When it comes to retirement planning, it is difficult to decide what to do with all your UK pensions. You may have several little pension pots, all over the place and all in sterling. The UK currency is not the favoured currency of the moment so the possibility to access local currency may be attractive. There may also be concerns about leaving its value to beneficiaries.
A QROPS seems to be a potential solution and is presently being discussed a lot
In April 2006 the QROPS (Qualifying Recognised Overseas Pension Scheme) was born, the result of EU legislation citing that pensions needed to have portability within the zone.
Advantages include: The possibility of denominating your pension in euros; the ability to leave the value to your family; avoidance of UK inheritance tax.
A QROPS sounds like a great solution – however there are aspects to consider. One main point being that there is a risk that a QROPS may not be viewed as a pension.
In the past our firm tried working with the French fisc to design a suitable product for French residents. In the end we gave up as the fisc took the view that if a QROPS fell outside of the rules that applied to a French PERP in any way, it would not view it as a pension, and merely as a pot of money.
Given that we viewed a Perp as less flexible than a UK Sipp, and QROPS were more open, the process seemed futile.
I queried this logic at the time and I still do. No matter how questionable, though, it is a potential grey area.
The risk of merely not being a pension does not sound too scary. “So, what if I lose the 10% allowance given to pension income”, I hear you say. This is fine if you can live with it but there is more... QROPS are usually in a trust.
If a French resident places money into a trust, which is not perceived as a pension (see the previous point) then there is a bigger issue. French residents placing capital into trusts are viewed as gifting to a non-relative and will be taxed at 60% of the value given (yes, that is correct, six zero percent)!
Other QROPS concerns
Earlier I mentioned the EU and so I also need to talk about Brexit and its impact.
The answer, as is often the case with Brexit, is that no one yet has certainty so we are back to conjecture. The argument is that if the QROPS is in the EU, all should be fine; as long as it is in place before exit day. The fact it is not a certainty could be an area of concern.
Moreover, one has to be careful of the constantly changing landscape of laws and regulations around QROPS. There was a large QROPS in Asia, which was suddenly closed down, as it was declared in breach of the rules by the HMRC, leaving investors high and dry. In fact, the QROPS provider won its case against the HMRC, but this did cause investors significant issues as this was way after the structures closure.
We have seen special penalties applied for certain QROPS of 25% if not appropriately located and even 55% if not structured properly.
All of this uncertainty makes me cautious with QROPS’ use for French residents.
It is suggested that a QROPS is a good springboard to an assurance vie on the basis that if the money is in a QROPS and not a UK pension there are tax advantages. A UK pension being crystallised by a non-UK resident will be subject to an emergency tax of 20% which is not the case with a QROPS.
This is correct however it does not necessarily save any tax because as a non-UK resident, one can easily claim the tax back by the completion of a simple form. In our experience the tax is returned within four weeks.
The cost of setting up the QROPS may be thousands, so you have to ask yourself if there is the possibility you are potentially paying this to avoid filling out an HMRC form and subsequently setting up an assurance vie with the same money.
None of this is to say that QROPS are off the table when talking to people but as comprehensive an understanding as possible is essential. People need all the information available (grey areas included) before they can truly decide.
It is best to have a full understanding of all the options for your pension so research thoroughly and carefully.
There are options where you can have absolute certainty, so perhaps consider these first and take advice from a French qualified professional who understands all the potential consequences of any choices and explains these to you. A QROPS would need to be the best and only option to recommend it.
This column was written by Robert Kent of Kentingtons financial advisers.