Why don’t more British expats have a QROPS?

Last week we learnt that some 7,300 people have taken advantage of the QROPS system, which was introduced in 2006. By transferring your fund into a Qualifying Recognised Overseas Pension Scheme, you can escape UK income tax on your pension fund when you leave the UK.

The figures were obtained from the Treasury by AJ Bell, an actuary, under the Freedom of Information Act. Commentators were amazed that nearly half a billion pounds’ worth of assets have so far been moved out of the taxman’s reach in the four years since QROPS were introduced.

However, when you consider that 400,000 Britons left the country in 2008 alone, the figure seems surprisingly low. By definition, anyone who takes the plunge to realise their dream and leave their homeland must have a spirit of adventure, so the reason for the relatively low take up cannot be that expats have an aversion to new concepts.

Historically, fees could have been a barrier. When QROPS were first introduced, providers were charging between 3 and 5% of funds per annum for the service. Some expats were so glad not to have to pay the much larger amount that the taxman would have wanted, that they happily parted with this amount. Others must have decided that the fund managers’ fees were not a price worth paying. Now that there is more competition in the QROPS marketplace, however, fees have come down and there are funds that are available from reputable providers for as little as £500.

No figures have been made available which show how many of those who moved abroad had final salary pension schemes. The guaranteed income that these arrangements offer can be difficult for an overseas (and, to be fair, an alternative domestic) fund to match, even considering the fact that UK tax may continue to be payable when the member moves abroad.

But with some 9 out of 10 final salary pension schemes closed to new members according to the Association of Consulting Actuaries, defined benefit benefits are going the way of the dodo. The near extinction of them in the next few years has to mean an expansion in the number of expats with regular pensions with which QROPS funds can compete on a level playing field. Bearing in mind that HMRC have approved over one thousand QROPS from all over the world, there has to be something for everyone out there.