Threatening Headlines Not Dampening Appeal of QROPS for Britons Seeking Pension Tax Shelter

A recent headline in The Sunday Times read: ‘Offshore pensions: are they in line for next crackdown?’  A headline surely suggesting that such pension schemes are on a par with the secret offshore bank accounts used by those whom HMRC have recently targeted with their ‘crackdown’ on offshore tax evasion.  Such a threatening headline is not however dampening the appeal of QROPS, (so-called ‘offshore pensions’), for Britons seeking a pension tax shelter.

Dig just a few lines deeper than what is simply a scandalous headline anyway, and you’ll realise that the article isn’t really even about Qualifying Recognised Overseas Pension Schemes, it’s more to do with how hard the current government taxes pension income in Britain…therefore surely supporting why anyone would seek to avoid this excessive rate of tax if they possibly can in the first place!

The truth is that QROPS are excellent vehicles for SOME people to legitimately take their pension out of the UK and potentially save tax on how they then draw down that pension when they come to retirement.  However, not everyone can benefit, not everyone should even consider QROPS, and when headlines such as these lead articles about offshore pension schemes and their benefits, poor journalism will likely put off those who can benefit from even exploring their options.  Which is surely a particularly negative thing to do - isn’t it Sunday Times journalist John Greenwood?

But hey, let’s not get into an argument here – after all, as I mentioned, aside from the dodgy headline for the piece in the ST, the content of the article can be used as fantastic fodder for those seriously thinking about whether a move into QROPS is right for them.  For example, the journalist points out that anyone who reaches the age of 75 in Britain and who has failed to take ‘advantage’ of an annuity with their British pension at that point is forced to move their money into an ‘alternatively secured pension.’  This is true currently, and did you know that anything left in that scheme when the policyholder dies is taxed by the current government at a disgusting and unforgivable rate of 82%?

No QROPS would ever be domiciled in a country where that were the case! 

Of course, there is a slightly more tax efficient way of getting your hands on the actual money in your pension pot when you retire in the UK, you can take 24.9% of your fund out in cash each year – however, then you’re still taxed at a rate of 55%!  So you can perhaps see why anyone would like to explore their own eligibility for a Qualifying Recognised Overseas Pension Scheme which could not only grow in a tax efficient manner and be invested in all sorts of interesting underlying assets such as residential property, but which could allow the policy holder to avoid, if not all tax on income, then a hefty percentage!  For example, a pensioner taking their income from a QROPS in Cyprus at the moment may only be subject to 5% tax on that income…

What’s more, QROPS are HMRC backed – that’s right, the British government has put their seal of approval on them and actually did so back in 2006.  Since then, apparently £432 million has moved from onshore British pensions into their new offshore equivalents…but whilst that headline sum sounds impressively exciting, the truth is that this is the total assets of just over 7,000 people.  I.e., not that many people have actually found that they can benefit from moving their pension offshore.  More likely to benefit are expatriates who are living, working and ready to invest abroad…and of those in the UK who might benefit are potentially only those planning on retiring overseas anyway.

The complexity of QROPS and whether someone should transfer in or not means that anyone qualified to give advice about these schemes has to have undergone some pretty serious training!  Do not trust just anyone to advise you about your wealth in retirement – if you’re wondering whether you should move your onshore pot into an offshore scheme, you’re planning on retiring abroad or you’re already living and working abroad and looking to start a pension, get best advice from someone qualified to give it!

It’s your wealth status, don’t take any unnecessary risks!