Originally published in the International Adviser, QROPS Supplement, September 2011
Darren Gibbs, Head of Pensions at Marlborough Trusts says that QROPS are by far the most visible international pension products but other solutions, such as Section 615 Plans and the International Pension Plan, are available. But what are the advantages of these alternative pension products?
The ubiquitous QROPS is, for many, the international pension product. But while there is no denying that QROPS are a fantastic and flexible product (and in the best interests of many expats), what of the other types of offshore pension provision?
What about the client lucky enough to have a fully funded pension? True, a QROPS can take contributions with no ceiling, but what about the limited investment choices? I get asked on a weekly basis if a client can purchase a buy-to-let portfolio (and fine wine seems to be a popular choice at the moment).
But owing to the taxable property provisions that affect investment regulated QROPS, these cannot be placed into a QROPS – and if any QROPS provider claims to offer a noninvestment regulated scheme, make sure you demand independent proof because I am yet to see a scheme that would hold up to scrutiny.
Enter the new(er) kid on the block – QNUPS. I am not going to go into too much detail here on the key features of each of these products. I assume that if you are reading this supplement you will have at least a basic understanding of QROPS, and in simple terms a QNUPS is just a QROPS without the taxable property restrictions. Clearly there are greater idiosyncrasies, but the space available here will not allow me to delve too far into the details.
So a QNUPS could be the obvious choice for a client with more diverse investment needs – they will still benefit from tax-free roll up and IHT protection, but with the added benefit of virtually no investment restrictions. But are there any drawbacks to a QNUPS?
The obvious concern is the fact that they are based on UK legislation, and as we know all too well, HMRC likes to tinker. Bear in mind though that a QNUPS will largely only be attractive to a UK-domiciled individual.
So if you have looked at QROPS and QNUPS and they still do not quite tick all the boxes, how about an International Pension Plan (IPP)?
Unlike their offshore cousins mentioned above, IPPs are nothing new, and I am sure that most of you will have used them in the past. However, IPPs seem to have fallen out of favour since the Q-denominated bully boys of the acronym world came about – any of you that have seen my blogs or read previous articles will know that I have a bit of a hate-hate relationship with acronyms, but try as I might, I just cannot escape them.
For the truly mobile individual, there are few better products around than IPPs. We write all of our business from Guernsey, which is a tax neutral jurisdiction.
This, coupled with some of the most simple pensions legislation anywhere in the world, can provide mobile clients with the comfort that not only do they have a tax neutral pension product, there is also much less chance of an overly officious government looking to change the rules at the drop of a hat.
IPPs can be very flexible and are suitable both for individuals and as group schemes, which leads us on nicely to the next product in the armoury, Section 615 Plans.
Again, Section 615 Pension Plans are nothing new, and the snappy title draws its imaginative name from Section 615 (6) of the 1988 Income Tax Act. Despite their provenance, 615 Plans are still unheard of to a lot of people.
The basic premise is that a UK employer with an international workforce needs to be able to provide benefits in a secure and tested manner. By utilising a 615 plan, the non-resident member can sacrifice very reasonable levels of salary into the plan without deduction of UK tax, and thus reduce the amount of income they become taxed on in their current jurisdiction.
Unfortunately, once again the revenue decided they were due for review. Until the disguised remuneration provisions came out last December, it was possible to receive the entirety of the contributions back in the UK tax-free. There was a very simple justification for this – protectionism. The UK Government did not want UK money going to fund other countries' coffers, so it offered the tax break to encourage the members of 615 Plans to spend their contributions back in the UK.
Advantages of QROPS
Alas, the powers that be decided that was far too generous in these times of austerity, and brought the benefits back under the UK tax net. Despite this, 615 Plans are still great for the right people and should always be considered along with group IPPs for corporate clients.
With all of the above in mind I could forgive the reader for thinking that I might in some way be adverse to QROPS. Nothing could be further from the truth, and in fact they are the bread and butter of Marlborough's business. We have an extensive and colourful client base and there are never two clients the same.
The brilliance of QROPS is their almost universal appeal to expats with UK cited pensions. The diversity of our client base for QROPS never fails to amaze me. We have individuals from every walk of life, from chimney sweeps to art dealers, and I can guarantee that every day will bring a new individual with a new life story that is looking to maximise their hard earned capital.
I get rather protective about QROPS and it annoys me that so much of the press written about them is negative, whether that be sensationalist headlines about the next mis-selling scandal or rival product providers bickering about who has read the most legislation.
The simple truth is that QROPS are a great product but, like all financial services, are open to abuse – and with the complexity of the legislation, there will undoubtedly be conflicting views on interpretation.
It is about time advisers and providers accepted that the market place is so enormous that we could not possibly deal with it all on an individual basis.
Whichever product you consider to meet your clients' needs, the single most important thing to remember is that the client is king. There is a very basic principle of trust law that states a provider should manage their clients' interests 'as a father would for his family'.
We all have a duty of care to provide the best levels of service for our clients. Without them we would all be unemployed. So squabbling over who knows the most, has the cheapest fees, or has managed to 'bend' a few more rules is an exercise in futility.
Apart from anything else, we all sleep better knowing we have done a good job.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.