If you are looking at this wondering what on earth I am on about, a QROPS is a Qualifying Recognised Overseas Pension Scheme – an overseas pension arrangement into which existing UK pension plans were transferred. A strange acronym but there will be many UAE residents who have one.
If you have one you need to read this article as there may be a better, more suitable, and cheaper option for you.
Many of these QROPS were set up to receive transfers from UK pension plans and often sold, or sometimes mis-sold as a wonder product. It moved pensions out of the UK to an offshore arrangment and while they suited people who didn’t plan to live in the UK again, many people would have been better off transferring to a different type of a UK pension that remained under HMRC rules.
The main difference, apart from the HMRC rules and protection, was how the pension was taxed on taking benefits. Broadly speaking, with a QROPS, pension income is payable gross, whereas most UK pensions are subject to UK income tax at source.
Not quite that simple as the actual tax liability is also dependent on tax residence when proceeds are received. That means that if you are UK tax resident when you receive pension income it will be subject to tax. Having a QROPS becomes essentially pointless as many will also only have a Pension Commencement Lump Sum (PCLS, what used to be called tax-free cash) of 25%, the same as any UK pension arrangement.
The additional issue is one of charges. A QROPS has annual fees that are higher than a SIPP. You may be paying anything from £1,000 to £1,500 a year just for the structure. You may also to have an expensive offshore bond within the QROPS with its own charges.
The rules for QROPS changed a while ago with a huge tax charge on entry so they are no longer sold as some kind of magic solution, but if you have one, it may need a review, doubly so it you are likely to be in the UK or much of Europe in retirement.
Following changes in the options for expats in the UAE in 2020, there is no longer a need to set up pensions in this way and assuming you are not heavily penalised for making changes, it may beneficial to move to a newer and far simpler arrangement with much lower fees.
It is no longer necessary to have a wholly separate pension manager and a separate bond within it. Instead, a simple platform SIPP that complies with HMRC rules may fit the bill and save you money. Most QROPS can be transferred to a SIPP.
Charges are not the only consideration when it comes to your pensions and investments but they do matter. Paying lower charges over 10 or more years can make a difference to the value of your plan.
There will usually be a charge to exit a QROPS but that is soon recouped and I look at all charges and penalties. Theses are fully disclosed in the same way that I disclose all fees and costs for any investments. There are no hidden charges or commissions.
If it is not right for you to make changes, I will tell you that too. As ever, pensions explained in plain English.
If you want ethical advice with full transparency, get in touch to find out more and to see if your pensions could benefit from restructuring and a dose of good advice.
For my existing clients, this change will be recommended as appropriate. The handful of QROPS and all SIPPs that I set up all have reduced charges so this is less relevant.
This article is for UAE residents only. It does not constitute advice
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I write articles such as this one as part of the holistic personal financial planning service and that I provide to expats, and the general consumer, financial and legal information that I provide in The National newspaper, in other media, and on the Facebook group British Expats Dubai.
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This article does not constitute advice. Advice is only given after full information is obtained in all cases and in based on personal circumstances. These pension reviews are for UAE residents only.