QROPS the Best Choice in an Imperfect World

QROPS pensions are a really good option for any expats who are worried about having their pensions compromised by heavy taxation from HM Revenue and Customs.

This is because, unfortunate as it may be, expats in countries such as France, Spain and Portugal, are increasingly finding that they are being penalised for their hard work and sound wealth management decisions; most of this demographic have been financially and professionally diligent for decades only to find that they are now facing punitive-seeming tax penalties regarding pensions.

The reality of this is clear from the figures. For example, statistics recently made available by pension provider AJ Bell show that over the past ten years HM Revenue and Customs has received more than £350 million in tax from just 7,000 pension holders. And the situation is becoming more marked.

For example, in 2006 just 370 pension holders were ensnared by taxes on pensions while last year (2015) this figure had risen by more than 300%, to 1,685. In monetary terms this a leap of just over £4 million to very close to £80 million. If you are an expat with a healthy pension, you could be forgiven for feeling nervous.

But the truth is that expats in the EU with a pension worth less than the £1 million lifetime allowance, such a situation can be avoided by the intelligent use of a Qualifying Recognised Overseas Pension Scheme (QROPS) transfer.

As such, if your pension is approaching the limit, now would be a good time to switch to an offshore QROPS, particularly as the lifetime allowance limit continues to shrink – standing at £1 million today, compared to £1.8 million just a few years ago. This is despite the government’s protestations that the lifetime allowance limit will in future be tied to the rate of inflation.

Of course, there are tax penalties for making a QROPS transfer – but these are likely to pale in comparison when weighed against ongoing onshore tax penalties – and the great news is that once savings are safely secured in a QROPS they are no longer subject to lifetime allowance penalties.

Yes, it is true that in an ideal world the government would not punish hard working people who are prudent savers; it would not impose a limit on how much they can save, but in an overly politicised economic world that is far from fair to those who make the best wealth management decisions, a QROPS transfer represents the best option for high net worth British expats looking for a securer and more confident future.