Qualifying Recognised Overseas Pension Schemes (QROPS) may become one of the Brexit casualties if negotiators axe Britain’s adherence to Europe’s freedom of movement and capital rules.
The rules are two pillars of the European Union and are at risk in the forthcoming Brexit talks.
The British government has made clear that securing national borders and control over immigration is a principle that takes priority over joining the single market.
That could be a death knell for QROPS and a spur for expats making the financial decision to transfer out of a UK pension scheme sooner rather than later.
So far, pension professionals have assumed QROPS are unlikely to face any major changes during the Brexit talks as they are international rather than a European product.
Two sets of rules
But QROPS came into being to allow expats easier access to their cash as they moved around the EU.
Then they were adopted by financial centres outside of Europe.
HM Revenue and Customs (HMRC) has long eyed tightening up the rules that govern QROPS and this may be the chance mandarins want to make offshore pensions less attractive.
QROPS have two sets of rules – one for the EU and one for the rest of the world.
In the EU, for instance, Malta, a fellow EU state, can apply pension freedoms in the same way as the UK.
Outside the EU, QROPS providers are forbidden from offering pension freedoms and have to keep 70% of a transferred fund to pay a pension to a retirement saver.
As a result of this rule, QROPS can pay up to 30% of the entire fund tax free compared to 25% in the UK.
Scrapping the EU freedom of movement and capital rules does away with the need for a QROPS for the UK, along with the financial, tax and investment incentives that are encouraging so many expats to switch their money offshore.
More than 40 financial centres offer at least 1,250 QROPS worldwide.
Expats who want to take advantage the opportunities offered by a QROPS offshore pension may have a limited time to switch their savings before the Brexit countdown starts when Prime Minister Theresa May presses the Article 50 button.