For over a decade now - since 2006 - individuals have been able to transfer their UK pension savings to a Qualifying Recognised Overseas Pension Scheme (Qrops). A Qrops is a pension scheme based outside of the UK that must meet certain conditions laid down by HMRC. If the conditions are not met, the person transferring their pension benefits risks a UK tax charge of 55%.
For people who have emigrated from the UK, there are many advantages to transferring to a Qrops, including the possibility of mitigating currency risk. Additionally, as successive governments have changed the UK pension rules - resulting in it being more difficult for people to reach their long-term planned goals - moving pension savings out of the UK appeals to those who wish to take control of their pension.
Sadly, there are unscrupulous people around and innocent pension savers have been duped into transferring their pensions into unregulated pension schemes or other unsuitable investments, commonly known as pension scams.
Despite the best efforts of HMRC and consumer advice organisations warning about such scams, tragic stories of people losing all their pension savings are still being reported. Since the introduction of the UK pension flexibility rules, which allow people to fully cash-in their pension funds, the number of pension scams has also increased.
Typically, ‘promises’ of getting access to the pension fund before age 55, which would result in a UK tax charge of 55% for the member, or ‘guarantees’ of high investment returns without risk, are common. However, if these are offered, an instant alarm bell should ring! If you were cold called with these offers, the alarm bell should be even louder.
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As yourself how well do you know the person or firm offering advice? Have you met the adviser or is everything being done at a distance, by telephone, email, etc?
Where is the adviser located? How is the adviser or firm regulated? In the event of you receiving bad advice, which regulator do you go to for redress?
Following some simple steps can help avoid you being the victim of a pension scam. At the first meeting, a properly regulated financial adviser will:
- Give you their business card, which should include details of the authority that regulates the adviser
- Carry out a fact-find of your complete financial situation and objectives, not just as relates to your pension
What is more a good adviser will:
- Carry out a full transfer analysis of the pension you are considering transferring, comparing this to the pension scheme being offered (obligatory if you are transferring a defined benefit pension or have other protected rights). A written report of the recommendation being made should be given to you.
- Meet with you to discuss the recommendation and ensure that you understand all costs associated with this, as well as the risks of the funds in which your pension is to be invested.
Only when you are happy that you understand everything, should you make the decision as to whether or not to proceed with the pension transfer. If you do transfer, you should expect to have on-going review of your pension with the adviser.
For peace of mind if moving money into a Qrops and you live in France it is advisable to use a financial adviser who is French-regulated. Firms would usually be designated as a CIF (conseiller en investissement financier - financial advisor) regulated by a professional association accredited by the Autorité des Marchés Financiers (AMF).
The firm could also typically be designated as a courtier d'assurance (COA) by ACPR, which relates to the ability to carry out insurance brokerage activities (for example, if the money being transferred to the Qrops is to be invested in an insurance product) and so would be listed on the database at orias.fr
Please also note that as of March 9, 2017 the UK brought in a new 25% Overseas Transfer Charge (OTC), which may apply to transfers to a Qrops, unless:
- The Qrops is in the European Economic Area (EEA) and the pension holder is also resident in the EEA or
- The Qrops and pension holder are in the same country or
- The Qrops is an employer-sponsored occupational pension scheme, overseas public service pension scheme or a pension scheme established by an international organisation (eg. the UN or the EU) and the member is an employee of the body whose pension scheme it is.
It is also intended that the above provisions will apply to transfers from one Qrops (or former Qrops) to another, if this is within five full tax years from the date of the original transfer of benefits from the UK pension scheme to the first Qrops arrangement.
As a result of this, do watch out for potential related problems such as, for example, if you live in France and someone suggests moving your savings into a scheme outside the EEA.
Article compiled with input from Daphne Foulkes of Spectrum IFA