe that we have got to the point that our service and support levels are the highest in the industry.”

For expert QROPS advice go to or call 01664 444625

Tuesday, 22 March 2011

Who can control the mis-selling of QROPS?

The UK financial services industry is littered with mis-selling scandals; personal pensions, endowment policies and payment protection insurance have all made their black mark in history. But these could pale into insignificance compared to the stampede of offshore salesmen into the QROPS market.

If ever there was a mis-selling scandal of huge proportions bubbling under the surface it is the transfer of UK pensions into QROPS by untrained barrow boys and ice cream salesmen recruited...

Robert Parker
Chief Executive
Holborn Assets
Alan Morgan-Moodie, chairman of the Association of International Life Offices, was quoted as saying last year, (with reference to growing disquiet in the QROPS industry):

“I have seen no evidence at all of mis-selling.”

He added: “The adviser is the agent of the client not the insurer. In Europe you are so regulated as an adviser the probability of mis-selling is near impossible. It’s no longer the case of someone shooting around the world with a suitcase. The chance of someone ignorantly entering into some unsuitable Qrops arrangement is highly unlikely.”

My open letter to Alan is this:

Dear Alan, which planet are you on?

If ever there was a mis-selling scandal of huge proportions bubbling under the surface it is the transfer of UK pensions into QROPS by untrained barrow boys and ice cream salesmen recruited and turned in five days into cold calling, script learning, referral demanding, sharp suited direct salesmen who haven’t got a clue what they are doing.

And yes Alan they can sell them in Europe, the UK or anywhere, because a QROPS is a trust and the trust settles the investment and the investment pays the commission and the regulators in Europe have no say in what a Guernsey or Isle of Man trust company does.

Kind regards


The United Arab EmiratesIn the UAE, the situation is far worse than Europe. We recently heard that more than 100 of the 160 plus people globally who transferred into a QROPS that was subsequently struck off HMRC’s list were resident here. In the unregulated UAE anything goes.

Since the introduction of regulation in the UK, pension transfers have been considered an advanced part of the financial planning process. The CII, the PFS and its forerunner the LIA created special qualifications to ensure that advisers were well able to handle the complexities of the market. This required a thorough knowledge of all the old plans - S226, EPPs, S32 Buy Outs, SIPPs, SSASs, COMPs and CIMPs, Final Salary, Pension Clubs et al – it makes the advice process a minefield.

However, for unscrupulous advisers it is a dream market – you are not trying to persuade a customer to invest hard earned cash into a 25 year savings plan. All you are doing is churning old frozen pension money that is languishing away in some dusty unheard of company in the UK, looked after by a bunch of old trustees!

I agree with much of what Sarah Lord wrote in an article in this journal on the 19th November last year. Sarah is a highly qualified adviser working in the Dubai International Financial Centre for Killik and Co.

She wrote that in order for some sort of control to be brought into this vast £500bn plus market: “SIPPs and QROPS providers [must take] more responsibility for the type of business that they accept from the offshore market.”

Self regulation?However, I have to take issue with aspects of Sarah’s argument. Before anyone – trustees or institutions - are given more responsibility, we would first have to ask the question ‘can we trust them?’ and then we would have to ask them whether they want such added responsibility.

I have often put the question, tongue firmly in cheek, to senior executives of our leading insurance companies ‘why don’t you police the market?’

But of course self interest dictates that they don’t want this responsibility. In the UK in the ‘80s we tried self regulation, it didn’t work then and it can’t work now because self interest gets in the way of best advice.

Offshore institutions do not take responsibility for the business they accept; 25 year plans are good for business - after all they generally last only about seven years, by which time the bulk of profit has probably been made.

Recent events have shown that we cannot trust the banks either, so why should we trust a QROPS provider? The majority of QROPS providers are small independent companies. Their size and lack of financial accountability makes them vulnerable to external forces such as weakening their rules or creating questionable products in a rush to grab a share of this huge market. Furthermore, the lack of understanding and the scale and breadth of expertise in this relatively new market has significantly contributed to the misconceptions that prevail around QROPS.

We do not need to look much further than at recent cases of QROPS providers whose scehems have had their status revoked by HMRC, to see the pitfalls.

Singapore was a major case in point where, because the jurisdiction was apparently allowing 100% commutation, HMRC decided that Singapore schemes didn’t qualify as a ROPS – recognised overseas pension scheme.

Holborn Assets recently commissioned a legal viewpoint from a UK lawyer and highly regarded expert on pensions to help us draft our own in house standards.

Among a multitude of other things, the lawyer drew our attention to the other problem in Singapore. This being that though the country has a regulated pensions industry, it is only for government pensions for Singapore residents. Because its regulator didn’t regulate any other type of pension, the non-regulated pensions couldn’t qualify as a ROPS.

A ROPS is the first step to getting QROPS status; it’s effectively done by self-assessment when applying for QROPS status. That’s why HMRC’s website where it shows the list of approved QROPS, now contains the following statement which every adviser should be acquainted with (note the highlight):

This (approved) list is based on information provided to HMRC by these schemes when applying to be a QROPS. As part of its application, the scheme notifies HMRC that it fulfills the requirements for being a “recognised overseas pension scheme”. 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 a 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 recognised overseas pension scheme, any transfer that has been made to that scheme could potentially give rise to an unauthorised payments charge liability for the member (see RPSM14102020).

This is why I part company with Sarah, not only can’t we trust the QROPS providers (or institutions) to police the industry; we can’t necessarily trust that the QROPS provider is going to be around next year.

It isn’t all just Singapore and Hong Kong either. Some of the so called leading providers in the more respected markets of the British Isles and its dependencies are now being questioned – with some controversy currently in the Isle of Man, while the actions of some of Guernsey’s apparently most reputable firms are also questionable in my opinion.

An incestuous industryWe have always been an incestuous industry making self interested decisions behind closed doors, creating committees to protect or increase our market share, hence the reason why self regulation doesn’t work .

One of these committees is dealing with a Guernsey ‘code of conduct’ for QROPS providers. Unfortunately, like all of these types of corporate representations, it will mainly be used by the members to try to protect their corporate position and commercial interests, rather than those of the consumer.

To look at one of the most striking differences between the UK Pension Schemes and the International QROPS we should look at ‘exit fees’. The UK Schemes generally do not have exit fees, or if they do they are very low nominal administration costs. This is because the UK Financial Services Authority (FSA) see this as a key factor in the ‘treating customers fairly’ and therefore include it in the code of conduct.

The FSA and industry understands that the majority of work conducted on transfer is done by the receiving scheme that ‘drives’ the transfer and the transferring scheme therefore has very little to do. In contrast to the UK, some QROPS providers have very high exit fees/penalties, typically a 1% minimum or £2,000 is common.

Alarmingly, it is worth pointing out, en passant, that some advisers are selling QROPS to UK residents and UK domiciled clients who have no intention of leaving the UK thus offering highly unsuitable products to this category of client.

QROPS are taxed on UK source income, at 50% if received direct (rather than via an offshore company). While there may currently be a marginal IHT advantage, that is going soon with the UK pension changes.

Unfortunately, until the marketplace matures and codes of conduct are tightened up on the trustees of QROPS, then certain characters and companies will always see themselves as being above bringing the industry into disrepute and introducers and clients will need to be very careful who they place their business with.

Who then?So if the QROPS providers cannot achieve what Sarah would like to see, then who can?

The answer, of course, at the moment is no one.

Unless the FSA brings rules to bear on all pension trustees in the UK to prevent the transfer out of pension funds to QROPS providers without evidence of suitability reports from UK qualified advisers who stand to be struck off by a relevant professional body if their advice is found wanting .

This is not going to happen soon; hence we are at the start of the biggest mis-selling scandal the offshore market has ever seen.

Financial planning is about putting the right money in the right place at the right time. Further issues advisers should consider include jurisdiction, taxation and compliance.

But as long as we as advisers are client centred in our thinking, with quality fact finding and thorough education standards, backed by quality, meaningful, recognisable qualifications, then at least some expatriates have a chance.

For expert QROPS advice go to or call 01664 444625

UK pensioners in France to pay tax on ‘tax-free’ lump sum

British taxpayers who retire to France will now have to pay income tax on the previously tax-free lump sum element of their pensions, according to law firm Wedlake Bell.

This is expected to cost the typical British pensioner emigrating to Provence, the Dordogne or the Côte d'Azur “tens of thousands of pounds in additional tax”, Wedlake Bell says.

It notes that the new rules, which took effect in January, apply to private pensions or occupational pensions, lump sums generated from deferral of UK state retirement pensions, and Qualifying Recognised Overseas Pension Schemes, or QROPs.

British taxpayers are entitled to take up to 25% of their total pension savings as a tax-free lump sum when they retire, up to a value of £1.8m (reducing to £1.5m from 6 April 2012). Most pensioners opt to take the full 25%.

The change is a result of a provision in the ‘Loi de Finances’, which was passed recently by the French Parliament.

Under the new rules, British expats living in France will now pay French income tax on any private pension lump sum payment worth more than €6,000 (£5,018). The amount that is taxed is after the 10% tax-free allowance for pension income is deducted. The top rate of income tax in France is 41%.

Wedlake Bell urges British taxpayers considering retiring to France to consider taking their lump sum from their pensions “before they arrive in France” to avoid this tax liability.

Explains Emma Loveday, Partner at Wedlake Bell: “Very few British taxpayers who are considering retiring to France will be aware of this change. Many will get a nasty surprise when they take what they think will be a tax-free lump sum payment, only to be presented with a tax bill running into tens of thousands of pounds.

“Anyone looking to retire to France should consider taking the lump sum payment before arriving in France to avoid the tax liability.”

Loveday notes that tax-free lump sum is ordinarily “one of the most attractive benefits of saving for a pension”, and that many pensioners will be particularly reliant on the tax-free lump sum now, with interest rates so low.

“Paying tax on that lump sum could ruin many retirement plans.”

'Always a grey area'Graham Keysell, an adviser with the Spectrum financial advisory group, which advises British expats in France as well as elsewhere in Europe, notes that the question of whether lump sums were liable for tax has "always been a grey area" for expats in France.

"Fortunately, French income tax rates are not particularly onerous for people earning less than €26,000 a year (14%)," he adds. "Alot of our retired clients would fall into this category, since their major income is going to commence after they have have taken their lump sum,that is, when they turn the remainder of their pension pot into a regular pension.

"For someone taking early retirement and having no fixed income as yet, they could draw up to approximately €100,000 in a lump sum, and pay absolutely no tax on this."

Another case, Keysell notes, might be an expat with an initial income of €10,000 a year. "They could receive 25% of a €250,000 'pension pot (€62,500) and would pay €8,750 tax on this.

"Even people earning up to €70,000 only pay 30% tax, so certain of these people might still be tempted to take the cash lump sum. Obviously, each case would need to be looked at on an individual basis."

According to Wedlake Bell, UK Government Service and local government pensions will remain exempt from French income tax for the time being, although it is understood that the French government is considering bringing those pensions into its tax net as well.

More than one million British pensioners live overseas, and France is among their top five destinations.

For expert QROPS advice go to or call 01664 444625

ECJ gender ruling ‘a positive for QROPS’

The ECJ’s recent ruling on sex discrimination in the underwriting of insurance-based products could be positive news for QROPS, according to Close’s Rex Cowley.

The European Court of Justice ruled earlier this week that European insurers can no longer offer policies based on people’s gender, including products such as annuities, where typically men receive a higher income as they are expected to live shorter lives.

However, while many believe this could have a detrimental effect on consumers, as it is expected that women will simply be offered a lower income, rather than men more, Cowley said for QROPS providers operating from countries outside of the EU the ruling could have a positive impact.

“Schemes which are not part of the EU, for example Guernsey domiciled schemes, will not be caught by this European ruling,” he said.

“The advantage of this is that the benefit payable under a QROPS is that the annuity income stream can be tailored to meet the specific individual's set of circumstances. In a world where wealth management is becoming more and more bespoke, tailored benefit payments are desirable, particularly when age, health and gender can all have a bearing on the amount of income one can earn.”

The ECJ ruling, which was made on Tuesday this week, will come into force on 21 December 2012

For expert QROPS advice go to or call 01664 444625

QROPS Advice: QROPS Price War

Close has cut the charges on its offshore bond-linked QROPS proposition to what it believes are the lowest in the marketplace.

The move will be seen as an attempt to gain market share over rivals such as Concept Group, which through a link up with Skandia, had been widely thought to offer the lowest-priced QROPS.

Close has reduced from £1,500 to £750 the establishment charge on QROPS in which the investments are managed via offshore bonds, while the annual charge has been lowered from £1,500 to £1,000.

The company also offers a QROPS with annual administration and establishment charges both of £300. Investment choice is limited to its own multi-asset and multi-manager funds in this option.

Close claimed that, taken together, these charges meant it “offered the best price in the marketplace today.”

It is not simple to verify the claim because not all providers make their charges readily available. However, the new charges compare favourably with those levied by Skandia through its link-up with Concept, in which the establishment and annual administration fees are £995 apiece.

Sovereign – through its Atlantica Lite product – like Close charges £300 each for establishment and administration fees. Atlantica is for investments below £80,000, while Close has a minimum investment of £25,000.

Rex Cowley, head of marketing and products at the international division of Close, said: “Price is an important factor for customers given the drag it places on investment returns and in this respect our proposition offers the best price in the market place today.”

Cowley added that while price was crucial, it was Close’s online capabilities and sophistication in areas such as valuations, as well the technical expertise of its pension division, that set it apart from rivals. He further noted a QROPS examination and formal accreditation was offered to advisers by Close.

It was announced yesterday that Close Offshore Group, of which the QROPS business is a part, is to be sold by its parent company, London-listed Close Brothers Group, to Kleinwort Benson for £29.1m.

Close Offshore Group has operations in Jersey, Guernsey and the Isle of Man.

For expert QROPS advice go to or call 01664 444625

QROPS Advice: Growing price competition in the sector

Skandia International and Concept Group have lowered the charges on their joint QROPS proposition amid growing price competition in the sector.

The change comes in the wake of Close, a leading mass market rival to Concept, reducing its own product fees to what were believed to be – for a few days at least – the cheapest available.

The new charges on the Skandia/Concept Group Aurora Quantum product are a set-up fee of £645 and annual administration charge of £845. Both were previously £995.

Close last week cut its establishment charge to £750 and annual administration fee to £1,000. Combined, this figure is now £260 more than that of the equivalent new Skandia/Concept cost.

Close does, however, offer a product in which the annual and establishment fees are each £300. In this product the investment choices are limited to Close’s own funds.

The tie-up between Skandia and Concept was originally agreed just over a year ago. The new fee structure forms as part of an extension of the contract.

Phil Oxenham, marketing manager at Skandia International, said: “We have seen a tremendous reception for Concept’s Aurora Quantum proposition during its first 12 months in the QROPS market.

“The average number of pension contracts we are seeing transferring into a QROPS is three per customer, which just shows how easy it can be to consolidate retirement planning solutions to make life easier."

Roger Berry, managing director for Concept Group, said: “By refining our new business processes further and forging strong relationships with key UK pension providers, we have been able to identify further efficiencies and are pleased to be able to pass this benefit on to our new customers.”

For expert QROPS advice go to or call 01664 444625

Overseas Pension Transfers

For over 24 years Argent International Financial Services Group has been looking after expats (and soon to be expats) financial interests and advising upon QROPS (Qualified Recognised Overseas Pensions Schemes), which is the ability to transfer UK frozen pensions (including Private and Company Pensions) overseas when emigrating.
Argent provide a free of charge report on the benefits of overseas pension transfers (QROPS) to its clients for all jurisdictions throughout world and work closely with tax experts in many regions to do this.
Just two of the benefits of Overseas Pension Transfers
Don’t take your UK TAX burden with you.
As of April 2011 the UK Government increases Death Duty when you retire to 55%. What this means is once you retire and you have started drawing on your pension via an income drawdown plan, if you were to die the UK government would take 55% of your total pension fund savings as tax.

WHY? The government is trying to recoup the tax relief it has paid on your pension fund. The size of the tax charge simply reflects the generosity of the tax relief paid on your pension in the first place.

THE ANSWER: Transfer your pension into a Qualified Recognised Overseas Pension Scheme (QROPS) and UK Death Duty is removed 100% of the pension fund value is passed onto your spouse/heirs.

Don’t pay tax on your pension fund if you don’t need to.

PAYING TAX ON PENSION LEFT BEHIND The amount of Tax you will pay in retirement will depend on the Country in which you retire. If you leave your Pension in the UK and retire in your new Country of permanent residency you can still take 25% of the fund value tax free and the remaining fund will be subject to tax at your specified rate. THE ANSWER: Transfer your pension overseas into a QROPS and you can in many cases pay lower rates of tax on your pension (Cyprus 5%) and even receive it 100% Tax Free in some Countries including; Australia, New Zealand, Panama, Belize, Malaysia, Philippines, Turkey, Dubai, Abu Dhabi & United Arab Emirates.

For expert QROPS advice on overseas pension transfers go to or call 01664 444625