Following the UK’s decision to leave the EU, advisers are now considering what the implications may be for them and their clients. We are starting to see a number of advisers question the impact this could have on pensions and on tax relief, and more specifically the future of Qrops (Qualifying Recognised Overseas Pension Schemes).
Qrops were first introduced 10 years ago after EU legislation forced the UK to formalise its process of allowing people to transfer their pension to a different jurisdiction. Prior to this change, members had to gain HM Revenue & Customs approval on a case-by-case basis, a process that was complex and potentially lengthy.
Usually the receiving scheme was in the new country of residence and often employer sponsored. The member had to certify the permanency of leaving the UK and provide proof that UK work had ceased and new work overseas had commenced. Generally no pensions in payment could be transferred.
The Qrops market has grown significantly over the years. Qrops benefits include removing growth from future lifetime allowance testing, potentially reduced taxation on death of the member, no requirement to certify permanency of non-UK residency, potentially reduced taxation of income should the member return to the UK, currency flexibility, choice of retirement date and jurisdictional options to take advantage of favourable double taxation treaties.
"It is a real possibility the rules surrounding Qrops may change in the future, and advisers with clients considering transferring to a Qrops should encourage them to take action sooner rather than later."
The future of Qrops is very much dependant on what the UK government decides to do in relation to Article 50, and whether the UK will stay a member of the EEA. Market speculation around whether we will see a ‘closing down sale’ for Qrops is understandable, but it is perhaps more likely some modifications to the existing rules will be made.
For example, HMRC may look to only allow members to transfer their Qrops to a jurisdiction where they live, removing the ability for members to select the most favourable jurisdiction to hold their pension.
Regulations in the frame
The government may also want to preserve the benefits Qrops brings to the pension system in today’s transient market place. Attracting offshore investment and entrepreneurs to the UK, and giving them choice and flexibility when it comes to their pension saving will remain a priority for the government.
The Brexit vote may well encourage advisers and their clients to focus on their financial planning needs and, if a Qrops is suitable, it would make sense not to postpone this decision. Once a member holds their pension inside a Qrops it is hard to see how HMRC can make any retrospective changes and, should client circumstances change, it is likely that a transfer back to a UK scheme would remain an option.
So what does this all mean? Qrops will still have a valuable role to play in helping bring flexibility and choice to the UK pension industry, especially in today’s transient market place. However, it is a real possibility the rules surrounding Qrops may change in the future, and advisers with clients considering transferring to a Qrops should encourage them to take action sooner rather than later to ensure they benefit from the current legislation.