Update on QROPS

[David]

I have made a search on QROPS on this site, but all postings seem to have been outdated by recent government changes.

We are shortly reaching retirement age, and are considering taking QROPS, rather than a UK annuity.

We have been in touch with financial advisors who advertise in the internet Daily Telegraph and who recommend QROPS, but we wonder if there are any disadvantages for French tax residents taking QROPS with UK private pensions?

In general we do not really understand QROPS, or the disadvantages, so we would welcome any comments, or examples of practical experience.

Many thanks,

David

[AnOther]

By 'recent government changes' do you mean the removing of the requirement to buy an annuity in UK ?

QROPS are actually quite simple but one of the important things to note is that, in broad terms, they are not really recommended for funds of much under about £150k as with the fees for setting them up and ongoing charges you need a certain size of fund to both pay these and generate a profit as well. Also they generally take the form of a SIPP which by definition is a 'hands on' instrument which means you need to be at least reasonably proactive in managing the investments.

If you choose one in Euros then it will have the advantage of protecting you from currency fluctuations, you could always change it to another currency such as sterling for instance if you later decided to return to the UK.

Unfortunately therein lies a potential disadvantage too because if sterling did recover significantly over the Euro you would stand to lose out and more than wipe out any Euro gains you might have made, it's a gamble you have to understand and accept although wisdom dictates that you should not commit your entire retirement resources to one product.

Regardless it's a potentially life changing decision for which you need professional advice from somebody who is fully conversant with the pros and cons on both sides of the channel so take care with your Daily Telegraph advertisers.

[frexpt]

I retired from my IFA practice a couple of years ago and am a little out of touch with the relatively fast-moving changes that have occurred with UK pension schemes.  With all due respect to the contributors to this Forum who provide excellent guidance on many matters, I would certainly second the advice given above and urge you to take advice from an independent firm in the UK and also one that understands the implications for residents in France.  As mentioned above, beware the glossy firms advertising in the "quality press". 

Try the following link here

[Mikep]

Please do your sums very carefully, and work out what extra it will cost you over (possibly) 25 to 30 years. An extra 1% per year doesn't sound much until you do that. I have a normal SIPP (not QROPS) which provides most of the advantages at very little cost (all upfront and fixed, no annual percentage).

Also try to find out what happens if you return to the UK at some point in the future. I've tried and failed - that just increases my natural suspicion. I may be paranoid, but that doesn't mean they're not after my money!

[David]

AnOther,

Thank you for your reply.  Yes, I do mean the removal of the requirement to buy an annuity, but I also refer to the recent European sexual equality in insurance which will mean a reduction in pension annuities for men, and to the French taxing of pension lump sums.  All of which seem to favour looking seriously at QROPS.

We then have to consider the French tax implications of both annuities and QROPS.  I am not sure what effect the removal of the requirement to buy an annuity would have on us, I must ask my UK pension advisor why he is only recommending annuities to us.  Unfortunately he does not act in the QROPS field, being UK only.

I note the £150k investment level for QROPS, but we would be a little above that.  We have paid into pension schemes all our life in the expectation of a reasonable pension.  However, after the Gordon Brown pension theft, the lack of any change by the present government, the generally poorly performing pension market, and the low levels of annuities, we started looking at QROPS.  One of the major considerations is that the fund can be left to our children, rather than being lost as an annuity would be when we die.

We would keep the QROPS in sterling for the moment, and use a management company to advise us.

We are still very confused, and have made no decisions, but thank you for your kind help.  Any further suggestions or advice would be very welcome.

David

[David]

Frexpt,

Thank you for your response.  Both you and AnOther very sensibly caution me about the advisors advertising in the Telegraph, and I have taken your advice to heart.

I have checked your link, but I could find no advisors specialising in QROPS.

I have been in touch with Abbey Financial Solutions, who were the Telegraph advertisers, and who strongly recommend me to convert to QROPS.  I must admit their arguments were persuasive, but they said they needed a letter of authority to approach my pension fund holders before they could act further.  Being naturally suspicious I have not yet provided this.

I have googled them and I cannot find whether they themselves are subject to financial regulation, although they are based in Spain.  They are, however, associated with a company in Cyprus who have been in trouble with the Cyprus authorities for selling products they were not licenced to sell, and who were subject to a Panorama investigation last year for excessive fees.  Thus, thanks to your warnings I am reluctant to proceed with Abbey.  I must emphasise that I have found nothing detrimental to Abbey themselves on the internet, only glowing endorsements.

I now have to find a QROPS provider who I am happy with.

Thanks for your help,

David

[David]

Mikep,

Thanks for your helpful post.

As we are retiring, I doubt that we will last another 25 to 30 years, but point taken.  Management fees are very much uppermost in our minds as we were rather badly burnt during the UK bank mis-selling of pensions scandal.  Being self employed, we trusted the bank who had the honour of holding our overdrafts, and felt bound to them.  They took us out of sound pension schemes and put us into poor schemes with excessive management fees and commissions to the bank.  We then had to approach a financial advisor to try to salvage what could be saved.  Eventually the bank did compensate us, but we feel that it was a pittance compared to what we lost.

I am rather financially illiterate, and thus am trying to find an honest financial advisor for QROPS, if such a being exists!

We were told that after 5 years as an expat, the QROPS are considered by UK tax to be honestly due to expats, and thus it is possible to return to UK without penalty.  The key is that the QROPS holder must have clearly been tax registered outside the UK for at least 5 continuous UK tax years before returning to the UK.  I presume this is to stop retirees going to france for a few months or a year, taking out a QROPS, and then returning to UK.

Many thanks for your kind post,

David

[AnOther]

A QROPS will not necessarily moderate the effects of the equality ruling or the the lump sum taxation issue.

Regarding the latter as I see it there are 3 ways to avoid this, possibly 4

1. Don't take a lump sum.

2. Take it before you move.

3. If you take it after you move just take €6000 (or sterling equivalent) to stay below the tax threshold.

or

4. Take it and say nothing. This might have been an option before the law was passed to tax them but not advisable now.

The equality ruling is definitely going to affect annuity rates but because you no longer have to buy one for a given sum you will be able to draw down roughly the same amount from an annuity or a QROPS so either route should have no real effect on potential income, and BTW both will be limited to the 100% of the GAD rate from April 2011 (down from 120%).

You can calculate the maximum annual draw down here : http://www.invidion.co.uk/pension_fund_withdrawal_calculator.php

A further point to consider, although this is still all a bit vague, depending on how you draw on a QROPS it may be treated as a pension income or purchased annuity income both of which may be treated differently for tax. The purchased annuity would normally be the more favourable however if your lump sum is taxed as pension income, as it probably will, it will be difficult to argue that future income from the same source is classified similarly. There is an article in the March edition of The French Paper which you might find interesting.

The request for authorisation to contact your existing providers is perfectly normal and necessary. To advise you accurately they need to know not only the transfer values but also any MVA's (market value adjustments) applicable, and indeed if the trustees even allow a transfer at all. Signing an authorisation commits you to nothing.

I'd be extremely cautious of UK advisers who are not specifically and intimately familiar with current French tax laws and I would suggest you'd be better off talking to the likes of Siddals, Blevin Franks, or The Spectrum Group, all of whom are English companies specialising in French finance.

[Mikep]

Don't be too pessimistic, David! I'm 66, and according to the UK Government actuary, I'm likely to live another 21.1 years. Don't want the money to run out before then!

I still think that if you return to UK you will go back into the old rules, i.e. heavy tax if your children inherit your pension funds after you were UK resident. However, the taxation of pensions seems to be becoming (very) gradually fairer, so the situation might improve over the next few years. You can always leave the pension funds to charity without any tax to pay.

I don't think there is any need to proceed in a rush with QROPS - you can't change until you've been out of the UK for five years anyway.

On a more positive note, your pension income is treated very gently in France as you are (currently) not liable for socialist charges - my marginal rate on pension income is still only 14%, whereas bank interest is at 14% income tax plus 12.5% social charges.

[David]

AnOther,

Firstly apologies for the delay in replying but we were busy yesterday.

I must thank you for a wonderful reply, which must have taken ages.  This to me represents all that is best in this forum where people spend lots of their time, and go out of their way to assist total strangers.  Thank yuo very much indeed for your very informative post.  I am sure that other readers of this forum will benefit from your knowledge as well as me.

I must now cogitate and digest, and try to understand all that you have said.  In my own case I have already decided not to take any lump sums.  I am now trying to understand the difference between draw down, annuities, and QROPS, but from your post QROPS seem less attractive.  I will also have to find out what the GAD rate is.

I am also researching French tax and my wife has found the newspaper article to which you refer, but which I have yet to read.

I also take your point about UK advisors who are not familiar with French tax laws.

I have decided not to proceed with the Spanish people based really on a gut feeling after a one hour long sales telephone call from them despite my specific request for no phone calls and everything to be in writing.

Thank you again for your excellent post,

David

[David]

Mikep,

Thank you also for your excellent post.  Please also accept the congratulatory remarks I made in my reply to AnOther.

I think that I must consider the QROPS matter in a bit of a rush, as I am 65 in July, and at that time my UK financial advisor tells me that I must decide whether to take an annuity, which he recommends, or not in order to provide income to sustain us.  As I understand it once I take an annuity I am stuck with it.  I also qualify for QROPS as I have now been tax resident in France for seven years.  I also have to consider leaving my wife in the best position possible if I pop my clogs before her, as is most probable - I am not in great health.

I must also consider the French tax implications you raise, and we also have a vague thought of returning to UK in the future to be closer to our grandchildren.

With the thought that my children might be subject to heavy UK tax if they inherit my pension funds, bad as that is, would it not be better than inheriting nothing with the annuity system?  I have thought about leaving the money to charity, but I have already left significant money to UK Merchant Navy charities who now seem to have very little to spend the money on with the demise of the UK fleet.

That being said, with the current financial problems and excessive tax regimes in both countries, we are now thinking of assuming that we have another ten years to enjoy ourselves and thus blow the lot, then go back to UK and live off benefits, a system which the UK government seem to prefer.  Just joking - I think.

Time to cogitate and digest methinks.  And I thought retiring would be easy!

Thanks again,

David

 

[AnOther]

[quote user="Mikep"]I don't think there is any need to proceed in a rush with QROPS - you can't change until you've been out of the UK for five years anyway.[/quote]If by that you mean that you cannot start a QROPS until you have been out of UK for 5 years then that is completely untrue, the only qualification is that you be non UK resident.

Also, after the 5 year reporting period the money in a QROPS becomes subject to the tax rules of the territory in which it is established and their rules may allow a tax free 100% cash payment to your heirs which HMRC cannot touch.

And just when you thought you were getting a handle on QROPS - along come QNUPS [blink]

http://expatpensions.eu/latestpressrelease.aspx

[Mikep]

Good luck, David, from your note you're going through all the right thought processes.

If it's any help, I moved my various personal pensions to Alliance Trust and they manage my SIPP for me. The funds are invested in UK Investment trusts (of my choice) because the total annual management costs are 0.5% or less, (way below Unit Trusts or Insurance funds) with no commission to pay apart from 0.5% stamp duty. Alliance Trust add a small fixed amount (I think £125 per year per SIPP) to handle the paperwork, plus small amounts for reviews and payments. Their costs are all well covered by the dividends on the investments, any surpluses are automatically re-invested.

I find that the most useful feature is the "volume control" on income - if I need more (up to the government limit) I simply ask them to pay it. However, I found I was getting a substantial discount on my Taxe d'Habitation of 894 euros provided our annual income was below a ceiling of 32,920 euros. I've just started receiving state pensions from the UK and Belgium and a small company pension, so it's been very useful to be able to adjust the SIPP income downwards to stay within the discount limit.

I intend at age 75 to continue with the SIPP and ignore the annuity option. There are UK government limits on the annual income, but if you actually do the sums, the limits are not too unreasonable as they are based on annuity rates for a 75 year-old. If I die, my wife simply takes over the whole fund, not 50% as with a company pension. If the rules haven't changed by then, the kids will get the 35% remaining after UK tax. Alternatively, she can always opt to take an annuity or cash (less tax) at that point.

I have no connection with Alliance Trust apart from as a satisfied customer. I moved to them from Winterthur because they (Alliance) charge small fixed sums rather than a percentage of fund value - this may or may not suit you depending on the size of your pension funds.

I consider current annuity rates to be daylight robbery. By being self-invested, I feel that I've got a form of inflation cover (shares tend to rise with inflation over time) and 100% spouse cover at no cost. However, I take the investment risk - if it goes wrong, there's nobody else to complain to.

I've just completed a fifteen-year analysis of how it's working. Following ten years of dismal stock market performance my total pension funds are worth 4% less than they were in 1996 - however, in the meantime I've drawn 61% of the original sum in income, so the investment growth has pretty much covered my income. Although annuity rates have deteriorated, I feel that I should get a better deal now (at age 66) or in the future (age 75) than I would have done at age 52.

Please be clear - I'm absolutely NOT recommending that you do the same - it's up to you to think it through and make your own decisions.

As I said, good luck!

[David]

AnOther,

Thanks for the clarification about the 5 year limit for QROPS.  I confess that I had misunderstood it to mean that the person had been out of the UK for 5 years, and that the QROPS became immediately flexible.  The fact that the QROPS must be 5 years old before leaving UK regulation seems to detract somewhat from the usefulness of QROPS to me.

Thank you also - I think - for bringing up QNUPS!  As you say, I thought I was getting a handle on QROPS, SIPPS and drawdown, and now I see how much more I do not know.

It just brings home the need for expert advice.  Perhaps Siddalls?

Many thanks,

David

[David]

Mikep,

Many thanks for your very helpful post, and thank you indeed for taking the trouble to explain your system.

I have been on a steep learning curve about SIPPS, drawdown, wrappers, QROPS etc., and until AnOther came up with QNUPS, I thought I was doing well!  Even so I had not come across Alliance Trust.

I have come to think that a system on virtually the same lines as your system with Alliance Trust would be good for me, but with using a management firm to select and manage the investments as I would not feel confident in doing this myself.  I have had a quick look at the Alliance Trust web site, and it seems to be very much a hands on approach by the investor.  Great for a financially knowledgeable person, but rather daunting for those less financially able.

You also raise French Taxe d'Habitation issues, and UK inheritance issues, both very important.  I must say that the QNUPS site raised inheritance questions that I was not aware of.

I am now trying to digest all the extremely useful info that you and AnOther have given me, and then I think I will have to seek expert advice.  At least I have quite a few questions and suggestions now, and some understanding of what was a closed book to me.

I see that this thread now has 340 views, so I think that you have both been helping quite a few other people as well!

Thank you again,

David

 

[Benjamin]

as I am 65 in July, and at that time my UK financial advisor tells me

that I must decide whether to take an annuity, which he recommends, or

not in order to provide income to sustain

Difficult decisions? The above extract from one of your postings on 07/03 bothers me greatly if it was said in the context in which it comes over.

My question to your F A would be "why?", except for his commission.      [6]

From everything I've read so far, and I have no qualifications to advise, the drawdown route appears to give you the flexibility that you require and as a "user" myself I can highly recommend it's flexibility with today's annuity rates.

Best of luck. 

[David]

Benjamin,

Thanks to the very kind and helpful people on this thread, now that I have learnt much more about financial planning for retirement, I have the same thoughts as you.

Even in a UK context only, as he is a UK advisor, I wonder why he has not considered drawdown, sipps, etc. and simply recommended annuities.

To give him the benefit of the doubt, when we discussed this last year with him we knew nothing about retirement planning and told him that we wanted to be ultra safe in our investments, and that we needed an income from the date of my 65th birthday.

I am now going to seek the assistance of an expert company such as Siddalls, and thanks to this thread I have some knowledge, questions and ideas to enable me to discuss matters with them.  I just wonder how expensive they are, and whether they are worth their fees and commissions.

As you so perceptively say, I do think that some form of drawdown system would be best for me.  I just have to establish the system and method with regard to UK and French tax regimes.

Many thanks,

David

[Mikep]

Hi David,

I've sent you a PM (private message).