Taking a detailed look at the benefits and disadvantages of offshore pension schemes for expats called QROPS

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If you’re an expatriate living and planning to retire abroad, an offshore pension scheme could make a lot more sense to you than an onshore pension pot upon which you may not even receive any tax benefits and advantages.

The British government has even made it simpler for Britons living abroad and those planning an overseas retirement to take any existing pensions offshore and/or start a brand new pension saving scheme through their backing of QROPS (qualified recognised overseas pension schemes). These schemes are hugely flexible, potentially extremely tax advantageous, and yet they are not suitable for everyone.

In this report we’re going to be looking at the pros and cons of QROPS and offshore pensions because some people have never even heard of these solutions, and those who have may only have been made aware of their advantages by an over excitable financial adviser trying to sell a policy!

The Pros and Benefits of QROPS

QROPS potentially allow someone retiring abroad or planning to live and work abroad permanently or for the long-term with an excellent tax effective tool for enhancing retirement benefits. If you’re working abroad and are wondering about losing pension tax relief because you’re no longer a UK tax resident, with an offshore pension depending on where you’re living, paying tax, where your QROPS is domiciled and even where you plan on retiring, you could overcome this issue.

A further advantage is that you do not have to invest your QROPS benefits into an annuity before the age of 75 years of age or face up to an 82% tax penalty charge on the value of your pension fund as UK residents currently do. Naturally this is one of the key reasons why QROPS are particularly pretty to those living, working and planning to retire abroad.

With an onshore pension that has to be invested in an annuity, your pension effectively dies with you – however, QROPS benefits can be willed to an individual’s heirs as part of their overall estate.

You can potentially escape from the scrutiny of the British government after an investment period of 5 years with QROPS too, which is something that appeals to those who move abroad and resent the fact that their old home nation still wants the right to have an interest in what they now do and how they live their lives, where they work and how they invest their money.

The underlying assets and commodities that an individual can invest in through QROPS or via their final pension fund upon retirement is very broad indeed, and can potentially accommodate anyone’s risk profile.

There are many QROPS providers and specific schemes available in many jurisdictions worldwide – providing an expatriate with maximum choice and flexibility.

The Cons and Disadvantages of QROPS Offshore Pensions

The number one disadvantage is that QROPS are not suitable for everyone – you have to take very careful, specialist and personalised advice about whether such a scheme is suitable for you. Your suitability will depend on whether you have an onshore pension scheme that you want to take offshore and how large that scheme already is. Your suitability will also depend on whether there is any possibility that you will want to return to the UK or move to a high taxation nation upon retirement. An adviser will need to assess you completely and holistically before they recommend an offshore pension plan and approach to you. So you need to make sure you seek good advice before you proceed.

It can be hard to get such specialist advice if you’re onshore in the UK; and even if you’re living abroad you need to ensure any adviser you speak to has specialist knowledge of these specific and relatively new products.

QROPS are famous for being expensive, the set up and ongoing management charges can be overwhelming for some people. You have to balance out the short-term costs versus the potential long-term gains, and some schemes are more cost effective than others – a certain amount of consideration has to go into how the underlying funds are managed and invested.

One needs to think about the safety of the underlying fund provider – and the jurisdiction in which funds will be invested. Additionally one needs to think carefully and long-term about the tax regime an individual may retire to, as this will have a direct bearing on the tax efficiency of the final retirement income benefits.

In conclusion, the plans may be suitable for those who are planning on living, working and/or retiring abroad, and they can be very tax effective and flexible. However, one needs to think long-term when it comes to the benefits especially when considering the short-term erosion effects of charges applied to a given scheme. It is imperative an individual seeks personalised financial advice with regard to QROPS and offshore pensions.

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