Precious retirement: why UAE expats are moving their pensions out of the UK

Published December 8th, 2014 - 04:55 GMT
A growing number of expatriates of all nationalities based in the UAE are moving their British pensions out of the UK.
A growing number of expatriates of all nationalities based in the UAE are moving their British pensions out of the UK.

A growing number of expatriates of all nationalities based in the UAE are moving their British pensions out of the UK.

DeVere Group, which has 80,000 clients worldwide in 100 countries, has reported that in the UAE alone the number of pension transfers completed to the year ending October 2014 has increased by 31 per cent.

So why are many more expats who have British pensions still in the UK looking to take their retirement funds offshore?

To my mind it primarily comes down to a growing financial literacy. People are more financially-savvy than they ever have been and with this they are becoming increasingly aware of the serious consequences of the burgeoning UK pensions crisis.

Britain’s private sector defined benefit pension scheme deficits hit £170.6 billion in August, according to research carried out by Reuters — and this is a figure that continues to rise. Indeed, it has more than doubled over the last year. 

Many individuals are, quite rightly, concerned that by leaving pensions in the UK they could reach retirement age and be in for a nasty shock, by not having access to the funds that they have diligently been putting aside throughout heir working lives due to these spiralling deficits.

One way expatriates can mitigate the adverse effects of a pension scheme’s deficit would be to transfer into an HMRC-recognised QROPS (Qualifying Recognised Overseas Pension Scheme).

QROPS have experienced a year-on-year growth since they were introduced in 2006, and are set to become even more in demand as knowledge of their vast benefits increases.

These overseas pension schemes offer enhanced control to the member as the scheme is placed in their name, and not their (previous) employer’s, plus the member has more control over where their pension fund is invested. QROPS also have the potential to be significantly more tax efficient than pension schemes based in the UK; members can opt for their pensions to be paid out in the currency of their choice, therefore eradicating potential costly exchange rate losses; and they allow the individual to consolidate a number of different pensions.

Another key reason why I believe that demand for QROPS is on an upward trend is due to UK Chancellor George Osborne’s confirmation earlier this year that civil service pensions may not be able to be moved to another jurisdiction, except in exceptional circumstances, from April 2015.

As is becoming ever-more apparent, civil service pensions are shockingly underfunded and the UK Treasury is concerned that it will not find the money to enable the transfers, so the best action is to ban such transfers.

As such, for those expats who have UK pensions from their time working as NHS doctors and nurses, teachers or in the military, and who want to take advantage of the associated benefits of a QROPS, the clock is ticking. They know that the window of opportunity is likely to close and the chance will be gone forever.

Similarly, it’s been widely reported that the British government is preparing to prevent non-UK residents from offsetting income generated in the UK against their £10,000 personal allowance.

Historically, many expats have maintained some UK investments due to the tax advantages they have received. However, should this new rule come into effect, it can be reasonably expected that more and more expats would consider severing financial ties with the UK as there would be fewer than ever incentives for them to keep a financial base in Britain.

If this latest benefit is scrapped, there would be, typically, no real tax advantage for expats to invest in UK property or UK pension schemes.

Should they restructure their finances offshore, they will probably look to cut all what the Treasury is calling ‘strong economic connections’ to the UK — and this, for many, will include transferring their pensions out of Britain.

Another important reason for QROPS’ rising popularity is the unquestionable fact that they are now an entirely mainstream retirement planning option with the authorities and, therefore, increasingly so with the wider public.

This is evidenced by the news that earlier this year, the Financial Ombudsman Service (FOS), the UK watchdog, issued a ruling against an independent financial adviser for failing to inform a qualifying client about QROPS.  In order to be ‘independent’, advisers must offer the full range of suitable financial products available to clients, such as QROPS, as if not they will be categorised as ‘restricted’.

More recently, the British Government’s Department for Work and Pensions announced it is in discussions with HM Revenue and Customs to bring the rules governing QROPS into line with the new reforms to UK-based pensions, specifically regarding flexible pension access, that were announced by George Osborne in the budget.

With these four major reasons — growing awareness of the UK’s pensions crisis, the forthcoming ban on the transfer of civil service pensions, the proposed scrapping of a tax break, and authorities’ actions highlighting their maturing transfer market — the popularity of QROPS amongst the UAE’s financially literate expat population is likely to increase further, and at a faster pace than ever before.

The writer is the divisional manager Middle East, deVere Group. Views expressed by him are his own and do not reflect the newspaper’s policy.

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